Silicon Valley's Promised Perks Are Vanishing. Is This Really Just About Food and Drink? | What's Silicon Valley So Anxious About ❸

The third piece in QDaily's Silicon Valley series. This one is about what a changing macro environment is doing to employee perks.

At 6 p.m. one day this May, the largest cafeteria at Google's headquarters in Mountain View, California, had just started serving dinner, and several hundred people had already formed a dozen or so loose lines.

Eating here is like walking into a borderless food court: Spanish seafood paella, Indian red curry, Thai sweet-and-sour pork chops, Mexican burritos. People carry trays through the crowd, picking out whatever they feel like.

The dishes are so varied and the crowd so large — different parts of the campus even have different cafeterias — that a visitor can easily miss the one thing they actually came to eat.

Employees, though, mostly know which staff cafeteria near which cluster of Google buildings has the good food. Hop on one of the free campus bikes and five minutes later you can be in another office area eating Japanese hand rolls made in front of you.

Even so, the several Google employees we met all felt the perks had slipped.

"I've been here less than a year and I can already tell it's gotten worse. There used to be seafood and beef all the time. Now you basically never see seafood, and there's less beef," one Google employee complained. Another said his favorite kinds of Japanese food had thinned out.

When Google employees complain about the food, their main point of comparison is Facebook, which has poached many of their former colleagues:

Besides a buffet cafeteria with an even wider selection, Facebook's campus has a free burger joint, a free barbecue place, a free frozen-yogurt shop... Even Philz, the pour-over coffee chain from the San Francisco area, opened a branch right inside Facebook's campus — free, of course.

But there aren't many tech companies left like Facebook, for which perks are no worry.

If Google is only complaining that the food isn't as good, smaller companies have already begun worrying about whether they can keep the perks at all.

Dropbox, the cloud-storage company that used to measure its perks against Google's, has started cutting food benefits — for instance, each employee may now bring at most 5 friends a month to eat at the company for free.

A few dozen kilometers from Google's campus, a tech company that went public not long ago has cut its perks far more visibly.

After its stock fell 80% following the IPO, the company pulled the landline off every desk to save the ten-odd dollars a month each phone cost, and later cancelled employees' free dinners.

The head of its engineering team soon complained to management that "engineers have to have free dinner."

That's how an engineer who works there described it to QDaily. At his request, we have withheld the company's name.

Free dinner came back in the end — for engineers only.

Weren't we going to change the world together? Why is everyone hung up on food?

Overtime meals, even an in-house cafeteria, are nothing new.

Plenty of companies in traditional industries have a cafeteria at midday, dinner for people working late, and a free cab home after 10 p.m.

But the logic of those perks is plain. Eat in the cafeteria means don't waste time going out at lunch, get back to work sooner. The free cab is there to encourage you to work past ten.

Perks at Silicon Valley tech companies don't work that way.

Not only is food available around the clock without limit, nobody limits what you do with it either. Google and Facebook both let employees bring friends to eat for free. If you're working late at Facebook you can bring your kids in to eat; there's a cafeteria just for children.

Over the past decade, free food has become standard issue at Silicon Valley tech companies.

The first company to turn a wide spread of free food into a perk was Google. Shortly after it was founded in 1999, it opened a cafeteria for its 40 employees and brought in chef Charlie Ayers to run the kitchen.

Judging from video of the time, though, what they ate was simple fast food, nowhere near as lavish as it is now:

As Google turned profitable and went public in 2004, its food improved along with it.

By the time Charlie Ayers left in 2005, Google was a Silicon Valley giant famous for its abundant free food, and his kitchen staff had grown to 150 people. They ran 10 restaurants on the Google campus, serving lunch and dinner to 4,000 employees. Food like this:

All of this existed to win talent — engineers who could write good code above all.

The pattern is common in Silicon Valley: an engineer interviews at one company, takes the offer, then interviews at another tech company to get a higher salary.

