Big Tech's Year of Efficiency
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Hi friends,
This past week, all of big tech announced their earnings for Q4 of 2023. While a lot of the discussion naturally was about AI and looking forward, with 2023 now under wraps, we now have some numbers to back up the theme of “efficiency” that these companies have been discussing over the last 12-18 months.
In this piece, I’ll discuss the trends in employee growth and how that compares to previous years for “big tech”1.
Lowering headcount across the board
Each of Meta, Amazon, Apple, Microsoft and Google had negative year over year employee growth rate, in stark contrast to the prior few years.
Meta’s employee base declined 22%, after growing 20% the prior year.
Even Netflix, which was the only of the 6 companies to grow the number of employees, drastically pulled back their employee growth rate from double digit percent to only 2%.
Mark Zuckerberg framed Meta’s year as:
2023 was our "year of efficiency" which focused on making Meta a stronger technology company and improving our business to give us the stability to deliver our ambitious long-term vision for AI and the metaverse.
In many ways, it applied to all the companies above.
Revenue growth remained strong
A lot of factors play into top line performance including the macro environment, but one thing was clear, the headcount reductions didn’t seem to hurt business to much at least in the short term. All companies other than Apple which only contracted slightly continued to grow revenue, and in some cases accelerated revenue growth from the prior year.
In part, this was driven by two things: companies by and large continued to invest in key areas through more ruthless prioritization and in some cases readjusting the skilsets within the company. Instead, reductions came through more ruthless prioritization of key areas and projects and moving managers over to individual contributors and reducing layers. Both Meta and Google discussed this:
First, product and process prioritization to ensure we have the right resources behind our most important opportunities and to reallocate resources where we can; second, organizational efficiency and structure. We're focused on removing layers to simplify execution and drive velocity. Both product prioritization and the organization design efforts result in a slower pace of hiring, as you can see with our headcount down year-on-year, reflecting the reductions we announced in the first quarter of 2023 and a much slower pace of hiring. We will continue to invest in top technical and engineering talent. - Ruth Porat, Alphabet CFO
In terms of investment priorities, AI will be our biggest investment area in 2024 -- both in engineering and compute resources. But I want to avoid allocating a lot of new headcount, so we’re going to continue deprioritizing a number of non-AI projects across the company to shift people towards working on AI instead. — Susan Li, Meta CFO
Large improvements in revenue per employee numbers in 2023
One measure of efficiency is to look at the revenue per employee and see how that trends over time, as the chart below shows.
Each of the companies had multiple years of declining revenue per employee growth since 2020, but all of them made big improvements in 2023 and grew the revenue per employee, none more stark than Meta, where revenue per employee grew almost 50% y/y!
With room for more improvements to go
The below table shows the absolute numbers in $ for the companies in 2019 and 2023.
Amazon aside, which is a bit skewed given the nature of their employee numbers including non corporate employees, most of big tech is in the $1M+ in revenue per employee range. Obviously, since they have different business models, its hard to read too much into relative differences.
But looking at the change in their own revenue per employee across the 4 year period of 2019 to 2023 paints a clear picture — many of them expanded hiring during the COVID boom, probably more so than they likely needed, and didn’t particularly get more efficient in terms of their return on employees. In 2023 they moved to correct that, but likely there’s more to come on that front. I won’t be surprised if we see a few more years of revenue growth outpacing headcount growth at these companies.
With companies acknowledging that in some cases slowing headcount growth, particularly through reducing layers even increased velocity, it’s likely they’ll try to maintain and continue on that front over the next few years.
Operating Leaner but Faster
What makes it likely that we’ve not seen the end operating as a more lean company, even though headcount will grow over the next few years is that many of them acknowledged that it’s improved how their company operated.
Google spoke about how they want to continue to remove layers to simplfy execution and drive velocity:
We're focused on removing layers to simplify execution and drive velocity. — Ruth Porat, Alphabet CFO
Meta talked about how they are already seeing better and faster execution and want to carry this forward even as they increase headcount in 2024.
I think that being a leaner company is helping us execute better and faster, and we will continue to carry these values forward as a permanent part of how we operate. — Mark Zuckerberg, Meta CEO
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I didn’t include NVIDIA and Tesla, but even there revenue per employee went up in 2023 (not surprisingly in NVIDIA’s case given the surge in revenue)