Google layoffs set the stage for AI battle among titans

A YEAR ago, Google’s chief executive officer Sundar Pichai told employees that 12,000 of them, representing 6 per cent of the workforce, were getting laid off.

The company had hired when conditions were rosier and had to backtrack, he said in a mass e-mail.

The retrenchments this time are different. This year, when 2024 rolled around, no such e-mail came. Instead, Google began quietly cutting hundreds of workers across various functions.

Unlike the round of mass layoffs in January 2023, the cuts were more targeted. People in the core engineering division, and those working on augmented reality (AR), the voice assistant product and hardware products were affected.

Days later, Google said that hundreds in the advertising sales team would be let go – more signs that recent tech retrenchments have been less about cost-cutting and more about shifting priorities.

Tech companies have been reorganising their businesses as they use more artificial intelligence (AI) tools and automation to drive efficiency. Duolingo, the developer of an app that teaches language, cut 10 per cent of its contractors partly due to automation.

Europe’s biggest software company SAP has a US$2.2 billion restructuring plan that will affect 8,000 roles, as it focuses on growing AI-driven business areas.

The biggest tech companies, such as Microsoft and Amazon, have zeroed in on developing generative AI – a type of AI that can create original content such as text, images or music. This engine powers products such as the chatbot ChatGPT.

But macroeconomic conditions are still shaky. Several companies outside of Big Tech, from media to game makers, have also been slashing jobs.

Tech companies have no choice but to preserve margins while rerouting investments to high-growth areas such as AI. Google’s Pichai last week warned employees more layoffs are in store, though not at the scale of the 2023 cuts and not for every team.

Made the wrong bets?

Increasingly, we are seeing a trend of companies having to rethink their businesses and long-term investments. Google began working on virtual reality (VR) and AR years ago, thinking the industry would take off.

Yet, a decade after the pioneering launch of Google Glass – smart glasses that display information in the wearer’s field of vision – the AR and VR industry still hasn’t seen the kind of mainstream boom companies had hoped for.

Big Tech has poured billions of dollars into developing gadgets and headsets. Microsoft has its HoloLens. Meta has its Quest series of headsets. Apple’s Vision Pro finally launches next month.

But development of the technology has been hindered by an inability to crack the mainstream market, as well as commercial and regulatory roadblocks.

Sales of VR headsets and AR glasses in the United States fell nearly 40 per cent to US$664 million in 2023, according to data as at Nov 23 shared with CNBC by research firm Circana.

Investments in voice technology, such as Amazon’s Alexa and the Google Assistant, haven’t yielded much, either. Just 21 per cent of online US consumers are comfortable using voice to access information, said a 2022 report from Forrester.

Yet, when OpenAI launched ChatGPT, it set the consumer market on fire. The use cases were immediate and varied. No incentives were needed – users flocked to it because it was helpful, fun and simply mind-blowing.

People couldn’t wait to tell their friends about ChatGPT, or post online about all the things they managed to do with it, or even how they had gamed the system.

Companies such as Google and Apple used to spark this sort of giddy excitement. Now, it seems the market has decided the next paradigm shift will be in AI.

Analysts at Jefferies have urged investors to watch out for AI-driven catalysts that could have an impact on shares in 2024. Last year, companies including Microsoft, Google and Amazon benefited from this. Meanwhile, shares of online learning platform Chegg tanked nearly 50 per cent last May after it admitted that ChatGPT was affecting its market share.

Google has been working on AI for years, and recent seismic events in the market have reaffirmed the need for dominance as its core search product faces an existential threat.

At Alphabet’s latest earnings call in October, analysts peppered Google’s management with questions about generative AI – from how AI-driven search may be structured for the user, to the consumer uptake for early AI efforts.

2024 could be a major year for product launches and investments as the battle between titans and upstarts heats up. Google recently launched Gemini, its largest and most powerful model yet, while Meta CEO Mark Zuckerberg said that the company will build a “massive infrastructure” to support its AI road map. Meta wants to achieve the Holy Grail that is artificial general intelligence, a state where AI can perform any task a human is capable of.

As companies make their calculated moves, investors will expect greater clarity on the incremental return on such efforts, how differentiated the products are, and how companies will manage efficiency as the capital intensity of the business builds up. These are looming questions Big Tech will need the answers to as they take everyone down the rabbit hole of AI.