Spotify's CEO Says Laying Off Many Employees All at Once May Have Been a Mistake
Daniel Ek admits a classic error of making widespread job cuts to reduce costs, leaving daily routines in disarray.
Microsoft on Thursday said its profit rose 20% for the January-March quarter as it tries to position itself as a leader in applying artificial intelligence technology to make workplaces more productive.
The company reported quarterly net income of $21.93 billion, or $2.94 per share, beating Wall Street expectations for earnings of $2.82 a share.
The Redmond, Washington-based software maker posted revenue of $61.86 billion in the period, its third fiscal quarter, up 17% from the same period a year ago. Analysts polled by FactSet expected Microsoft to post revenue of $60.86 billion for the quarter.
Microsoft doesn’t spell out how much money it makes from AI products, including its flagship Copilot chatbot that can compose documents, write code, or generate images. But it has infused the technology into its main lines of business, such as cloud computing contracts and subscriptions for its email and other online services.
Quarterly revenue from Microsoft’s cloud computing business segment grew to $26.7 billion, up 21% from last year’s January-March quarter. Revenue from the company’s productivity services – such as its Office line of products – rose 12% to $19.6 billion.
Businesses pay Microsoft $30 per employee each month to add Copilot to a workplace subscription for its package of services that includes email and spreadsheets.
Gartner analyst Jason Wong said many of Microsoft’s customers have shown a strong interest in giving generative AI a try but don’t all have a solid plan for a practical use that justifies the cost.
“It’s still very early,” Wong said.
Microsoft’s generative AI products rely heavily on its multibillion-dollar investments in business partner OpenAI, the maker of ChatGPT. Microsoft also unveiled a new set of leaner homegrown AI language models called Phi-3 earlier this week and has been partnering with other startups — such as France’s Mistral — to offer a variety of AI systems through Microsoft’s Azure cloud computing platform.
Some of those partnerships are under regulatory scrutiny in Europe and the U.S. over concerns they might thwart competition in the AI industry.
While Microsoft continues to try to build enthusiasm for an AI-driven future, it still has challenges in shoring up its legacy computer services.
A federal cybersecurity safety board issued a scathing report earlier in April saying “a cascade of errors” by the tech giant let state-backed Chinese cyber operators break into the email accounts of senior U.S. officials. The report cited shoddy cybersecurity practices, a lax corporate culture, and a lack of sincerity about the company’s knowledge of the targeted breach.
It concluded that “Microsoft’s security culture was inadequate and requires an overhaul” given the company’s vital role in the global technology ecosystem.
Companies that rely on Microsoft for email and other workplace services are looking closely at how it responds, Wong said.
“Certainly there are clients that are interested in understanding how Microsoft goes forward to be more careful about their own internal policies when it comes to security,” he said.
Microsoft’s personal computing business, centered on licensing its Windows operating system, made $15.6 billion for the quarter, up 17% from last year.
Microsoft stock rose about 4% in after-hours trading Thursday.
The company said it expects to spend more in the coming months as it builds up the infrastructure for building and running AI systems.
“Near-term AI demand is a bit higher than our current capacity,” said Amy Hood, Microsoft’s chief financial officer, on an earnings call Thursday.
Spotify CEO Daniel Ek, a controversial figure, doesn't seem particularly good at laying off staff. In January last year, he bungled a memo explaining the reasons for laying off 6 percent of his company. Then in December, he was criticized for giving an example of how not to take responsibility as a leader after announcing another round of layoffs--this time for 1,500 staff members. Now it seems that Ek and his team got things much more wrong by laying off so many people all at once. December's layoffs caused a "significant challenge" to running the company, Ek had to admit on a call with Wall Street analysts this week.
Speaking on the earnings call, Ek tried to explain away the mistake, Business Insider notes. The significant number of layoffs disrupted Spotify's "day-to-day operations more than we anticipated," Ek said. Though Ek didn't elaborate on which parts of the business were impacted, it's an admission that the layoffs were mishandled. Losing roughly one in every seven staff members in one broad round of cuts could easily slash expertise and institutional memory at any company, as laid-off employees depart with their experience in critical business processes, as well as proprietary information, safely stored away in their minds.
While addressing investors on the call, Ek tried to allay blame, adding that there was "no question that it was the right strategic decision," and that "it took us some time to find our footing, but more than four months into this transition, I think we're back on track." You can see Ek is trying a positive spin on the admission. The numbers support this in part, as Business Insider explains the company reported a quarterly profit of about $210 million.
