With "significant" to "massive" layoffs happening at venture-funded and to some extent now at profit-making technology firms, one is reminded we saw something similar happen back in 2001 and 2008, all times of economic distress and tech bubbles.
But layoffs are only a manifestation of a trend; a sign or symbol, not the underlying reality. Then, as now, apparently, the problem is a shutoff of the funding valve. For more-established firms, the problem is a significant increase in borrowing costs.
Where we had been in a regime of effectively zero interest rates, we now are entering a period where borrowing has real costs. That tends to increase business risk for growing firms that cannot self finance.
So some think we are seeing another tech deflation event, a bubble-bursting destruction of value in the technology segments of industry.
In the run up to 2001, the start-up I worked at could literally not find people to hire, as has been the case recently in 2021 and earlier in 2022. That reversed in the dot com meltdown after early 2021. It appears something similar is happening in 2022.
Though it is not clear whether we are headed for something like the wipeout of firms in the dot com bust, some think it is possible. The difference now is that many firms yet to hit cash flow breakeven or actual profits have business models that work. Back in 2001 some firms had not yet discovered a viable business model.
That is much less an issue in 2022. Also, firms seem to be reacting faster than they did in 2001 to a change in business dynamics.
Still, a period of some technology firm consolidation appears to be coming, bigger than the normal consolidation that happens for fast-growing segments of the industry.
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