In today's episode we're going to talk about something that's
been bugging me for days. It's the increasing gap between
revenue and jobs. As you may already know, some of
the biggest companies in the entire world in the past week
have let go of thousands of employees whilst reporting on
record profits. I felt the need to have a bit of
a nosy and chat your BT search and see what social media is
saying because something doesn't add up because Amazon and many
other companies have said this is all because of AI.
So yeah, I love history. I can already see big historical
analogies throughout time. And this question feels really
important to answer, whether we're truly seeing the impact of
AI in job losses or whether companies are using it as a
scapegoat. This is in the loop with Jack
Horton. I hope you enjoy the show.
Now, if we start with the main contradiction, so last week on
the 20th of October and Amazon announced 14,000 layoffs across
the company and the head of people experience in technology,
Amazon said basically we're at this new era of AI
transformation and we think we have to reorganize to be more
efficient and effective. For me, that's quite a clear
message. AI means fewer people.
However, two days later, the CEO, Andy Jassy had then said
that it's not to do with AI and that it's not financially
driven. And actually it's just a culture
change they're looking for. So you may be wondering which
one's the truth. Is it AI?
Is it not AI? What?
What's going on here? And that's the contradiction
that a lot of people on Twitter and a lot of people online drew
attention to. Now, here's where it gets quite
interesting because a very quick GPT search finds that over the
space of a few months, there's been a number of those
contradictions from Amazon. So this is what the CEO also
said in a memo just a few months ago.
He said as we roll out more generative AI and agent, it
should change the way our work is done.
We need fewer people doing some of the jobs that are being done
today and more people doing other types of jobs.
It's hard to know exactly where this Nets out over time, but in
the next few years we expect that that we will reduce our
overall headcount. So, you know, again, Due Memo
says we're going to cut people. Basically the head of people and
experience technology says we've cut people because of AI, and
the CEO says it's not actually AI are financially driven.
So yeah, there's a lot of contradictions going on.
But obviously at the same time, it's important to say that
Amazon's profits jumped 38%. So they're basically printing
money whilst also just laying off people up scale.
Now this isn't just Amazon. Meta also cut 600 job roles.
Applied Materials cut 1400 job roles and they all put it down
to automation and digitalization.
So yeah, there's there's a bunch of research I want to tell you
about that I found over the weekend that's really
interesting. But before we actually jump into
that, I think it's really important to understand why this
matters and why I'm so interested.
So First off, we've been here before and it didn't go very
well in the past. Now this isn't a politics
podcast, but if it were, I would ask us all to I guess reflect on
the state of politics right now with trade wars happening, with
partisan politics going on, with lots of anti immigration
headlines and narratives across the world.
And I guess what I want to chat about may shine a light on the
realities of technology, automation, and generally big
business in how it impacts everyday people.
So in 1979, US manufacturers employed 19.6 million people and
now today it's only 12.7 million.
So it's about 7 million job roles gone, which is a 35%
decline. That's huge.
That's entire communities almost vanishing.
But here's what's very important.
Manufacturing output during that same period increased 80%.
So with 7 million less people increased 80%.
Now these impacts are rarely just economic.
They end up being cultural. They end up impacting politics.
They increase mortality rates, drug problems in in communities
that often aren't that well off already.
And as I said, it's very easy to understand the impact of these
massive changes of, I guess automation in, you know, the
70's, the 80's, the 60s to what our world looks like today.
Now, if you look at what's happening today, the S&P 500
increased by 77% since 2022. Yeah, unemployment's gone up by
3 1/2%. So yeah, there's, there's a lot
of analogies that you can draw from automation of, you know,
the 80s and the 90s and the 70s to maybe what's happening now.
So it is a really important question of whether we
understand, is this because of AI and automation or is it just
being used as a scapegoat? I think it's a latter and I'll
explain why now through a lot of research this weekend.
There are typically 4 good questions we can ask ourselves
when trying to answer that question.
Now question one is, are these companies losing competitive
ground? So are they are they losing to
their big competitors? So let's take AWS as a good
example. So Microsoft is yours.
So the equivalent of Microsoft's main product that competes with
AWS is growing at 31% every year.
And 12% of that growth comes from just their AI services,
whereas AWS, so Amazon's AWS is growing at 17% every year.
That's a huge gap. You know, Microsoft clearly is
stealing huge market share right now.
And a big part of that is the fact that they've got massive
amounts of AI capabilities that are way out in front of AWS.
So when I look at the fact that Amazon have cut 14,000 corporate
jobs and the CEO says it's about culture, not AI.
For me, what I think is actually happening is their restriction
because they're losing the US is watching Microsoft Azure grow
twice as fast, specifically from AI services that Amazon just
doesn't have competitive parity with.
