Dropbox lays off 16% of staff to refocus on AI, as sales growth slows

Facing a slowdown in revenue growth, cloud storage company Dropbox announced today that it is laying off 500 employees, or 16% of its workforce, mainly in order to be able to hire staff with AI expertise.

Although revenue for the fourth quarter last year — the last quarter for which Dropbox reported earnings — was up by 5.8% year over year to $598.8 million, the company has experienced a slowdown in sales recently. Meanwhile, in order to stay competive, the company needs to ramp up its AI capabilities. 

“While our business is profitable, our growth has been slowing,” CEO Drew Houston said in a note to employees. “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.”

Most other tech companies face similar macroeconomic issues — though technology companies announced massive layoffs last year, 2023 is already much worse, as tech giants and many smaller tech companies announce sweeping jobs cuts.

And like other tech companies, Dropbox also faces pressure to ramp up its AI capabilities.

“Over the last few months, AI has captured the world’s collective imagination, expanding the potential market for our next generation of AI-powered products more rapidly than any of us could have anticipated. However, this momentum has also alerted our competitors to many of the same opportunities,” Houston said.

OpenAI’s launch of ChatGPT in December sparked enormous public interest in the  natural language processing capabilities of generative AI, and major tech companies including Microsoft, Google, Meta, Oracle and Salesforce have announced plans to incorporate AI into their products. As a result, Dropbox feels the need to move fast to hire staff with the exertise it needs.

“In an ideal world, we’d simply shift people from one team to another,” Hoston said. “And we’ve done that wherever possible. However, our next stage of growth requires a different mix of skill sets, particularly in AI and early-stage product development. We’ve been bringing in great talent in these areas over the last couple years and we’ll need even more.”

The company is also making organizational changes, including consolidating its Core and Document Workflows businesses to focus on better integration of customer workflows into its core FSS (file sync and sharing) product. 

“We’ll need all hands on deck as machine intelligence gives us the tools to reimagine our existing businesses and invent new ones,” Houston said.

Dropbox is offering various benefits to laid-off employees, including 16 weeks of pay, with one additional week of pay for each completed year of tenure at the company.

Technology companies went on a hiring binge during the pandemic when lockdowns caused a tech buying spree to support remote work, and now they face revenue declines, made worse over the last year by supply chain problems and geopolitical uncertainy cause by the Russian invasion of the Ukraine and a US-China semiconductor trade war that is putting companies globally in the crosshairs.