Cloudflare CEO Announces Layoffs as AI Reshapes Business

Cloudflare has announced it is laying off 20% of its staff as it increases its AI investment – the latest in a long line of companies to do so. 

According to research from Challenger, Gray & Christmas, 26% of the 88,387 layoffs in April were attributed to AI, making it the leading cause of layoffs for the second month in a row. 

In a joint statement, Matthew Prince, CEO and co-founder of Cloudflare, and Michelle Zatlyn, co-founder and COO of Cloudflare, say that the cuts were “not a cost-cutting exercise or an assessment of individuals’ performance,” but rather about how Cloudflare is “defining how a world-class, high-growth company operates and creates value in the agentic AI era”. 

A “fundamental change” to operations

In their joint statement, Matthew and Michelle say that the way work is done at Cloudflare has "fundamentally changed,” with the company’s AI usage increasing by more than 600%.

“Employees across the company from engineering to HR to finance to marketing run thousands of AI agent sessions each day to get their work done,” they shared. 

According to Michelle and Matthew, this means Cloudflare is having to be “intentional,” about how it builds out the company for the AI era, in order to “supercharge the value we deliver to our customers,” and “honour our mission to help build a better Internet for everyone, everywhere”.  

Adopting AI has been crucial for Cloudflare’s overall success, say Matthew and Michelle, with the company’s origins in the cloud initially creating a burst of growth which allowed the company “to catch up to and pass companies that had a head start of years or decades”.

Despite this, Matthew and Michelle say they “cannot rest on the workflows and organisational structures that worked yesterday,” sharing that they are “confident,” that this new, AI operating model will be “faster and more innovative,” for growth. 

In the company’s earnings release, Matthew said: “AI is driving a fundamental re-platforming of the internet and a paradigm shift in how software is created and consumed; it’s shaping up to be the biggest tailwind we’ve ever seen in Cloudflare’s history.” 

AI layoffs prompt legislation

As more companies introduce layoffs driven by AI, some countries and states are beginning to bring in legislation designed to protect workers. 

In May, the Hangzhou Intermediate People’s Court in China ruled that employers cannot use AI as an excuse to fire workers.

According to NPR, the court ruled that the termination grounds cited by the company “didn’t fall under negative circumstances such as business downsizing or operational difficulties, nor did they meet the legal condition that made it ‘impossible to continue the employment contract’”. 

The state of Minnesota, meanwhile, is looking to introduce a bill that would legally require a 90-day transitional period before AI replaces workers – including paid notice for employees and learning and development opportunities. 

If passed, the legislation would ask employers to specify the technical progress being made by the technology, explain how it will impact employees and highlight the programmes in place to retain staff. Failure to follow these requirements would lead to a fine of US$10,000 per employee.