They over hired during the pandemic.
Amazon more than doubled its corporate staff during 2019 to
2022. And now they need to improve
margins while trying to catch up with Microsoft's AI
capabilities. And I think saying that you're
reorganising in an AI era sounds a lot more strategic and
exciting than we're getting battered by Microsoft.
So because we over hired and so we're going to try and fix all
these problems at once. Now both statements can be true.
AI can enable them to operate with fewer layers and fewer team
members. That restructuring probably will
help with some of the competitive pressure, but the
primary driver isn't AI, it's the fact that they're losing.
You could call this forward-looking theatre that
basically hides present pressures because it's not lying
exactly, it's choosing which truth to emphasize more to
everybody that's listening. And so another question we
should always ask ourselves when these big companies are making
these big claims is what's their revenue per employee?
So this is where you can start. You can kind of see real
productivity from them trying to spin PR.
So NVIDIA has a revenue per employee of 3.6 million.
Like yes, you heard that number right, Crazy number, which is up
to 76% in just a year. Apple has 2.38 million per
employee, Meta has 2.19 million per employee.
So these companies are generating ridiculous output,
economic output per person, whereas Amazon has $410,000
revenue per employee. Now, yes, they have a massive
warehouse operation that will probably pull a lot of those
numbers down, but that gap tells us something quite important
that the companies with the highest revenue per employee is
often where AI productivity gains are more real.
And I mean, we're seeing this first hand building mindset.
It is insane what happens when you build an entire process and
systems around AI, around accelerating the key things you
should be accelerating and having a process that has really
good human checks in it. We are going faster than we've
ever been able to go before. And I mean, we're kind of like
this AI particularly clawed at the moment.
It is a drug. It literally cannot take our
money fast enough because we use it so much across the business.
So yeah, if you're seeing companies with flat or declining
revenue per employee and they're then citing AI transformation as
the reason for layoffs, well, it's time to start asking
serious questions. Then if we go to question #3 is
what are they actually cutting? So Meta cut 600 AI roles and
I've you really think about it, especially what they did in the
news recently. Why would you cut so many
researchers or people if they're driving huge amount of return on
investment? And I think the probable reason
is that you have organizational bloat and you're tidying it up
because if you were doing really, really well in that
business unit, you'd be scaling the number of team members you
have, not cutting them. Because if you're cutting team
members that are apparently key to your transformation, then,
well, something doesn't add up. And if you contrast that with a
company that's doing really, really well, which is Microsoft,
they're not cutting AI teams. They're scaling them
aggressively. And I keep saying this over and
over and over again, as companies start winning with
their big bets in AI, they're going to hire more people for
more of those big bets, not less.
So yes, there will be some job cuts in some areas, but it'll go
through the roof in others. And finally, question 4.
It's really interesting if you then look at the statistics on
rehiring. So this one really shocked me,
to be honest, when I saw it. So a survey of over 1100
business leaders said that 39% of people made employees
redundant because of apparently excitability about AI
deployments. And of those, of those 39% of
1100 people, 55% have then admitted that they made the
wrong decisions about some of those redundancies.
So more than half of the people making those big redundancies
straight away regret it. See, I think a lot of companies
see the hype cycle, try the few things they think it's going to
work. They don't really focus on
reading and rebuilding process or culture around these tools.
They get so caught up in the hype cycle, they maybe see their
competitors talking about big AI transformation, and then they
made drastic workforce decisions before anything was really
embedded into the business. You saw this with Klarna.
They got rid of 700 customer support staff and then had to
reverse the decision. So yeah, what worries me about
all these big pieces of data, research, these questions is
that showing that people are making big workforce decisions
with very little information or experience and basing it too
much on hype. And I think the gap between
rhetoric and reality is just growing wider and wider and
wider. So yeah, I guess let's to
conclude, I think there are multiple stories here at the
Frontier. You've got the Microsoft, the
Nvidias, those type of AI native companies that are seeing huge
productivity gains and their revenue per employee numbers is
out of this world. Their margins are incredible and
they're investing more money into those business units.
But many other companies are just using this AI
transformation narrative as a complete scapegoat to escape the
fact that they're not adapting that well and they've not yet
launched truly effective AI products.
And letting people go because you need to increase margins or
and decrease cost or reorganize for certain big initiatives is
very fair business reasons. But don't lie and say it's
because of AI. And I think the numbers that are
really important to look out for is constant increase in company
profits, but decreasing employment in the economy,
because that usually spells the start of a period in which
corporate profits go through the roof and individual income
starts to collapse. Anyway, that's it for this week.
It was a quick episode. I hope you enjoyed it and I'll
see you next week.