What Spotify’s Layoffs Tell Us About the Future of Work
Spotify piloted an unprofitable business model. Now it's looking to maximize efficiencies from human capital. Will other unprofitable businesses follow suit?
Earlier this month, Spotify announced a massive reduction in its workforce to the tune of 17%. This is Spotify’s third round of layoffs this year alone.
While this shouldn’t come as a surprise given the recent number of layoffs in the tech sector, what is surprising is that this round of layoffs came after Spotify posted its first profitable quarter since 2021.
When business is booming, employers should be retaining workers, right?
Not necessarily.
One look at a company’s business model will tell you everything you need to know about how viable employment is with that company. Unfortunately, most of the business models that have proliferated in tech aren’t conducive to stable, long-term employment.
This essay is going to analyze statements made by Spotify’s CEO that justify the company’s posture on its workforce. It reveals how C Suite executives are thinking about the future of work and how this will likely shape other sectors of the economy in the years ahead.
Tech has long had more workers than it needs. This has created an illusory bubble around the employment opportunities it offers.
Over the summer, Business Insider reported that a number of recently laid-off Meta employees had actually been hired to do fake work. According to one ex-Meta employee:
“I am one of those employees that was kind of hired into a really strange position where they immediately put me into a group of individuals that was not working,” Levy said in a TikTok posted Saturday. “You had to fight to find work.”
In the video, which has garnered over 870,000 views, Levy said she felt Meta was hiring people so other companies couldn’t have them.
The logic behind tech’s post-pandemic overhiring spree was to keep employees out of the hands of competitors. If a worker was on Meta’s payroll, it meant they weren’t able to leverage their talent to help a competitor, like Google, to get ahead.
This, combined with access to cheap capital, made it easy for tech companies to procure human capital. The result: the perception of an abundance of high-paying jobs.
The problem is that work in tech isn’t necessarily aligned with the actual needs of the market. As laid-off tech workers struggle to find new jobs, healthcare continues to be plagued by chronic worker shortages.
There is work that needs to be done and some industries need more workers to do that work than is currently available. But those opportunities aren’t aligned with what the labor market wants. Many of the job opportunities that are available are too demanding and don’t provide compensation that is commensurate with the expectations of workers employed by tech companies.
Are we in a labor bubble?
That increasingly seems to be the case. There’s a widespread belief that high-paying jobs for low-value work will continue to exist in perpetuity. The laws of economics tells us that there is no such thing as a free lunch. You can’t have your cake and eat it too. Spotify’s recent round of layoffs reveals that the party may finally be coming to an end.
Spotify’s CEO indicates tech companies are aware that the nature of work is changing. They are looking to shed deadweight, fundamentally changing the availability of employment opportunities moving forward.
Unlike a number of significant layoffs that have happened this year, the layoffs at Spotify came with some context. To announce the layoffs, Spotify published an update regarding “organizational changes” to its website.
In the update, CEO Daniel Ek justified the layoffs by saying workers weren’t as efficient as Spotify needed them to be:
When we look back on 2022 and 2023, it has truly been impressive what we have accomplished. But, at the same time, the reality is much of this output was linked to having more resources. By most metrics, we were more productive but less efficient. We need to be both. While we have done some work to mitigate this challenge and become more efficient in 2023, we still have a ways to go before we are both productive and efficient. Today, we still have too many people dedicated to supporting work and even doing work around the work rather than contributing to opportunities with real impact. More people need to be focused on delivering for our key stakeholders — creators and consumers. In two words, we have to become relentlessly resourceful.
This statement shows that tech executives aren’t necessarily looking at opportunities to grow or generate revenue, but rather, they’re looking for operational efficiencies as the most viable path to profitability. They are trying to figure out how to best allocate the least amount of human capital possible in order to provide maximum value for all stakeholders, including consumers and shareholders.
The problem is human capital is inherently expensive. There’s a lot of overhead that comes with payroll, PTO, and health insurance. This is why companies like Chipotle and Amazon are aggressively eliminating humans from the equation altogether. It might not be the best solution for workers, but it is the most efficient solution for profit-seeking executives.
For much of the last decade, tech companies have been focused on growth at any cost. They’ve been playing a game to spend as much money as they can to either acquire new users or to build new features for their core products. This meant hiring workers to do work that wasn’t necessarily connected to improving the bottom line.
With capital costs rising, executives can no longer afford to play this game.
Instead, they have to play a new game. One around finding greater efficiencies. Companies are streamlining operations while looking for workers who can accomplish more for less.
This mission doesn’t align with most workers. They don’t want to do more. They just want to get paid.
Final takeaway.
We’ve seen a lot of layoffs recently. Google, Meta, and Amazon have been some of the biggest headliners. The recent layoffs at Spotify suggest that workforce deflation will continue to be the norm moving forward.
What’s important to recognize is that layoffs aren’t just happening for the sake of reducing overhead. It’s a deliberate attempt to seek out efficiencies as the path to profitability moving forward. Companies aren’t focused on using their human capital to generate more revenue. Thanks to cheap capital, they never had to build business models around sustainable revenue generation in the first place.
That’s why Spotify is an interesting case study to highlight. Spotify is one of the pioneers behind the subscription-based business model that overhauled the music industry and became a template for other startups to follow. But that business model is inherently unprofitable.
Subscription-based businesses are low-margin because they aren’t transacting a good or service that they own. They are simply facilitating transactions. They provide the infrastructure for distribution, collecting the equivalent of a digital toll along the way.
Spotify is in the business of distributing the content and intellectual property of other artists and creators. It doesn’t own what it sells. As a result, the bulk of its revenue still goes to music labels and artists in the form of royalties. This makes it incredibly difficult to eke out a profit.
That’s why there’s a growing urgency for tech companies running subscription-based business models to find efficiencies. When you don’t have an actual product or service to sell, you need to find a different path to profitability.
One way to do that is to leverage human capital rather than hoard it. Bullshit jobs with fake work are going to be a thing of the past moving forward. Spending the bulk of the workday attending meetings, responding to emails, or, as Spotify’s CEO bluntly put it, “doing work around the work” is no longer tolerable.
So, what does this mean for workers moving forward?
Workers need to start looking at employment as a business proposition. Unlike Spotify, they actually have something to sell. Whether it’s talent or physical labor, workers represent human capital that companies want and need to leverage.
The question now is about whether or not a worker is efficient enough to fit into the new game that’s being played. Can you provide maximum value in the most cost-effective way possible?
To answer that question, workers need to begin looking at employment through the lens of efficiency rather than an easy way to collect a paycheck. That means fighting for real work and documenting it to create proof of value.
The tech industry reshaped the meaning of work over the last decade. They overinflated their payrolls, creating the perception of opportunities that didn’t actually exist. Now, the hens have come to roost.
Moving forward, tech will continue to reshape the meaning of work. It’s going to be characterized by efficiency. The question is are workers who have become accustomed to doing easy support jobs prepared to dig in and actually get to work?