For a strong engineer, holding several offers at once paying anywhere from $100,000-plus to $200,000 a year is not unusual.

In all this, tech companies became the ones being chosen. They had to hand out salary and stock options, and keep employees — and their families — happy on top of that.

Free food is the baseline. Behind it come free shuttle buses, free gyms, free massages, free house cleaning, free English classes, and on and on.

At Facebook's scale, even the work-visa lottery, designed to be fair, isn't an obstacle. If an engineer Facebook brought in from overseas doesn't win the lottery, the company posts them to an office in another region and enters them again the next year.

It was all fine, if not for the part about not making money

After 2013, as Facebook's success carried it past a $100 billion market cap and the investment climate turned optimistic, perks at Silicon Valley tech companies peaked too.

These perks started out as the property of cash-rich giants like Google and Facebook, but startups that had raised huge rounds went all in on perks too, to compete for the same people.

Square, which sells card readers to small merchants, likes to cook special meals for employees — meat on this scale:

Eight months after its IPO, Square's stock trades at 70% of its offering price.

Every Wednesday, OpenDNS brings in a different one of San Francisco's most distinctive food trucks to feed its employees — this one, for instance:

At the offices of home-sharing service Airbnb, meals come with drinks as well. This is the row of taps behind their cafeteria, from sparkling wine to vodka: turn one and drink as much as you like.

This cloud note-taking company moved into a new office in 2012 and put in treadmill desks so people could work while walking. Chefs from a different restaurant come in every day to cook for employees — far more extravagant than the central-kitchen bulk catering at a Google or a Facebook.

In case you have no time to clean your house, Evernote gives employees free house cleaning.

Employee perks became a race among Silicon Valley tech companies long ago. Free food, shuttle buses and free gyms are only the baseline.

Stranger perks include:

• Facebook's egg-freezing program, which lets employees freeze their eggs and stop worrying about the age at which they have children;
• A free breast-milk courier service from real-estate marketplace Zillow (if you're nursing and away on a work trip, you can freeze your milk and have it shipped home);
• Streaming-camera company Dropcam once offered "the CEO flies you to work in a helicopter";

Eventually office perks became a business of their own. BlueBoard, founded in 2013, supplies tech companies with "year-end employee rewards"; its pitch is that it helps a company build its own culture.

What's in these perks is odd too: skydiving over a small island, diving with sharks, weightless relaxation in a vacuum chamber... The company pays, and lets employees pick what they want to do.

Perhaps more important than the perks themselves is that many companies built their whole corporate culture on top of them.

Like many of the perks above, they may not get used very often, but they still advertise the brand: we are a diverse, fun, cool company — look at our perks and you'll know.

When the investment fever breaks, what happens without perks?

Probably no employee objects to a company spending money to raise their standard of living.

But this "perks culture" is built out of money, and in the end someone has to pay the bill.

Facebook doesn't have that problem; its ad revenue improves quarter after quarter. The company was still losing money in 2013. Now it makes more than a billion dollars in profit every quarter.

Its imitators have not been so lucky. Since the second half of last year, the high-valuation startups once called "unicorns" have run into trouble because they can't make money. Either investment funds have marked their valuations down, or they've burned too much cash and can't raise the next round, leaving layoffs or cost cuts as the only option.

In the words of one investor, "too many companies spent three to five hundred million dollars to get thirty or forty million dollars in annual revenue, and growth after that isn't fast either."

Dropbox, the largest cloud-storage company in America, is one of them. At the height of its fundraising, its valuation shot past $10 billion, and Dropbox too modeled its employee-perks culture on Google and Facebook, with unlimited free food, drinks, shuttle buses, gym access and laundry service.

Add it all up and Dropbox gave each employee $25,000 a year in benefits beyond salary. At 1,600 employees, that costs the company $38 million a year.

Perks have become an industry-wide problem in Silicon Valley. Even Google, one of the most profitable tech companies in the world, has taken questions on Wall Street over losing ground to Facebook in advertising. After its new CFO took over last year, Google started trimming perks too.

