The Have Lots & the Have Nots

It was the best of times, it was the worst of times... On one hand, tech companies are paying record amounts of money to bring talent to their teams (or to retain them). On the other, there are massive layoffs happening at various tech companies – sometimes at the same companies paying those record sums to others! It's just an absolutely wild dichotomy. And naturally, AI is behind it all.

Amazon, Google, Meta, and Microsoft have all had layoffs in recent months while at the same time also engaging in the crazy talent arms race that's happening in AI. These companies are essentially saying to some employees that they're so valuable that they're worth paying not just a lot of money, but more money than basically anyone in the world gets paid – including, often, their own CEOs. And yet to others, they're basically saying they're worthless – I mean literally not worth paying anything to any longer. Just to put it in directionally stark terms: some employees are worth $100M a year while others are worth $0 a year.

There have always been pay discrepancies at companies – and it has long been most pronounced at tech companies because engineering talent is so vital to the literal job to be done. And yes, there exist the mythical "100x engineers" who can produce work that may actually be worth more than 100 other people because no other people could simply do the same work.

But AI has taken this up several notches. We now effectively have "100Mx engineers" – people so valuable to a company that there more or less is no limit to the amount they might be worth. I would say maybe a company's overall market cap – but there would be push back against that because some would say that this talent can likely raise that market cap by billions. I mean, at least one report has Mark Zuckerberg throwing out the "B" word in such talent discussions. As Berber Jin, Keach Hagey, and Ben Cohen reported a couple weeks ago in The Wall Street Journal:

In the spring, Zuckerberg approached OpenAI’s chief research officer, Mark Chen, for a casual catch-up and ended up asking him for advice on how to improve his company’s generative-AI organization. Given how much money Meta was already spending on hardware and computing power to train AI—more than 100 times what it was spending on humans—Chen suggested that Zuckerberg might want to invest more in talent, according to people familiar with the conversation. 

Zuckerberg asked Chen if he would consider joining Meta—and what it would take to bring him aboard. 

A couple hundred million dollars? A billion? 

Chen demurred, saying he was happy at OpenAI. But the conversation helped plant the seeds of an idea.

Soon, Zuckerberg was offering not quite a billion dollars – well, that we know of – but several hundred million dollar pay packages. And just as remarkably, many of those 'Godfather' offers have been turned down, it seems. Though not all of them. And without question, Meta is having some level of success in simply throwing money at their problem. In particular with money thrown towards OpenAI employees not named Mark Chen (which he is not happy about, naturally).

And actually, if we include the Scale AI "hackquisition" in these equations, Zuckerberg definitely is paying some of the talent billions – namely, the CEO he poached in Alexandr Wang. But in that regard, the same is true of Google. With similar situations within Amazon and Microsoft too thanks to these faux deals.

Again, these are the same companies also doing layoffs while paying record amounts to others they now employ. Microsoft, having just done a fresh layoff of 9,000 employees, has cut 15,000 jobs so far this year – just months after having paid $650M to hackquire the CEO of an AI startup and some of his staff, thus kicking off the trend in tech. And to add insult to the injury, Microsoft is making these cuts amidst record numbers from their own financial perspective.

It's a dichotomy so overt that CEO Satya Nadella had to face up to the elephant with an internal memo (which Microsoft also published on their blog, undoubtedly knowing that it would leak) two days ago. Here's how Nadella kicked off his memo:

Before anything else, I want to speak to what’s been weighing heavily on me, and what I know many of you are thinking about: the recent job eliminations. These decisions are among the most difficult we have to make. They affect people we’ve worked alongside, learned from, and shared countless moments with—our colleagues, teammates, and friends.

I want to express my sincere gratitude to those who have left. Their contributions have shaped who we are as a company, helping build the foundation we stand on today. And for that, I am deeply grateful.

I also want to acknowledge the uncertainty and seeming incongruence of the times we’re in. By every objective measure, Microsoft is thriving—our market performance, strategic positioning, and growth all point up and to the right. We’re investing more in CapEx than ever before. Our overall headcount is relatively unchanged, and some of the talent and expertise in our industry and at Microsoft is being recognized and rewarded at levels never seen before. And yet, at the same time, we’ve undergone layoffs.

This is the enigma of success in an industry that has no franchise value. Progress isn’t linear. It’s dynamic, sometimes dissonant, and always demanding. But it’s also a new opportunity for us to shape, lead through, and have greater impact than ever before.

That last paragraph in particular is a doozy.¹ He's essentially saying that what Microsoft has done in the past doesn't matter for the future – which is, of course, not entirely true as the continued trouble with bundling that Microsoft runs into can attest, but you get the sentiment he's going for here. And in the Age of AI, Nadella clearly believes this is more true than ever before. They simply cannot afford – quite literally – to hold on to the past, including, sadly, some employees who helped build that past. Because they'll be baggage that's not needed on this next journey.

Microsoft, of course, isn't framing it exactly like that. But I'm translating it like that for you, because that's what they mean. And they're hardly alone. It's the same reason for layoffs at the other tech giants as well even in this time of seeming strength for the industry. Everyone knows that it's better to do hard things when you can choose to from a position of overall strength, rather than being forced to in times of trouble. And the AI disruption is giving all of these companies the cover they need to make changes. It's harsh but true.

And the CapEx. Oh, the CapEx. Each and every earnings report for these companies, it just keeps going up. Google was the latest this past week, raising their estimated spend from $75B to $85B for the year. And it may very well go up again!

Again, this flys in the face of those layoffs. The companies are spending upwards of $100B a year on servers and chips for AI yet they can't afford the salaries of a few thousand employees? What's the max that could cost them? (ChatGPT tells me the number for the 15,000 laid off Microsoft employees is something like $2.25B a year – which includes benefits into the equation, and clearly is more of an "average" employee at Microsoft in terms of comp, not an AI employee!) Of course, that's not the real equation here, because Microsoft (and the others) can afford these employees. They choose to not afford these employees under the cloud of future AI disruption. Maybe that's prudent, maybe it's not. But it's happening.

And there's other math at work here too.² Including, perhaps the optics kind – where these companies get to show Wall Street that they're being at least somewhat fiscally prudent even in the face of spending these fresh billions.

To bring it all back around, those billions being spent on CapEx frame this quite differently in relative terms. Said another way: if you're spending upwards of $50B - $100B a year on AI infrastructure, what's spending $100M or $200M or yes, even $1B on the talent required to make it actually work? Meta has already tried once to ramp infrastructure spend without – in hindsight – the right team (and perhaps the right strategy). They were "cheaping out" on the talent, is one way to think about it, I suppose.

Said yet another way: that $100B spent on CapEx may as well be worth $0 if you don't have the right team in place to actually leverage that technology and built something of immense value. Meta isn't spending that money just to spend it, they're spending it to try to make future Meta billions more in profit a year. $100M+ AI talent – a market they're setting, of course – may or may not be what is standing in their way, but they literally can't afford for that to be what's holding them back.

But they can afford, again, quite literally, to let go of any employees who are holding them back in so far as they were working on things that are no longer valuable to the company on this new mission. It's brutal, but it's business.

Which is to say, get as much AI-related work on those resumes as you can, fast.³

¹ And, oddly, only the second strangest "enigma" reference in recent weeks.

² And yes, a lot of the recent Microsoft lay-offs were around Xbox as well, which continues to be a sort of mess from a business and strategy-perspective for the company – and certainly not helped by a $69B acquisition!

³ Ideally, perhaps, not resumes built by AI, but I'm honestly not sure how much that matters.