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January 5, 2023
The elimination of approximately 7,000 Salesforce jobs came as a surprise to the managers charged with notifying terminated employees, according to reports.
The customer relationship management (CRM) software giant on Wednesday unveiled the bombshell restructuring plan that will reduce its workforce by 10%. Salesforce executives joined many of their peers in the technology world in saying the company added jobs too rapidly in the months leading up to the economic downturn. They also cite the potential for less customer spending in 2023.
Most of the cuts are occurring in the upcoming weeks, but many employees received notice of their termination on Wednesday. And the news came as a shock not just to impacted employees, but those tasked with delivering the news to them.
Salesforce’s Marc Benioff
Salesforce co-founder, chairman and CEO Marc Benioff wrote in a companywide memo the soon-to-be laid off employees would be contacted directly by leadership. However, that interaction in many cases did not occur in what Channel Futures’ Kelly Teal described as a “corporate disconnect.” Many of the layoffs came through email, drawing outrage from the impacted.
And a Wednesday article by Business Insider confirms this disconnect. The website published messages from Salesforce’s internal Slack channel. One comment:
“Managers are not aware that their employees are impacted. They are getting emails/notes from their team members that they are impacted. Was this a planned strategy of not informing the managers or just an oversight?” one message from the Slack reads.
The article cited sources close to Salesforce that said many of the layoffs impacted members of acquired companies. For example, IT integration platform MuleSoft, which Salesforce bought in 2018, is seeing cuts to its customer success team. In addition, Slack (which ironically was the medium by which many employees learned of their termination), is shedding recruiting and product management roles, according to Business Insider.
A commenter on TheLayoff.com said the Salesforce business-to-consumer Commerce Cloud division could see jobs cut.
“Commerce Cloud is going down really fast with the lack of innovation,” the commenter wrote. “They plan to deprecate Demandware platform in the next years introducing a new B2C Commerce Cloud built on top of Salesforce Platform. It’s the end of Commerce Cloud as we know it.”
Benioff cited a reason for the layoffs that executives across the tech and SaaS worlds have cited: over-hiring. Amazon CEO Andy Jassy in Wednesday’s Amazon layoff announcement explained that his company had hired too quickly in recent months.
For Salesforce and other companies, the fast pace of hiring matched revenue growth. But that fast expansion occurred before what appears to now be a very present recession.
“As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that,” Benioff wrote in his memo.
The restructuring plan will cost between $1.4 billion and $2.1 billion, according to Salesforce’s 8-K SEC filing. $1 billion to $1.4 billion will deal with severance and other employee-related compensation. Up to $650 million will go to the cost of reducing office space.
Laid off U.S. employees will earn “a minimum of nearly” five months pay, plus health insurance and transition resources.
According to the filing, non-U.S. employees will get …
… “a similar level of support.”
“The employees being affected aren’t just colleagues. They’re friends. They’re family,” wrote Benioff, whose Co-CEO Bret Taylor announced his departure last month. “Please reach out to them. Offer the compassion and love they and their families deserve and need now more than ever. And most of all, please lean on your leadership, including me, as we work through this difficult time together.”
Benioff wrote in his memo that customers “are taking a more measured approach to their purchasing decisions.” That sentiment reflects trends analysts have been observing, particularly around public cloud spending.
Mila D’Antonio, principal analyst of customer engagement at Omdia, said Omdia’s “IT Enterprise Insights: ICT Drivers and Technology Priorities” study demonstrates that businesses are investing less in contact center and customer engagement technology in 2023. (Informa Tech is the parent company of both Channel Futures and Omdia.)
Omdia’s Mila D’Antonio
“Additionally, the research reveals the top two priorities for next year include increasing revenue and improving operating efficiencies,” D’Antonio wrote. “This comes amidst a backdrop of pandemic-prompted updates slowing down and macroeconomic forces (such as high inflation and interest rates, supply chain burdens, and the war in Ukraine) weigh on enterprises. Coupled with recent earnings shortfalls, these trends foretell a move away from digital CX experimentation, and more toward cautious technology spending in 2023. As a result of this cautious spending, vendors will find themselves competing on pricing and marketing their proven results, answering to discerning customers and prospects who will seek proof that dollars spent on their investments will yield adequate returns.
Omdia’s Mark Beccue is a principal analyst with a focus on artificial intelligence. He noted that financial analysts have stated that Salesforce needs to earn better margins.
Omdia’s Mark Beccue
But Beccue pointed out that Salesforce has performed extremely well financially. Its five-year CAGR of 14.1% is better than Alphabet (Google) (11%), Adobe (10.8%) and the IT sector average (9.5%).
Moreover, the company has also earned a five-year gross profit margin of 72.7%. That’s better than Oracle (76.1%) and the IT sector average (52.8%).
“Salesforce ranks significantly above sector in gross profit margin,” Beccue told Channel Futures. ” … I’m not a financial analyst, but the push for better margins from a top-performing margin player is sort of ridiculous. While there might be some market softness coming, I think Salesforce is well positioned to continue their success because they offer a route of automation. The cutbacks, according to Benioff, are to address margins.”
Layoffs have come fast and heavy in the technology sector in the last three months. The unified communications space has seen deep cuts, with Nextiva laying off 14% of its workforce and RingCentral shedding 10%. On the cloud front, Oracle laid off about 200 people in its cloud division, and Microsoft Azure and AWS reportedly remain in hiring freezes.
For news about eliminated jobs at Salesforce competitors, check out the Channel Futures layoff tracker.
Read more about:MSPs
Senior News Editor, Channel Futures
James Anderson is a news editor for Channel Futures. He interned with Informa while working toward his degree in journalism from Arizona State University, then joined the company after graduating. He writes about SD-WAN, telecom and cablecos, technology services distributors and carriers. He has served as a moderator for multiple panels at Channel Partners events.
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