But Ek's words show that the layoffs impacted the day-to-day running of the company for four whole months, which is really a long time in business.
Over-enthusiastic cost-cutting was an accusation also leveled at Elon Musk last year, when he took an axe to Twitter's staff numbers after buying the company and fired up to 80 percent of employees. Musk, like Ek, faced criticism for how he handled the whole affair. The mass layoffs triggered many worries about Twitter's future, including concerns that users' safety was at risk because security experts were being fired. And in a bald admission of error, some people were even promptly rehired after being let go, once it became clear to Musk and the management team that they were in critical roles.
What you can learn from this is that while letting staff go to cut costs is never an easy task, you need to do two very important things right during the process. Firstly you have to handle it well on a personal level, lest you end up in the news or legal trouble. Second, you have to make sure you're not going to impact the day-to-day running of your company by getting rid of experts on hard-won company "lessons," or people with expertise you actually need.
Google’s corporate parent Alphabet Inc. on Thursday released a quarterly report showing it’s still reaping double-digit revenue gains from its digital advertising empire while sowing potentially lucrative new ground in artificial intelligence.
The results for the first three months of the year provided the latest evidence that Google has regained its momentum after an unprecedented downturn in 2022 coming out of the pandemic.
Alphabet punctuated its renewed vigor by also disclosing plans to begin paying shareholders a quarterly dividend for the first time since Google went public 20 years ago. It’s something that two older technology powerhouses, Microsoft and Apple, have been doing for years. Alphabet’s quarterly dividend of 20 cents per share will be paid June 17.
Investing.com analyst Thomas Monteiro praised the decision to pay a dividend as “a breath of fresh air for the tech market” that should also make investors more likely to support the increased amounts that Google will likely need to spend on developing AI products that could take years to pay off.
In the January-March period, Alphabet’s revenue rose 15% from the same time last year to $80.54 billion, which surpassed the projections of analysts surveyed by FactSet Research. It marked the fourth consecutive quarter of accelerating year-over-year revenue growth for the Mountain View, California, company.
Alphabet earned $23.66 billion, or $1.89 per share, a 57% increase from last year’s comparable quarter. The earnings per share also eclipsed the analyst estimates that steer investors.
“We are incredibly well set up, given the innovation path we are on,” Alphabet CEO Sundar Pichai told analysts during a Thursday conference call.
The company’s stock price soared by nearly 13% in Thursday’s extended trading after the news came out. That reaction was a stark contrast to how investors responded to a report covering the same quarter from Facebook’s parent. Meta Platforms also reported a surge in ad revenue but provided a disappointing outlook for the April-June period, while also warning its profits would be squeezed by increased spending on AI technology.
If Alphabet’s shares move in a similar trajectory during Friday’s regular trading session, the stock will hit a new all-time high that will push the company’s market value above $2 trillion.
As has been the case throughout the company’s history, most of the money came in through a digital advertising network anchored by Google’s dominant search engine. Google’s ad revenue totaled $61.66 billion in the first quarter, up 13% from last year.
Despite the ongoing success, Google is facing dual threats that could threaten its future growth.
The U.S. Department of Justice is taking aim at its search engine in a lawsuit alleging the company has abused its power by negotiating lucrative deals with Apple and other companies to give it an unfair advantage over potential rivals, stifling innovation as well as competition.
After a two-month trial last fall, the closing arguments in the biggest U.S. antitrust case in a quarter are scheduled to unfold next week and a federal judge is expected to rule whether Google has been breaking the law by the end of this year.
People also may not need to rely as much on Google’s search information to answer their questions and find other information as the artificial intelligence technology that Google, Microsoft, and other industry stalwarts are building becomes more sophisticated. If AI gradually supplants the role that Google’s search engine has filled for the past quarter century, Alphabet’s ad sales also could dwindle.
For now, AI is helping to fuel rapid growth in Google’s cloud computing division, which saw its first-quarter revenue climb 28% from last year to $9.57 billion.
But the cloud division also has become a tinder box for Google management as dozens of employees have staged protests over a $1.2 billion contract with the Israeli government that includes AI technology as part of Project Nimbus.
The protesting employees believe Project Nimbus is being lethally deployed by the Israeli military in the Gaza war — a contention Google has denied. The divisive issue came to a head earlier this month during an employee sit-in at Google offices in Sunnyvale, California, and New York that resulted in more than 50 workers being fired.
Alphabet ended March with nearly 181,000 employees, a decrease of nearly 10,000 workers from the previous year. Management has cycled through several rounds of mass layoffs to help boost profits while Google ramps up its spending on AI technology.