American file-hosting service company Dropbox has announced plans to downsize its workforce by 16% as it deals with slowing growth.
The company’s CEO Drew Houston in a note to employees disclosed that while the company is profitable, it is however experiencing slow growth which is partly due to the recent economic downturn and the arrival of the Artificial Intelligence (AI) era. Dropbox’s sales growth slowed to 7.7% in 2022 from 12.7 in 2021 and 15.2% in 2020.
Houston wrote,
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“While our business is profitable, our growth has been slowing. Part of this is due to the natural maturation of our existing businesses, but more recently, headwinds from the economic downturn have put pressure on our customers and in turn on our business. As a result, some investments that used to deliver positive returns are no longer sustainable.
“Second and more co sequentially, the AI era has finally arrived. We have believed for many years that AI will give us new superpowers and completely transform knowledge work. And we have been building towards this future for a long time, as this year’s product pipeline will demonstrate.”
The layoffs are part of Dropbox’s broader consolidation, as the company merges its Core and Document workflows businesses and some other internal team restructuring. Laid-off employees will receive free job placement services and career coaching, along with up to 16 weeks of severance pay and one additional week per year of Dropbox tenure.
The company expects to see $37 million to $42 million in charges related to the layoffs mainly due to severance, employee benefits, and similar costs. Dropbox anticipates that it will make most of these charges in the fiscal second quarter (Q2) and incur all of them by 2023.
The company’s next stage of growth will require a different mix of skill sets, particularly in AI and early-stage product development. It is interesting to note that the tech company has been bringing in great talent in these areas over a couple of years, with plans to do more.
Dropbox saw steady user growth after its inception. It surpassed the 1 million registered users milestone in April 2009, followed by 2 million in September, and 3 million in November.
In January 2021, the company announced the layoff of 315 employees noting that the reductions were necessary in order to focus the company team structure and focus on top level priorities.
Its recent layoff of employees in 2023, will see Dropbox join the likes of other tech companies that have laid off a significant amount of their workforce due to the macroeconomic headwinds and recent economic downturn. Reports reveal that more than 184,009 people have been laid off in the tech sector in 2023 across nearly 620 tech companies.