Swedish music-streaming giant Spotify announced Monday that they plan to lay off 6% of their workforce of 10,000 to improve efficiency, leaving 600 employees without a job.
Spotify CEO Daniel Ek decided to eliminate employees due to inflation, causing a decrease in consumer expenses and an increase in interest rates. This resulted from hiring thousands of workers during the pandemic to meet the rising demands from households and businesses. Additionally, Spotify intends to take charge of nearly $50 million to work toward a recession now that consumers have returned to their lives before the pandemic.
“Like many other leaders, I hoped to sustain the strong tailwinds from the pandemic and believed that our broad global business and lower risk to the impact of a slowdown in ads would insulate us,” Ek said in an article. “In hindsight, I was too ambitious in investing ahead of our revenue growth. And for this reason, today, we are reducing our employee base by about 6% across the company.”
According to Ek, his decision to restructure Spotify is an “effort to drive more efficiency, control costs, and speed up decision-making.” He adds that he takes “full accountability for the moves that got us here today.”
Spotify is one of the companies in the technology industry that increased its expenditure as it experienced growth from the pandemic by investing in a podcast business and removing ad spending from the platform to increase customer engagement and entertainment. Consequently, the company’s costs have doubled its revenue.
In October 2022, Spotify released its third-quarter earnings report, which demonstrated a loss of $248 million as operating expenses rose to 65%. The company blamed “headcount growth and higher advertising costs for growth initiatives.” As a result, the company announced that it would slow down hiring for the rest of the year and into 2023.
Moreover, Dawn Ostroff, Spotify’s head of content, is leaving the company. Ostroff was known to sign former U.S. President Barack Obama and his wife Michelle Obama’s production company, Higher Ground Productions, to create a podcast on Spotify. Furthermore, She also initiated the deal to have exclusive rights to the Joe Rogan show and negotiated podcast deals with Kim Kardashian, Prince Harry, and Meghan Markle.
“Because of her efforts, Spotify grew in podcast content, drove significant innovation in the medium, and became the leading music and podcast service in many markets,” Ek said.
Spotify’s staff cuts are an addition to the workforce reductions conducted in other technology companies due to the economic downturn. Last week, Amazon began firing thousands of employees as Amazon CEO Andy Jassy announced layoff notifications for 8,000 employees. This occurred only months after an initial round of 10,000 jobs were cut. In addition, Microsoft announced 10,000 job cuts (nearly 5% of its workforce), while Facebook parent, Meta, reported 11,000 (13% of its workforce) in November.
To sum up, Spotify’s decision to fire 600 employees has occurred as a result of the downfall that the company has endured in its economy. The company is now being restructured to reduce costs. They plan to appoint Alex Norström, head of the freemium business, and research and development boss Gustav Söderström as co-presidents. In the end, it is unknown what will continue to transpire in the workforce, but it is confirmed that Ek plans to improve the company's efficiency from this point onward.
“While we have made great progress in improving speed in the last few years, we haven’t focused as much on improving efficiency,” he said. “And in a challenging economic environment, efficiency takes on greater importance.”
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