[dougweltman]

Very few people are needed to run the technology elements of these businesses (let’s exclude warehouse/logistics in Amazons case). So why is there an order of magnitude more staff than what’s needed to run those?

There’s this idea that tech companies are laying off folks to boost their stock prices by cutting operating expenses. This reflects a fundamental misunderstanding of investors think about these types of companies and what determines their worth.

Unlike other kinds of businesses, these companies face very little pressure to control costs. They can overhire, and do. They can overpay employees, and do. They can incinerate cash on wacky projects, and do.

This is not because the fundamental constraints of accounting don’t apply to them, but rather because they’re able to optimize for other outcomes because their critical personnel costs are such a tiny portion of what they’re able to bring in: they’re hoarding human resources, they’re trying to develop second acts, they’re able to tolerate bloat and process if they think that’s worth it.

When Amazon turns up the heat, it’s not primarily because they’re worried about costs. It’s because they want to get people out of there who don’t belong there, and because return to office in their minds is a good way to make the org more productive over the long term.

These companies are trying to get a culture they perceive as being a little over staffed, too bureaucratic, maybe lacking in focus, to turn around.

Fixing that has a much bigger impact on long term shareholder value creation — it’s the exact same rationale as overpaying staff, over staffing and spending generously on wacky new bets. Ship faster.

[tonyedgecombe]

Amazon is two businesses in one. AWS is a high margin technology services business. The rest is a low margin box shifting distributor.

To be competitive in distribution you need to be ruthless about costs. I've consulted for a few of these sort of companies and it's insane what they will do to save a few pennies. They are utterly miserable places to work as their frugal attitude spills over into all their interactions. It starts with using doors as desks and progresses to making staff piss in a bottle.

I suspect this culture is what makes Amazon as a whole such a difficult employer.

If they were two independent businesses then it would never make sense for them to merge, just as you wouldn't expect Microsoft to buy Walmart. It would probably be better for both sides if they divorced.

[w10-1]

> Very few people are needed to run the technology elements

Right. Engineers aren't hired to run trains, but to build the train you'll need next year.

When does innovation stop? It's not usually for lack of innovative people. Most commonly, it's when the existing architecture and workflows are constrained to the point where a significant change is not worth it.

The reasons for that are typically lost to history, so there's no negative feedback for the error.

And there's no incentive to cut or transition existing customers. So what remains is to operationalize the function: reduce it to running the old train.

Developers concerned about their careers need to realize this evolution is natural. The solution is to migrate to innovative teams before you get left with the duty of managing the winding-down.

[dougweltman]

Did you stop reading the comment after the first line?

[mixdup]

>Unlike other kinds of businesses, these companies face very little pressure to control costs

This is not really true anymore and is exactly why Google and Amazon are doing big layoffs. Money isn't free anymore. The "just grow at all costs" couldn't last forever and it's finally coming to an end

Investors are specifically expecting profitability now and not just growth of customers. The end of what you're talking about is precisely what is happening now

[dougweltman]

At some margin, this is right of course, and rising rates move us closer to that margin.

My point is this behavior is better explained by the actor’s belief in something like the following proposition:

“The present value of the opex avoidance is dwarfed by the present value of a leaner org’s ability to focus, ship and execute.”

[minkiebun]

I worked at Amazon.

Keep The Lights On effort was typically around 10% of total capacity. The rest of the effort was because the goal is not to maintain, it’s to drive improvements to the business.

[iot_devs]

> Very few people are needed to run the technology elements of these businesses

This is currently false, or at least very up to debate.

[rsanek]

I think Twitter provides a case study here. The site is still working fine despite being staffed by only 20% of the employees it had just over a year ago.

[local_crmdgeon]

Twitter and Amazon are not similar companies and cannot be compared in terms of scale.

No one has Amazons scale.

[hermanradtke]

> site is still working fine

Twitter has had a lot of issues and generally failing as a company at the moment.

[ryandrake]

Yea, I think we still need to wait and see. Airplanes keep gliding when you turn the engine off. I think Twitter is still in the "Wile-E-Coyote ran off the cliff but hasn't started falling yet" phase.

[wyclif]

I take a middle position on this having seen it all at Twitter since 2006. The site does still work, but not without outages. Of course, Twitter had major outages during the Williams/Costello/Dorsey period as well. What happened was that when Musk obtained control, the haters claimed that Twitter/X would burn down or get bricked. None of that ever happened, which leads some people to believe it "still works fine" with 20% of the former staff.

[PH95VuimJjqBqy]

you'll have to define what "it still works fine" means then, because your description certainly would meet my definition of the phrase.

[VirusNewbie]

It has had major outages and is losing a ton of money.

[minkiebun]

Keeping the lights on is typically around 10% of effort at Amazon. But there’s value in the ongoing development, which is why it’s done.

[htss2013]

>and because return to office in their minds is a good way to make the org more productive over the long term.

If WFH destroys long term value creation, then why didn't the stock market punish every tech company when they all announced permanent WFH?

[dougweltman]

1. Because beliefs around WFH have changed. 2. Investors aren’t thinking about tactical stuff like office amenities, free lunches and WFH.

None of it makes a dent on the valuation in the way that better focus and execution do, and investors expect the managers to set up the culture to do that without having to make a determination about the specifics of WFH in Amazons particular circumstances.

That is exactly what Amazon thinks it’s doing. Yes, costs are getting cut, but by far the more significant impact would be 5 or 10% better execution on stuff that really moves the needle than a 2% cost reduction.

When margins are high the returns to growing revenue are much greater than cutting costs.

[htss2013]

Beliefs around WFH didn't change. Economic circumstances did. If it reverts to difficulty hiring and retaining people, WFH will change back. Productivity is an excuse after the fact.

>When margins are high the returns to growing revenue are much greater than cutting costs.

Margins aren't necessarily high and growing revenue isn't always an option. Certain products/services just aren't in demand, no matter how well you execute.

AWS is high margin but retail isn't. For better or worse the two businesses are merged and considered together by Wall St. which means management also has to look at it that way.

[Ancalagon]

> Very few people are needed to run the technology elements of these businesses

Have you used AWS before? The complexity of the site alone should tell you this side of the business would need more than a "very few" people to run it. And that's just their web services side, never mind retail.