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IT Industry Faces Elevated Employee Costs, Slower Revenue Growth Amid Pandemic

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Safak Costu
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IT Industry Faces Elevated Employee Costs, Slower Revenue Growth Amid Pandemic

The COVID-19 pandemic has presented the IT industry with a unique set of challenges, the most notable being elevated employee costs and moderating revenue growth. The technology spending surge, which buoyed the industry during the pandemic, is now on a downward trend, leading to slower revenue growth for IT firms. The financial burden of increased staff costs is another pressing issue, with the percentage of operating revenue spent on staff rising from 52.3 in FY19 to 57.6 in the first half of FY24.

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Economic Uncertainties and Job Cuts

As the economic outlook remains uncertain, IT giants like Amazon and Wall Street banks, including Goldman Sachs, have resorted to slashing jobs to control costs. Companies such as Meta Platforms have undertaken multiple rounds of layoffs as the economic conditions showed no signs of substantial improvement through 2023. The layoffs come at a time when these firms are dealing with dwindling cash reserves, a weak economy, and an industry-wide price war.

Impact on the Media Industry

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The media industry too is feeling the pinch, with the Canadian Broadcasting Corporation announcing layoffs to address a budget shortfall of $125 million in the next fiscal year. The broadcaster is grappling with diminishing advertising revenues, government demands for budget cuts, and a fall in revenues from traditional television. The layoffs come amid a crisis in the Canadian media industry, affecting both French and English speaking media.

Spotify's Cost-Cutting Measures

Streaming giant Spotify has also embarked on a cost-cutting journey, announcing layoffs of 1,500 employees, or 17% of its workforce. The move comes as tech companies seek savings in a slower-than-expected economy. Spotify, which has invested heavily in its podcast business and expanded its market presence globally, will incur charges in the fourth quarter due to the layoffs, further exacerbating its operating loss.

The situation presents a 'sticky problem' for the industry as it deals with the dual challenge of moderating revenue and higher employee expenses, which are weighing on the already pressured profit margins.

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