Record Revenue. And 1,100 Layoffs.

These two events happened simultaneously.

Cloudflare’s moves in 2025 should not be dismissed as just another tech industry news item. The company reported a record revenue of approximately $2.8 billion (about ¥420 billion), a 27% increase from the previous year. Behind this success, however, was the layoff of 1,100 employees, which accounts for about 16% of its total workforce.

CEO Matthew Prince stated, “AI has dramatically increased the efficiency of support operations. We no longer need the same number of people as before.”

In other words, this means: They did not cut jobs because they made a profit; they reduced the workforce because the operational structure changed due to AI.

Is this only a concern for large corporations? No. In fact, small and medium-sized enterprises (SMEs) should confront the implications of this structural change head-on.

What Happened—A “Tectonic Shift in Cost Structure”

Let’s break down what happened at Cloudflare.

The company provides infrastructure services such as CDN (Content Delivery Network) and security services, with a customer base in the millions. Naturally, this leads to a massive volume of support inquiries.

Traditionally, handling these inquiries required a large number of personnel. However, with AI chatbots, automated categorization, and automated knowledge base generation reaching practical levels, the proportion of inquiries that need human intervention has drastically decreased.

While specific numbers have not been disclosed, industry trends indicate that it is not uncommon for AI support implementations to automate 60-80% of inquiry handling. If Cloudflare’s support department had around 2,000 employees, then the reduction of 1,100 employees implies that “more than half became unnecessary.”

What’s crucial here is that the quality of service did not decline. In fact, AI has enabled 24/7 support and increased response speeds. Customer experience has improved while costs have decreased.

This is the essence of “making money with AI and reducing workforce.” They did not lay off employees because revenue increased; rather, they transformed the structure to manage the same revenue with fewer people. As a result, profit margins soared.

The Real Implication for SMEs

Now, here comes the main point.

“We don’t have 1,100 employees, so this doesn’t concern us”—if any business owner thinks this way, they are mistaken. The impact of this structural change is even greater for companies with fewer employees.

The reason is simple. In SMEs, the scope of work per employee is broader. While large corporations can have roles like “dedicated support” or “dedicated data entry,” in SMEs, one person often wears multiple hats. If 30% of the tasks performed by that “multi-role employee” can be automated by AI, what happens?

That person will not be laid off; instead, they can create additional value with the freed-up 30%.

This is the decisive difference between large corporations and SMEs. Large corporations do the subtraction: “1,100 jobs eliminated by AI = 1,100 layoffs.” SMEs can do the addition: “30% of time freed up per person = that time can be used for sales or new business development.”

Let’s do some concrete calculations.

The Real Break-even Point for SMEs

Let’s assume a company with 10 employees, each with an average annual salary of ¥4 million. The total labor cost amounts to ¥40 million annually (approximately ¥52 million including social insurance).

Now, let’s say they introduce AI tools.

• ChatGPT Team: ¥3,000 per person per month × 10 people = ¥30,000 per month, ¥360,000 per year
• AI Support Tool (e.g., Intercom): ¥50,000 per month, ¥600,000 per year
• AI Meeting Minutes and Document Creation Tool: ¥20,000 per month, ¥240,000 per year
• Initial Setup Costs (including external support): ¥500,000

Total investment in the first year: approximately ¥1.7 million.

Assuming that this increases the efficiency of each employee’s work by 20%, we have 10 people × ¥4 million annual salary × 20% = ¥8 million in productivity gains per year.

With an investment of ¥1.7 million, the return is ¥8 million. The ROI is about 4.7 times, recoverable in the first year.

In the second year, the initial costs will be eliminated, so the investment will be ¥1.2 million annually. The return will continue to be ¥8 million. ROI will be about 6.7 times.

Of course, the assumption of a “20% efficiency increase” is hypothetical. However, in actual cases we have supported in local SMEs, the following results have been observed:

• Manufacturing (15 employees): AI semi-automated the creation of quotes. The time taken per quote decreased from 45 minutes to 10 minutes. With 40 quotes a month, this saves about 23 hours. The sales staff used the saved time to increase the number of visits by 1.5 times, resulting in two additional orders per month. Monthly sales increased by about ¥1.5 million.
• Construction (8 employees): Implemented AI for automatic generation of daily reports and documentation. The administrative work of site supervisors reduced from 2 hours to 30 minutes per day. This saves about 375 hours annually. The time saved was used for site management, reducing rework. The annual additional cost savings effect is about ¥2 million.

These are not stories about “reducing workforce.” This is a story about changing how people use their time.

Layoffs at Large Corporations Present an “Opportunity” for SMEs

Another often-overlooked perspective is this.

When large corporations like Cloudflare reduce their workforce through AI, it means that talented individuals in that field are entering the job market.

Engineers and support professionals from large corporations, who SMEs have previously struggled to hire, are now flowing into the job market. This presents a hiring opportunity for local SMEs.

Moreover, as large corporations streamline operations with AI, the “human touch” in their services diminishes. Inquiries are handled by AI, and sales processes become digital. Relationships with customers become thinner.

This is where SMEs can find their competitive edge. They can redirect the time saved from efficiency gains with AI towards “relationship building” that only humans can do. SMEs can capture the “human warmth” that large corporations have cut back on. This is something large corporations cannot replicate.

“So, what should we do in the end?”

I will mention three things.

1. First, try automating one task.

You don’t need a company-wide AI strategy. Start by selecting one “tedious task you do every month” and automate it with AI. Whether it’s quote creation, meeting minutes, daily reports, or initial inquiry triage, anything will do. You can start with tools that cost a few thousand yen per month. Once you try it, you will definitely have the experience of “Oh, this is done automatically.” That experience will lead to the next step.

2. Think about “increasing human value” rather than “reducing workforce.”

Cutting employees in SMEs should be a last resort. Most companies probably do not have enough staff to begin with. The true value of AI lies in increasing the productivity of existing employees. What if a salesperson who was spending 3 hours a day on administrative tasks could use that time for customer visits? That alone could change sales figures.

3. Calculate the break-even point in “time.”

AI investment for SMEs involves small amounts. It’s a world of tens of thousands of yen per month. Therefore, it’s better to think in terms of “how many hours can be saved” rather than “how much profit can be made.” If you save 20 hours a month, that translates to ¥40,000 at a rate of ¥2,000 per hour. If the tool costs ¥10,000 per month, you would be in the black from the first month. This calculation should be done by the business owner themselves. Whether it’s in Excel or ChatGPT, they should calculate using their own company’s numbers. That will be the first step.

What Cloudflare’s Layoff of 1,100 Employees Teaches Us

The story of Cloudflare is not just a superficial news item about “a large corporation cutting jobs through AI.”

It is a declaration of a structural change: “A new era has arrived where the same work can be managed at an overwhelmingly lower cost.”

This structural change is not limited to large corporations. In fact, the higher the proportion of labor costs in fixed expenses, the greater the impact on SMEs. And this impact can be both a “threat” and an “opportunity.”

If nothing is done, the market will be taken over by competitors who can effectively utilize AI. If action is taken, SMEs can leverage the “human value” that large corporations cannot achieve.

The question is simple.

What percentage of your employees’ time is spent on “tasks that can be replaced by AI?”

Knowing the answer to that question will be the dividing line for the future.