SF exec defends 'brutal' trend: Lay off staff to free cash for AI

As wave after wave of layoffs crash over Bay Area companies and the wider tech industry, questions swirl about the causes of the cuts. Now, at least one answer is becoming clearer: Executives want fatter pockets for investing in artificial intelligence.

In an interview on the Verge’s “Decoder” podcast published Monday, Dropbox CEO Drew Houston mounted a zealous argument for the importance of AI while defending his company’s 500-worker layoff in April 2023. The two things are linked, he said, noting that Dropbox’s layoff was largely aimed at freeing up cash to hire more engineers who are skilled in AI.

“We couldn’t make the math work with the way that we were structured,” Houston said during the podcast. “So we had to make a really tough decision to let go of a lot of people and then make room for the investments in AI and [Dropbox] Dash and all the stuff that we wanted to ultimately make the company successful. But it’s brutal.”

AI researchers have made huge technological leaps in recent years, but fears of overhype are beginning to bubble up at large companies like Microsoft, the Information reported in March. Houston had no such qualms in the interview with Verge Editor-in-Chief Nilay Patel. After explaining the layoffs, the file-hosting service’s CEO called AI more important than “PC, cloud, mobile, or the internet” and likened it to “fire or electricity or the industrial revolution.” 

San Francisco-based Dropbox isn’t alone in cutting staff to spend on AI. Online learning platform Chegg announced 80 layoffs in a June filing with the Securities and Exchange Commission partly “to better position the Company to execute against its AI strategy.” 

The layoffs-for-AI-spending move hasn’t been described as such at Meta, but it seems to be panning out. When the Facebook and Instagram owner announced an 11,000-worker cut in late 2022, CEO Mark Zuckerberg said the company would try to avoid an overly expensive AI buildup and promised a “year of efficiency.” But in a February filing with the SEC, a leaner, cash-loaded Meta appeared to plan big spending: “We expect our AI initiatives will require increased investment in infrastructure and headcount.” 

Then there’s Google. In January, the Mountain View giant revealed plans to lay off more than 1,000 workers. CEO Sundar Pichai didn’t use the letters “AI” in his memo about the cuts, but he referenced the company’s expensive ambitions. 

Google has reportedly been spending heavily on AI infrastructure, which includes data centers and chips, as well as talent. At a TED conference on Monday, per Business Insider, Google AI leader Demis Hassabis said the company would likely spend more than $100 billion developing AI.

“We have ambitious goals and will be investing in our big priorities this year,” Pichai wrote in the January memo, first reported by the Verge. “The reality is that to create the capacity for this investment, we have to make tough choices.”

“Tough choices,” in corporate-speak, often means job cuts. The billionaire executive said in the memo that more people might lose their jobs later in the year. And then on Wednesday, outlets reported new layoffs at the company. 

Hear of anything happening at Dropbox or another Bay Area tech company? Contact tech reporter Stephen Council securely at stephen.council@sfgate.com or on Signal at 628-204-5452.