Is AI the Strategy—or the Scapegoat—Behind Block’s 40% Layoff?

This month’s announcement that fintech company Block (formerly Square) cut nearly half its staff made a bigger splash than the usual tech layoff story, in part because CEO Jack Dorsey laid the responsibility explicitly at the feet of AI.

Speculation of the effect advancing AI may have on jobs has been bubbling since ChatGPT  became the fastest technology to be adopted en masse ever, but the Block layoff of 40% of its workforce—four  thousand people—is one of the first and most dramatic examples of mass layoffs attributed directly to it.

In the aftermath, questions abound on whether this development is the first of many, a flash in the pan, or even whether AI is being used as a cover story for unpopular reductions.

Omar Garriott is the executive director of the Batten Institute for Entrepreneurship, Innovation and Technology.

The Darden Report caught up with Omar Garriott, executive director of Darden’s Batten Institute for Entrepreneurship, Innovation and Technology, for insights into the layoffs from his perspective on the industry as a whole given his past experience as veteran of Silicon Valley.

Tech layoffs are common in the headlines these days. Why is this one more significant?

I’ve seen layoffs at every tech company I worked for, but never this big, this quickly. Usually, it’s in rounds and approach with more of a scalpel; for example, every manager being asked to cut one position. The only comparable one I can think of is Elon Musk, with his bathroom sink in hand, letting go of 80% of the staff at Twitter.

Dorsey’s justification for this cut is AI. It’s changing, and perhaps replacing, every white collar job. And he’s saying, let’s do a big painful one rather than a slow trickle. When Dorsey (who also founded the aforementioned Twitter) talks, people in the Valley perk up.

The other concerning part of this story isn’t just about the tech sector. It’s that Block (AKA Square, AKA Cash app) is a massive payment processor. If this was in fact about anything other than clear efficiencies that the company thinks it can achieve with AI, it may portend ominously for the economy overall. Block seeing fewer transactions on its platform could be a leading indicator of a coming dip in consumer spending and sentiment.

There has been some speculation about “AI-washing,” or using AI as an excuse to reduce staff for other reasons. Do you think the Block layoff was purely AI-driven?

There’s been this constant refrain about tech in the last few years that the industry got bloated. Since COVID, return to office, tariffs, and economic downturns, tech just needed a right-sizing, the theory goes. Someday, perhaps more slowly, hiring will grow again. Maybe Musk then—and Dorsey now—just provided tech leaders with the permission structure to finally right-size, which of course Wall Street then immediately rewards.

Is AI just the latest ‘air cover’ for mass layoffs in tech? I don’t think so.

First, we need to explode this myth that tech has gotten too big. Especially now, I’d argue it’s not big enough! Tech represents 15% of GDP and probably more than 90% of GDP growth, but only 7% of employment. Bullishness (perhaps bubble-ness) about AI held up the entire stock market in the last year or more, and four companies alone spent nearly half a TRILLION dollars on data centers last year with even more expected this year.

Now, I don’t know if these companies, including Block, will invest the same replacement-level of human and infrastructure resources in AI tool development. Probably not.

But I will say that I worked for five big tech companies, and none of them felt bloated. And that was during tech’s second heyday (there was a LOT of spending on perks and parties, and bidding wars for top engineering talent…gone are the days when computer scientists have leverage!). And certainly there’s no opulence or profligacy now.

None of these places are overstaffed. Everyone feels short on resources and it’s herculean to try to get additional headcount. They’re working hard with an already-full plate. Add to that now the constant stress of having AI over your shoulder.

So the question here is not if these companies are too big. And it’s not whether AI is a transformative technology whose job augmentation will be broadly felt, but just first in tech as is the case with most disruptions (see: programming jobs).

The question is, how fast and how deep the cuts will be to all knowledge worker jobs, in and out of tech?

Will we look back on Dorsey’s cuts as first mover in a flood of companies ripping off what tiny bit of the band-aid that remains in terms of employee glut? And if they do, will AI be the reason or the scapegoat? While enterprise-wide AI deployments are still not super dialed in, it’s clear that it will be hard to pause the forward march here.

Some have pointed to Block’s shaky financial performance of late, but I take Dorsey at his word that this was about AI, and nothing more.

Tech is already lean. And that is both encouraging and worrisome.

The aftermath is still unfolding: Block’s stock indeed increased after the announcement, but some employees are pushing back against Dorsey’s decision. What can aspiring tech entrepreneurs learn from this latest shake-up?

Dorsey’s narrative is spot-on in another regard: The cost to build tools—in terms of time and resources—is dropping faster than we’ve ever seen. Development cycles are insane, in some cases almost real-time. You no longer need a large team to ship new features. You can launch, iterate, and get customer feedback in a matter of minutes. Then iterate some more.

Of course, entrepreneurs are using this to their advantage. But what worries me about Block’s announcement, as well as what I often see from entrepreneurs right now, is this growing sense that we don’t need technical talent. If you couldn’t code, it used to be gospel in the Valley that the first hire you needed to make was a technical co-founder. And, yes, sure, Engineering and Product roles are shifting quickly. But I think they’re shifting in a way that entrepreneurs can learn from—to not just figure out how to harness these tools but to be more strategic, creative and human-focused. To create truly great things, to make a sale,  to lead.

There are no shortcuts to building great businesses. Ultimately, you have to solve an acute human pain point, better than someone else can, and get paid for it.