Alison Weissbrot
Jan 29, 2023

Agencies will feel impact of tech layoffs, but carnage won’t be as bad

Tech companies laid off thousands of workers in the past month, casting a dark shadow over the white-collar labor market — but the impact on the agency sector is unlikely to be as grim.

Agencies will feel impact of tech layoffs, but carnage won’t be as bad

Much ink has already been spilled about the roughly 65,000-plus employees that have been laid off from Big Tech companies in the first few weeks of 2023.

The largest cuts came at the biggest companies. This month, Amazon said it would cut 18,000 roles from its workforce, Salesforce confirmed it would lay off 10% of its staff and Microsoft announced plans to cut 5% of its employees – 10,000 people. 

Just this week, Alphabet said it would eliminate 12,000 staffers, or 6% of its workforce. Spotify said it would eliminate 6% of its staff and that Dawn Ostroff, its chief content and advertising business officer, would also leave.

The startlingly deep cuts began in late 2022, when Meta let go of 11,000 people, or 13% of its workforce. Other companies, including Snap, have also shed staff since late last year.

Any staff reductions on this scale should make advertising agencies jittery, especially those that rely heavily on the tech sector, or are banking their business on a Big Tech client. Not only are these the economy’s largest brands (i.e. very lucrative advertising and marketing services accounts), but trouble in Big Tech could also spell trouble for the rest of the economy, given the sector’s influence and scale.

Still, despite these large-scale reductions, there are signs the advertising industry is in a healthier place.

Experts agree cuts in the tech sector are in large part due to mass overhiring during the pandemic, when their stocks were at historic highs and they incorrectly assumed people would never go back to in-person, outdoor activities in the same way. Amazon added half a million corporate workers between Sept. 2019 and Sept. 2022. Meta neatly dubbed its headcount between March 2020 and late 2022.

But as pandemic restrictions eased, the party has come to a screeching halt. Amid rising inflation and interest rates and fears of a recession, tech companies' stock valuations have taken a beating, erasing the gains they made the two years prior and necessitating serious cost-saving measures.

In other verticals, advertisers are certainly cautious about the economy, and some are beginning to tighten their belts, evidenced by recent layoffs in the media sector. Some are even reporting layoffs, such as Hasbro, which announced this morning it would cut 15% of its staff after reporting weak 2022 earnings.

But other major spenders, including Kimberly-Clark and Procter & Gamble, have voiced their commitment to continuing to invest in their brands through the downturn on recent earnings calls. In other sectors, such as automotive, the mass rebrand to electric vehicles is underway, and with it tons of communications and marketing opportunities. And QSR brands including Chipotle, Taco Bell and Starbucks are seeking to hire thousands of workers amid ongoing labor shortages, signaling strong demand for their products.

And even in tech, amid the bloodshed, there are bright spots. Snap this week, for instance, released a multimarket global brand campaign including a TV spot airing during and after the NFL AFC Championship game – showing continued appetite to spend on marketing despite recent turbulence.

Agency success is highly dependent on marketers’ appetite to invest. The patchiness of this recession is, in a way, good news for agencies – especially those with well-diversified client bases. There isn’t a mass cutback across the board, so much as a rightsizing of what happened to the economy when the world shut down.

In some ways, tech layoffs could actually be an opportunity for the advertising sector, which has been leaking talent to high-paying Silicon Valley firms for years. The cuts may not just make more talent available to the agency market, but also deflate the salaries agencies have had to compete with to retain workers.

I’m not saying everything is all tailwinds for the ad industry – far from it. There will be tons of advertiser caution this year, especially in the first half. Insider Intelligence cut its global ad forecast for 2023 by $5 billion late last year as the economy began to turn, indicating there will be bumps in the road ahead.

But the forecast ends with a note of optimism: “Advertisers that can afford to keep spending, will.” And there are certainly advertisers with stories to tell looking to take advantage of Big Tech’s receding dominance.

Source:
Campaign US

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