Tech’s new business model: ‘Do more with less’

It all comes after Pichai announced plans last year to “make the company 20% more productive.” 

On Alphabet’s first-quarter earnings call, executives discussed efforts to allocate resources to key areas such as cloud, AI, hardware, YouTube and search. Schindler highlighted the “ability of Search to surface demand and deliver a measurable ROI in an uncertain environment,” preceding the company’s announcement Wednesday it would bring AI into Google Search. 

Besides the January layoffs, which hit about 12,000 employees, or 6% of Google’s workforce, Pichai mentioned more structural changes on the call, including bringing AI-focused groups Google Brain and DeepMind under one umbrella with “pooled computational resources.” 

“Beginning in the second quarter of 2023, the costs associated with teams and activities transferred from Google Research will move from Google Services to Google DeepMind within Alphabet’s unallocated corporate costs,” Pichai said. 

Alphabet also plans to look at ways to potentially reduce its real estate portfolio and save on compute costs, in part through efforts to improve training efficiency for AI models and by utilizing data centers more fully, Pichai said. The company will also move to better manage supplier and vendor costs, plus use AI and automation to “improve productivity across Alphabet,” said Ruth Porat, chief financial officer. 

“As we look toward a future where chat becomes a new way for people to seek information, consumers have real choice in business model and modalities with Azure-powered chat entry points across Bing, Edge, Windows and OpenAI’s ChatGPT,” Nadella said on the call. “We look forward to continuing this journey in what is a generational shift in the largest software category: search.” 

In March, Microsoft announced it would cut 10,000 jobs, or nearly 5% of the company’s workforce, following executive comments in late 2022 regarding the importance of cost cuts and productivity boosts.

“We’ve been through almost a year where that pivot Satya talked about — from we’re starting tons of new workloads, and we’ll call that the pandemic time, to this transition post — and we’re coming to, really, the anniversary of that starting,” CFO Amy Hood said on the latest earnings call. “We’re continuing to set optimization, but at some point, workloads just can’t be optimized much further.” 

CFO Brian Olsavsky said on the call the environment of pesky inflation and economic uncertainty is leading customers to try and “stretch their budgets further,” adding it’s “similar to what you’ve seen us doing at Amazon.” 

In recent months, the company has reduced its workforce by 27,000 people, including cuts at Amazon Web Services, Twitch, the devices business and advertising unit, as well as in human resources and elsewhere. Amazon also implemented hiring slowdowns or freezes for areas such as retail and Amazon Prime, and slashed budgets for more experimental projects such as delivery robots. 

“We took a deep look across the company and asked ourselves whether we had conviction about each initiative’s long-term potential to drive enough revenue, operating income, free cash flow and return on invested capital,” CEO Andy Jassy said on the earnings call.

Jassy said that led the company to close its physical bookstores, four-star stores and businesses such as Amazon Fabric and Amazon Care, “where we didn’t see a path to meaningful returns.” He added Amazon has also altered some programs, such as eliminating free shipping for grocery orders over $35.

Meanwhile, Amazon is going all in on large language models amid the AI boom, as well as investing in cloud infrastructure, chips, regional fulfillment centers and eventually a business that allows enterprise clients to customize Amazon’s AI models for their own purposes. 

“Every single one of our businesses inside Amazon [is] building on top of large language models to reinvent our customer experiences, and you’ll see it in every single one of our businesses, stores, advertising, devices [and] entertainment,” Jassy said. 

Executives said economic conditions affected advertising and mobile gaming, and they reiterated the company’s decision to direct spending toward revenue drivers. 

“We are closely managing our spend by remaining focused on long-term growth with continued investment in innovation and product development,” CFO Luca Maestri said on the call. 

Apple, which has thus far managed to avoid significant layoffs, also mentioned plans to continue to improve its supply chain operations. 

“We’ll continue to look for ways to optimize the supply chain based on what we learn each and every day and week and so forth,” CEO Tim Cook said. He added despite the “parade of horribles” from the Covid-19 pandemic and chip shortages to the economy, “the supply chain has been incredibly resilient.” 

The company has taken steps in the past six months to delay bonuses, push back less-urgent project production, decrease travel budgets and pause hiring in some departments. 

Since November, the company has announced 21,000 job cuts and a hiring slowdown. At the same time, Zuckerberg used every opportunity available to emphasize investments in AI, which the company says will improve internal productivity and advertising efficiency.

On the company’s first-quarter earnings call, executives homed in on Meta’s plan to deprioritize some nonkey revenue drivers and narrow its focus, including to AI-related sectors such as the ranking system for ads, recommendation engines for the feed and Reels, plus a significant push toward generative AI. 

“I think this is literally going to touch every single one of our products and services in multiple ways — and this is just a very big wave and new set of technologies that’s available, and we’re working on it across the whole company,” Zuckerberg said. 

On the same subject, CFO Susan Li added, “We’re still in the beginning stages of understanding the various applications and possible use cases. And I do think this may represent a significant investment opportunity for us that is earlier on the return curve relative to some of the other AI work that we’ve done.”

However, Zuckerberg was insistent the company’s name change to Meta in late 2021 wasn’t done in haste. Meta lost another $3.99 billion in its Reality Labs division, which houses its metaverse investments, and Zuckerberg said on the call, “we’ve been focusing on both AI and the metaverse for years now and we will continue to focus on both.”

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