Comment by stego-tech
15 hours ago
I'm going to start calling these "Canary" moments.
Assuming we take everything at face value for these sorts of cuts, it creates the following scenario:
A company finds itself with surplus labor capacity due to the efficiencies in AI while also posting substantial profit or revenue growth. The company could downsize the workforce to capitalize on short-term efficiencies and increase margins, though this will come at the cost of long-term reputational harm due to posted profits/health as well as burning out staff who must do the same (or increasingly, more) work with less headcount, leading to attrition when the market shifts in their favor. Alternatively, it could leverage this surplus labor for a period of moonshot R&D or paying down technical/process debts while they have the capacity and the profit to pay for it, which harms short-term share price relative to their competitors slashing jobs, while improving the company's capabilities in the marketplace in the long-run, potentially through mastery of these AI tools or the creation of new product lines.
The fact so many orgs opt for immediate greed over long-term growth really is its own canary that leadership and governance both has failed the marshmallow test.
"A company finds itself with surplus labor capacity due to the efficiencies in AI"
That is one possible interpretation, though I don't think it's supported by any facts.
A competing explanation: companies are spending a ton of money on AI in search of efficiency, and then laying people off in order to offset these investments. That's certainly what's been happening at Microsoft, Oracle, Meta, etc.
You can't really compare them to Microsoft, Oracle, or Meta. Those companies aren't cutting costs because AI replaced their own employees. They're pouring money into AI infrastructure and models because they want to sell that capacity to others.
Their thinking is more: instead of funding another internal product team, they can redirect that payroll spend into more AI compute and models they hope to monetize.
I don't believe CloudFlare is doing that, though they might, they could be needing to spend in Edge AI compute and what not, building out that infra isn't free, so they might need to find places the cash will come from.
If you're not in leadership at Big Tech, you're only there for the stock price manipulations.
AI is a fraction of cost of an employee though right? I have an 1000$/mo AI budget which is a fraction of my salary, and most people don’t hit their limits.
Sounds like your company is burning 1000 dollars a month for something people are barely using. At some point those costs become unbearable and they admit that absurd AI budget was a mistake, or they admit no mistake and fire people. I know which they'll choose.
1 reply →
Curious to know why are they not hitting their limits.
In the organization I work, things are crazy at the moment, we are drinking tokens as if we are in hot desert and 1k is barely enough for a week for some people
> A company finds itself with surplus labor capacity due to the efficiencies in AI
It's likely more:
A company finds itself with surplus labor capacity due to the over hiring during Covid, cutting down on risky ventures, protecting margins, and narrowing scope.
But I think there's also:
A company wants to see if AI is making them more efficient, decides to cut people as if it was and see what happens.
I also am not sure about the short term stock price, many recent mass layoffs the stock often moved down. The CloudFlare stock is tanking in after market for example.
I think as someone pointed out earlier, this is more likely about margin preservation as their gross margins are deteriorating really quickly.
Yeah, I wrote this before I dove into their balance sheets for another comment. Cloudflare’s cuts are more defensible than most, but the timing and explanation are shady given that they’ve had the same problems for years.
Excess labor would only translate to increased revenue and new products if these companies had a product vision to begin with. But they don't, so people get sacked.
If using AI had a "substantial profit or revenue growth" wouldn't it make more sense to hire more people so they can use more AI and increase revenue?
If I can pay a person 100k and the result of hiring them is 1mil in my pocket, I am going to do that every day of the week.
The only reason to fire them would be that I think the money will still end up in my pocket without them.
It depends if your market has room to grow. If it’s saturated it’s just about COGS.
If the market had been saturated then there wouldn't have been any (hypothetical) revenue growth which is what the comment above was arguing.
Personally I don't think there was any revenue growth to begin with. They are spending a lot on AI and haven't seen any ROI but for reasons they prefer to fire people and keep investing on AI.
This is simply a symptom that the company doesn't have good Quality Control processes in place.
AI-produced code is good but it's not so good that it can replace hand-crafted (or heavily supervised) code written by the type of engineer who works at Cloudflare.
What's really happening is that a few employees realized they can game the system by turning on a firehose of AI slop and pushing 10x the LOC than any other engineer (with or without AI), because there's no one to tell them to stop, and in fact with a management that actively encourages this.
> What's really happening is that a few employees realized they can game the system by turning on a firehose of AI slop and pushing 10x the LOC than any other engineer (with or without AI)
Did they figure out how to game the system? Or was the system set up exactly with incitaments to produce exactly this outcome?
The new system is immature and hence open to exploitation. This is eventually going to destroy some companies.
> The fact so many orgs opt for immediate greed over long-term growth really is its own canary that leadership and governance both has failed the marshmallow test.
Why do you think it's greed? The company's stock is down and they just missed expectations on their last earnings report (unheard of in big tech in the last 2 years).
It seems more like a traditional layoff scenario
That's the thing. There is no surplus labour capacity, neither they have any ideas for moonshot projects that could pay off left
cloudflare vibecoded a wordpress clone (emdash), they have no idea where to allocate engineers to make new products.
The work is mysterious and important.