For startups that aren't profitable yet and are burning investors' money, cutting employee perks is the hard fact they now have to face.

To get through the squeeze, Dropbox began limiting free food this year: each employee can bring at most 5 friends a month to eat at the company, and the laundry service and shuttle buses are gone altogether. They've still had it relatively easy — even after the valuation markdown and the cuts, there has been no mass wave of resignations.

Another Silicon Valley startup valued above $10 billion is also cutting costs. Business there is holding up, but employees recently got an internal email from an executive that said, flatly, "we need to save money."

An employee at this "unicorn" told us that work-related expenses under $500 used to be reimbursed on a receipt alone. Now they need approval.

And because the company's growth numbers don't look as pretty as last year's, colleagues have started half-joking about whether to change jobs. This employee also asked us to withhold both their name and the company's.

Big-data startup Palantir is in worse shape. In February, the company, valued at $20 billion, missed last year's profit target and had its valuation marked down by investors; within a month, more than 100 core employees left the 1,500-person company.

Palantir finally had to announce a 20% raise for employees with more than 18 months at the company to slow the exodus — even though that pushed its costs up further.

Time to test the culture

With unicorn troubles surfacing one after another and the investment climate turning cautious and pessimistic, the time to test corporate culture has come.

Since the start of this year, discussion of company perks has picked up in Silicon Valley as well.

A few years ago the worry was "don't waste food." The recent arguments are about whether these perks bring a company any real gain in efficiency, and how to face reality if they can no longer be offered:

"Cutting perks is worse than never having had them in the first place — especially when your entire culture is built on top of them."

People no longer treat perks as a mark of culture, but as a problem with Silicon Valley. If startups can no longer offer them, will the cultures built on generous benefits fall apart?

As for the company at the top of this piece, the one whose stock fell 80%: in the end only its engineers got fed, which probably won't inspire everyone else to pull together and turn the company's future around.

Ironically, "engineers have to have free dinner" is not the norm at most of today's tech giants.

Amazon, fourth in the industry by market value behind only Apple, Google and Microsoft, has always been the opposite of generous. No free meals, not even a free shuttle bus. And Google and Microsoft are still spending heavily to catch up with Amazon's lead in cloud computing.

At Apple, the most valuable company of all and one that has drawn enormous talent, the only free lunch you ever get is on your first day. After that, employees pay for every meal at Caffè Macs, the single cafeteria on Apple's campus.

Even so, a veteran employee once remarked to a reporter from Fortune that the mood at the company had changed over the past two years, because colleagues now actually have time to chat after pouring their coffee.

Long hours and indifference to perks are a habit Apple has kept since Steve Jobs founded it. In an interview in the 1980s, he said he wanted to create a way of working that came with satisfaction and a sense of mission: you work harder and longer; you face constant time pressure; you take on responsibility you never thought you could carry; you don't take vacations, you don't even take weekends off... and you don't mind any of it, because you love the work and you can't live without it:

"Everyone I know who's worked here says it's the most fulfilling experience of their life. People love it here, but that's very different from it being 'fun.' Fun is something that comes and goes."

There will probably be more and more tech companies with no choice but to learn Apple's culture. But going from luxury to thrift is never easy.

Editor's note: PC, the internet, smartphones... the spread of every foundational technology has brought years of fast growth with it. For the tech industry, that growth has now run for forty years.

Right now it may pause: the growth smartphones brought has already slowed, and since ride-hailing and food delivery we haven't seen another breakthrough on the order of social networking or e-commerce, the kind that moves hundreds of billions in wealth.

What new technology will pave the way for the whole industry's growth next? And will it arrive in time?

These questions will affect everyone — giants like Apple and Google, venture capital firms and startups, every user of every tech product. Basically everyone.

Over the past forty years, most of the technology that laid the ground for the tech industry's sustained prosperity came out of Silicon Valley. We're running a series of reports on Silicon Valley, looking at this shift from different angles. This is the third piece.