The State of the Tech Industry in 2023

The State of the Tech Industry in 2023

The tech industry has recorded almost uninterrupted growth for most of the past two decades. But things have started to shift. Twitter laid off 50% of its workforce following Elon Musk’s takeover. Meta will be laying off around 13% of its total staff. And Amazon has announced 10,000 employees will be let go. These are just some of the global tech companies that are reducing their workforces, sparking concerns that the industry – and those who work within it – may be in trouble.

But what’s behind these massive layoffs and what does this mean for tech talent? Here, we explore what’s caused this shift and what is ahead for the tech industry in 2023.

How did we get here?

The tech industry has seemed untouchable for so long that stories of workforces suddenly being drastically slashed may at first appear shocking. But when we look at where the industry was 20 years ago, it starts to make sense. Back then, there was so much happening in the industry that was at the forefront of innovation. Social networks, search engines and streaming services were just taking off. Soft-ware-focused entrepreneurs and start-ups were rapidly driving progress and the attitude was “grow first, profit later.”

Fast forward to the 2010s, and those first innovative ideas had become mature industries. This is when start-ups like Uber, Bird and Lime stepped onto the playing field, disrupting traditional industries with smartphone apps and related technologies. These start-ups stuck with the “grow first, profit later” approach. While this worked for Facebook and Google starting out, who forged new software-based industries with minimal marginal costs, it wasn’t sustainable for companies breaking into existing industries, whose profits could never equal those of the tech behemoths.

However, healthy initial investments led to a boom in the industry, aided by low interest rates and high stock valuations. The onset of COVID-19 saw a boom yet again with the increase of stimulus spending and the massive shift to ecommerce and remote work. Then came 2022. Early in the year, consumer behavior changed and fears of a recession began to rise, which meant a new approach was required. The focus started to shift toward profitability over growth.

What’s happening in the tech industry today?

With growth across the tech industry peaking in 2021, companies in the sector needed to take on more skilled tech workers to keep up with demand. As we emerge out of the pandemic, this growth has slowed and predictions of a recession are rife, driving these same companies to cut costs quickly. And the simplest way to cut costs? Reduce the workforce.

Seth Robinson, Vice President for industry research at CompTIA, sums it up: "Layoffs that have taken place in the tech sector are largely a function of strategic correction.”

This “strategic correction” comes on the heels of a fear of losing out on tech talent, especially over the over the past two years, which led to many organizations hiring highly skilled – and highly paid – workers, rather than focusing on reskilling or upskilling existing employees. The desire to plug skills gaps quickly to keep pace with rapid innovation further accelerated this hiring spree.

“That’s how you get that highly bloated middle,” explains Tony Lysak, CEO of The Software Institute, “60% to 80% of your tech workforce is highly paid engineers, instead of having a more balanced workforce where 30% to 40% of workers have that zero- to two-year’s experience.” 

Now, to deal with this imbalance and the large proportion of highly paid tech workers in today’s challenging financial climate, organizations are having to make the huge layoffs that are currently making headlines. After all, drastic times call for drastic measures. But this situation can’t last forever.

What does this mean for tech talent and the future?

Tech industry layoffs are likely to continue as organizations prepare for 2023. But layoffs are not the only sign that the tides are turning in tech. Companies are also doing away with the lavish perks synonymous with well-paid tech jobs. Stock options commonly offered to Big Tech employees are losing their appeal as share prices fall. And due to slowing growth, skilled tech workers can’t rely on being snapped up by competitors if they get laid off.

Big Tech simply isn’t as dynamic anymore and the immense growth seen in the early years of companies like Google and Facebook may not be seen again. However, this doesn’t mean tech workers will be left high and dry in 2023. We are living in a digital skills crisis, where demand for tech talent is high: every organization across every industry now needs this talent to remain competitive.

Peter Kafka, Executive Editor at Recode, emphasizes the opportunities for tech workers outside the industry.  “I think it’s going to be harder for Big Tech companies to get the best and brightest, the most ambitious people,” he explains, “because those people will look around and say, ‘We as employees, we want to go to places where there’s a lot of growth. That’s fun for us personally. There’s also a lot of financial upsides for us.’”

While 2023 will certainly be a year of challenges within the tech industry – slowing growth, rising interest rates and falling share prices – for tech workers, the future still looks positive. Tech companies will need to rethink hiring processes, focusing more on reskilling and upskilling their workforces to remain competitive, profitable and sustainable. Tech talent is still key within the world of work and, with growing opportunities beyond the tech industry, this talent will remain integral through 2023 and into the future.

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