Amazon layoffs expected to disproportionately hit AWS and tech talent

As the market slows down, AWS and other Amazon units are preparing for another round of layoffs, which is expected to overwhelmingly impact tech talent.

“Amazon is planning a second round of job cuts next week as part of its broader goal of trimming some 30,000 corporate workers,” Reuters reported. “The company in October cut some 14,000 white-collar jobs, about half of the 30,000 target first reported by Reuters. The total this time is expected to be roughly the same as last year and could begin as soon as Tuesday.”

“This announcement should not be a shock to anyone, as Amazon had clearly forecasted a total layoff number last year of around 30K,” said Scott Bickley, advisory fellow at Info-Tech Research. “Ten percent of the corporate workforce represents a large-scale reduction, but Amazon has long operated less like a traditional people-centric enterprise and more like a highly optimized system.”

“These job cuts have likely been in the works for several months now, with the organization preparing to ensure no balls are dropped once the affected employees are released. In pre-Covid times, bottom performers would be regularly and relentlessly culled from the herd. The pandemic was a generational opportunity for Amazon, however, and they scaled up massively to meet the increased demands from a global population stranded inside their homes under lockdown,” Bickley said. “This created a massive hiring wave, the likes of which Amazon is still seeking to right-size. Add in the recent AI hype cycle, and this process was likely further slowed.”

The role of AI is clearly a background factor in the layoffs, but people familiar with Amazon operations stressed that it’s indirect. Amazon is not using AI to replace employees, they said, but the softening of the AI market, especially with AWS losing momentum to Google, is a key factor behind the cuts.

Amazon CEO Andy Jassy himself told investors during the third-quarter earnings call in late October that AI is not the direct reason for the layoffs. Jassy said the layoffs “are not really financially driven and it’s not even really AI-driven” and that the reason is “culture.”

Jassy explained: “If you grow as fast as we did for several years, the size of businesses, the number of people, the number of locations, the types of businesses you’re in, you end up with a lot more people than what you had before, and you end up with a lot more layers. And when that happens, sometimes without realizing, you can weaken the ownership of the people that you have who are doing the actual work.”

Mohan Mulund, a former Amazon director of product management who is now managing director of investment firm Vangal, said that he has been in touch with current AWS employees who have expressed worries about being laid off.

Mulund said that Jassy is correct that the layoffs are being fueled by culture, but it’s not quite the culture that Jassy described. Mulund said the issue is that Amazon, along with every hyperscaler, hired a lot of people in 2020 and 2021 and paid them better than many existing employees in identical roles.

“Amazon believes in having lifers,” Mulund said, referring to employees who have been at the company for more than 15 years. “They see people making more [than they do] and they are upset.”

Mulund offered the example of a Level 8 director at Amazon. Even though a typical manager at that level is making about $700K annually, many of the Level 8 managers brought onboard during the hiring boom are taking home $1 million per year. “That creates resentment,” he said.

Mulund said that Amazon is not exactly targeting those more highly compensated people; they are laying off employees whose performance is ranked poorly. But, he stressed, the more an employee is paid, the higher the expectations. That means that the layoffs will inevitably impact more of the higher-paid people, which should dilute the resentment.

Bickley added that reductions at Amazon happen fairly routinely. “They are pretty ruthless in terms of their performance reviews. Typically they cull the herd pretty regularly,” Bickley said. 

He said he only partially agreed with Mulund. That higher compensation is a reality, but much of it is from stock options, he noted. Amazon often looks very closely at employees “as they are about to cash out” and that is why it is common for Amazon managers “to leave right before they vest.”

Still, Bickley said, that impacts a relatively small number of the people likely to be laid off. “There are hundreds, at most, that are in that category. It’s nowhere near thousands,” Bickley said. “I don’t think that is what is driving these layoffs.”

Mohamed Yousuf, CEO of Smart Workforce AI, observed that AI is playing a role.

“When they mention culture, or bureaucracy, it’s from the result of pre-AI operating models that don’t match today’s productivity realities,” Yousuf pointed out. “We have seen how effectively AI can change productivity baselines inside companies. This then pushes leadership to reassess how much of their current structure is actually needed.”

“Separating these layoffs from AI is just simply narrative management. The reality is AI raised productivity expectations and employees are asked to meet them by leaving. They might not be directly replacing each laid off employee with AI, but the remaining staff work a lot faster as AI enabled teams,” Yousuf said. 

Mulund added that he expects to see the layoffs overwhelmingly impacting “tech people” and that “more than half of them will be AWS people. It will be more on the AWS side because AWS growth has slowed down pretty dramatically.”

Despite that, he said, he does not expect AWS customers will be affected by the layoffs. “Nothing is going to change for them at all. It won’t impact service of the business” he said, adding, “because [AWS] businesses have slowed down, they can make do with fewer people on the team” without affecting service delivery.