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Tech layoffs are happening in an economy that is stormier than a year ago

STEVE INSKEEP, HOST:

Margaret O'Mara follows the tech world from her perch at the University of Washington. She is also the author of "The Code," a history of Silicon Valley, that I've been listening to as an audiobook while I run. So it's great to talk with you directly. Good morning.

MARGARET O'MARA: Thanks so much, Steve.

INSKEEP: Two theories we just heard there - one, that the tech industry sees a recession. The other is that they're just cutting to cut. How do you see it?

O'MARA: Yeah. Yes. And, I mean, the tech industry is part of the broader economy. And the seas are stormier than they were a year ago. We have rising interest rates. Low interest rates fueled a lot of the tech boom of the last 10 years because it put a lot of cash flowing into startups and as well into investment in big companies like Microsoft. And then the pandemic was this, as Bobby mentioned before, an extraordinary couple of years of tech dependence, right? People were working at home and learning at home. And everyone needed the platforms and the software that these large companies provide.

INSKEEP: If you are a tech executive, do you face special pressure because you are not just expected to profit, you are expected to profit ridiculously and grow massively all the time?

O'MARA: Yeah, I think that's right. We've seen this extraordinary run up in growth. You look at the charts of growth in employee headcount and growth in stock price and market capitalization. It just goes up and to the right for the last several years. It's been about a decade of extraordinary scaling up across the industry, not just the really big tech platforms, but everything. So that creates a standard that is - and, you know, tech has always been a very growth-oriented industry from the very beginning, from when they first started making microchips in Silicon Valley more than 50 years ago.

INSKEEP: Yeah. Of course, they always have to worry about disruption. If you're an existing company, you have to worry about who's going to come up behind you or beside you or invent a new product or reinvent the market. Is this a special moment when companies have to worry about disruption? They're struggling with AI, trying to figure out how to profit enough on that. They're worried about stagnant business models. They're worried about a lot of political pressures, a million things, I can imagine.

O'MARA: A million things. Yeah. You've always got to keep moving forward, something like a shark, right? And that is the great challenge, of course. These are the very, very large companies. They have hundreds of thousands of employees. They have very well-established and very lucrative businesses. Sometimes it's hard to really step back and invest in the new, new thing when you're making a lot of money with the old thing. This is a perennial problem in business, a dilemma, as they say. And it is a real - you know, I think that all of these companies, Microsoft, Amazon, you see these CEOs, you know, with these cuts. They're cutting some parts and not others. They're trying to figure out, what's the bet that I need to make on the next big thing? How do we catch the wave? And that's critically important.

INSKEEP: Do you feel that you understand the bet that Microsoft is making right now?

O'MARA: Yeah. Well, Microsoft is like a lot of these large companies. Because they're so large, they're doing a lot of things. And they're making money doing a lot of things. But you see sort of choices to cut certain places and not others - cut its HoloLens hardware operation, which does virtual reality headsets, you know, and then in turn, looking more towards AI. They just made this really critical investment in OpenAI, the creator of ChatGPT, which is that bot everyone's been talking about...

INSKEEP: Yeah.

O'MARA: ...That is apparently going to write all of my students' research papers from now on.

INSKEEP: (Laughter).

O'MARA: So there's - you know, there are choices that they're making. And they're trying to, again, sort of look into the future and figure out what's going to be the right way to go.

INSKEEP: Do you presume that AI is going to change the world, as well as this industry?

O'MARA: Well, look; AI has already changed the world. And computer scientists have been talking about it changing the world for a very long time. And we've been worrying about our future robot overlords since - gosh, since basically the first digital computer was invented in the 1940s, honestly. But, you know, yes, we're at this kind of critical point where there's so much data, partially because of all the things we all have been doing online and giving these platform companies so much information about us and photographs and things that - now machines have learned a lot. And they are able to do things with more accuracy. But I shall say, to all of my students and any other students out there, it's not quite the same - the chat bot can't write your papers as well as you can.

INSKEEP: (Laughter) Are you sure about that because...

O'MARA: Not quite yet. We're not there yet.

INSKEEP: (Laughter) Well, do you - does a company like Microsoft, which is practically an old-line company at this point, have a chance to get back on top if they were to dominate this new thing?

O'MARA: Well, yeah. Microsoft is really interesting, you know? It has already - it's kind of had this renaissance in the last decade under Satya Nadella, the current CEO...

INSKEEP: Right.

O'MARA: ...Who, when he came in, made a lot of job cuts. Actually, the last big layoff wave at Microsoft was in 2014. And Microsoft had made some bets, including on the Windows Phone, on mobile phones that - by acquiring Nokia, the phone maker, and decided that was not a good bet and moved into other things. So they've had this extraordinary growth spurt working on cloud software and hardware and a lot of things.

INSKEEP: Right.

O'MARA: So you know, don't count Microsoft or any of these companies out.

INSKEEP: Margaret O'Mara at the University of Washington. Thank you so much.

O'MARA: It's a pleasure. Thank you, Steve. Transcript provided by NPR, Copyright NPR.