Big Tech's employee culls and 'year of efficiency' are working

• Tech's 'year of efficiency' is showing early signs of working.
• Microsoft, Google, and Meta all saw share price rises after reporting better-than-expected results.
• That follows a major retrenching by firms including mass layoffs and a focus on AI.

It's out with fake work and in with artificial intelligence.

The tech sector's recent bout of cost-cutting, from chopping back free breakfasts and lunches to axing thousands of workers, is not just about surviving short-term difficulties. It's about the current crop of tech CEOs showing investors they can run a tight ship well into the future.

And early signs suggest the strategy is a success.

On Tuesday, Microsoft and Google-parent Alphabet — two companies that have laid off 22,000 workers in recent months while also retrenching around artificial intelligence — reported first-quarter results that reassured investors.

The Redmond giant announced a year-on-year increase in revenue of 7% to $52.9 billion in the three months to March, while Google announced a 3% increase in revenue over the period to $69.8 billion. Their respective cloud businesses were key drivers of revenue growth, despite both conducting layoffs in those divisions.

Meta has also started to see some payoff from its recent efforts to curb costs and bet on AI too. The company beat analyst expectations of a decline with revenue climbing 3% year on year to $28.6 billion.

The positive results come after tech firms talked up 2023 as a year of efficiency.

In Davos this year, Microsoft CEO Satya Nadella said the company "will have to do more with less," while Alphabet's Sundar Pichai has made similar remarks.

"Sometimes there are areas to make progress [where] you have three people making decisions, understanding that and bringing it down to two or one improves efficiency by 20%," Pichai said last summer, per CNBC.

Mark Zuckerberg has talked of making Meta "leaner" and "flatter."

The jobs cull has been brutal, and affected workers may rightly place the blame on the CEOs who are now axing them.

Insider analysis has found many of tech's most brutal job-choppers expanded rapidly through the pandemic, at the cost of efficiency. For critics, much of the layoff drama could have been avoided, with firms over-hiring staff who ended up doing "fake work."

Layoffs coincide with a reorganizing around AI

The drop in efficiency has been compounded by the sudden explosion of generative AI tools, such as ChatGPT from the research startup OpenAI. The latter has demonstrated that it's still possible for a small, nimble, and risk-taking team to show up the tech giants.

The tech giants have, accordingly, moved quickly.

Microsoft laid off 10,000 workers in January. It also cemented an early lead in AI by partnering up with OpenAI and implementing GPT-4 into its search engine Bing, in what Satya Nadella described as "a new era of computing."

He told investors during Microsoft's earnings call on Tuesday that he believes generative AI has given them a "differentiated play" to go after new opportunities. "We feel we have a good lead, and we have differentiated offerings up and down the stack," he said.

Google laid off 12,000 workers earlier this year, refocused on its ads business, and has raced to implement rival AI technology into its core search engine.

For both companies, what will be reassuring is that gains and innovation can come despite a substantial drop in their worker numbers. Simultaneously cementing their places in the AI wars could set them up for years to come.