Spotify CEO Surprised By Backlash From Laying Off 1,500 Employees

It’s unfortunate when thousands of people lose their jobs. But sometimes, it’s the dawn of a new era for some companies. This is the case at Spotify, as the company recently fired 1,500 employees to boost efficiency.

However, just four months into the massive layoff, the company’s CEO was shocked at the result. What happened? Losing over a thousand employees left a big hole that the current workforce struggled to fill.

Spotify Failed To Hit Its Target

The streaming platform enjoyed quarterly profits of  €168 million ($179 million) in the first three months of this year. With these numbers, Spotify was on its way to enjoying a revenue of up to €3.6 billion ($3.8 billion).

However, these impressive numbers weren’t good enough for the streaming brand. According to its executives, Spotify had failed to meet its financial target plus how many monthly users are on the site.

Investors Don’t Care, They’re Happy

Even though Spotify didn’t hit its expected milestones, investors weren’t bothered. They were satisfied with the brand’s development, which sent shares in the group rising by 8% in New York.

But this wasn’t enough for Spotify’s CEO. Daniel Ek had a meeting with the company’s investors and outlined the possible obstacles that prevented them from reaching their target for the year.

Daniel Ek Blamed The Employees

During the meeting, Ek blamed Spotify’s “poor performance” on operational difficulties. Essentially, he analyzed all of Spotify’s activities and linked most of the faults to the people working there. 

But it’s worth noting that this operational issue was because he previously laid off 1,500 of Spotify’s workforce the previous year. He hoped that this massive culling would improve efficiency, which would then translate to more profit the following year.

Spotify Compensated These Workers

1,500 workers getting laid off is “insane”. Many commented on the situation, calling it “unfortunate” and “scary”. However, it’s worth pointing out that these people were not just fired and then abandoned by Spotify.

Each worker received a five-month severance package after they got fired. This means they will be covered financially by the company for a few months while they look for a new job.

1,500 Employees Left Shoes Bigger Than We Expected

The goal was simple: fire 1,500 employees and watch company profits skyrocket. Strangely, the opposite happened. Daniel Ek commented on the situation on a call with one of Spotify’s investors. 

He said: “Another significant challenge was the impact of December workforce reduction. Although there’s no question that it was the right strategic decision, it did disrupt our day-to-day operations more than we anticipated.”

‘We’re Back On Track’

Still, on the call, Ek explained that trimming Spotify’s workforce was hard to handle. Some areas were hit hard, resulting in reduced profits. But since December, the company may have recovered.

According to Ek: “It took us some time to find our footing, but more than four months into this transition, I think we’re back on track. I expect to continue improving on our execution throughout the year getting us to an even better place than we’ve ever been.” 

What ‘Operations’ Were Affected?

David Ek didn’t specify which areas were affected. However, it’s possible that product development was one of them since a huge reduction in staff would make it harder to innovate, fix bugs, and roll out new updates.

Customer service could also have taken a big hit. Spotify is a service-oriented company, and any dip in support quality would painfully harm customer retention and profit. But in the end, these are mere speculations as Ek didn’t mention where got hit.

The Memo Before The Mass Layoff

Before Ek continued with his plans to wipe out 17% of Spotify’s workforce, he sent a memo. The memo read: “We still have too many people dedicated to supporting work and even doing work around the work, rather than contributing to opportunities with real impact.”

Basically, the memo was merely Ek saying that some of the people working at Spotify were focused on irrelevant tasks. He wasn’t mocking them but pointed out that their dedication would be more effective elsewhere that isn’t already crowded.

Elon Musk Did The Same Thing To Twitter

Laying off hundreds of employees to boost company efficiency sounds very familiar. It was actually a viral decision made by Elon Musk when he first took over Twitter, now X. For Musk’s case, he claimed that Twitter was losing $4 million daily and was barely making money.

Both CEOs experienced “unexpected” consequences for firing a lot of people. In Ek’s situation, Spotify didn’t perform as expected. For Musk, he received massive backlash for months as people worried about Twitter’s efficiency. But for now, both seem to be doing fine.

Did The Layoff Work For Spotify?

It’s been four months since Ek fired 17% of Spotify’s workforce. That’s more than enough time to know whether it was a good idea. Well, it seems to have been successful.

As of April 2024, Spotify’s shares in the group have risen by more than 60%. Investors are happy about the decision and have also doubled their efforts with the platform.

Spotify Seems To Be Immune To Change

The massive layoff and diminished profit would have ruined some companies, but not Spotify. It seems the brand is immune to changes that would have crippled some companies. One example is how it survived after raising its prices.

Spotify has maintained its subscription fee at $9.99 for years but that changed in last July. They increased their prices to $10.99, and while it raised some eyebrows, it didn’t affect their earnings or customer base.

The Layoff Has Set Spotify For Long-Term Profitability

So far, it seems that removing 1,500 people from Spotify’s workforce was the right call for the company. The result is a more optimized operation that will lead to better revenue as the year continues.

However, their luck might run out soon. Some commentators pointed out that Ek didn’t anticipate the impact of the layoff. The results could be severe if they continue to make more “risky” decisions without proper calculations.

‘All’s Well That Ends Well’

So far, Ek’s decision to fire 1,500 people was a risky one. It caused Spotify to earn less than anticipated and could have gotten even worse.

Luckily, the company returned to normal after 4 months and has seen share prices rise by 60% since then. If Ek is correct, this may be the beginning of a more efficient era for Spotify.