Cloud storage provider Dropbox became the latest name to reduce its workforce amidst the economic downturn in the market. Interestingly though, the ‘AI era of computing’ is also one of the reasons why Dropbox is letting go off 500 people. In a memo to employees that has been made public since then, Dropbox CEO Drew Houston announced that the company is laying 16% of its workforce.

This amounts to around 500 employees, who will be given the boot soon. This marks the first layoffs the company has made since January 2021, wherein it fired 315 employees while dealing with the pandemic. According to a filing with the SEC, the company will incur charges of approximately $37 million to $42 million in connection with layoffs, which will be recorded in the second quarter of the current year.

“In an ideal world, we’d simply shift people from one team to another. And we’ve done that wherever possible,” Houston wrote in the memo. “However, our next growth stage 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 of years and will need even more.” The company will now consolidate its core and document workflow businesses, as well as bring adjustments to its product development teams.

Impacted employees, Houston wrote, will receive a calendar invitation for a one-on-one meeting with a leader on their teams, while a member of the People team will be in charge of going through the details of their departure, package, and others. They will not leave empty-handed either – Dropbox will be providing them with sixteen weeks of severance pay, with one additional week of pay for each completed year of tenure at Dropbox. The company will also provide them with job placement services and career coaching, all for free.

Furthermore, they will receive their Q2 equity vest, along with support for healthcare. For axed employees in the US, they will be eligible for up to six months of COBRA in the US, while those in other countries will receive similar equivalents (where applicable). They will also be permitted to retain company devices (phones, tablets, laptops, and peripherals) for their personal use.

Coming to the big question – why Dropbox is laying off the employees – we find that Houston attributes the decision to the volatile economy, along with a slowed rate of growth and the arrival of “the AI era of computing.” Owing to downturns from the economic downturn in the market, the company’s growth has been slowing, and Dropbox noted that some investments that used to deliver positive returns “are no longer sustainable.”

Houston also informed that the cutting of jobs and investing in new areas will allow the company to build out its AI division, which is a red flag of its own. The intensifying AI race between tech titans in recent months and increasing investor interest in AI has sparked fears that it will inevitably lead to the loss of more jobs. The development at Dropbox seems to be indicative of such fears.

“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 noted.