At a glance, it may seem that the world's largest technology companies have a lot in common.
For starters, the five Big Tech companies (Amazon, Apple, Facebook, Microsoft and Alphabet) have become some of the largest publicly traded companies in the world, with founders such as Jeff Bezos and Bill Gates at the top of the list. Global list of billionaires.
These tech giants also have an avant-garde clientele. With billions of people using their platforms globally, these companies are leveraging user data to strengthen their market share. At the same time, this data is a double-edged sword, as these same companies often find themselves in the crosshairs for mishandling their personal information.
Finally, all these companies have a similar history of origin: they were founded or were incubated on the fertile digital lands of the west coast. The company that claims the least of this origin would be Facebook, but it has even been based in Silicon Valley since June 2004.
Determine the giants of technology
Despite all their similarities, it seems that tech giants are generating less cash.
But before we get to the way Big Tech earns money, let's start looking at finance at a higher level. The following data comes from the 2018 10-K reports filed last year.
|Business||Recipes (2018)||Net income (2018)||Margin|
|Combined||$ 801.5 billion||$ 139.0 billion||17.3%|
|Apple||$ 265.6 billion||$ 59.5 billion||22.4%|
|Amazon||$ 232.9 billion||$ 10.1 billion||4.3%|
|Alphabet||$ 136.8 billion||$ 30.7 billion||22.4%|
|Microsoft||110.4 billion dollars||$ 16.6 billion||15.0%|
|$ 55.8 billion||$ 22.1 billion||39.6%|
Together, the five technology giants achieved a turnover of just over $ 800 billion in 2018, making it one of the 20 largest countries in the world in terms of GDP. More precisely, they would only surpass Saudi Arabia (684 billion dollars in GDP) in terms of size.
At the same time, they generated a total net profit of $ 139 billion for their shareholders, representing a profit margin of 17.3%.
How Big Tech earns money
Let's go further and see the differences in how these companies generate their revenues.
You are the client
In a broad sense, three of the tech giants make money the same way: you pay them money and they give you a product or a service.
Apple (Turnover in 2018: 265.6 billion dollars)
- Apple generates 62.8% of its turnover with the iPhone
- The iPad and Mac represent respectively 7.1% and 9.6% of revenues.
- All other products and services, including Apple TV, Apple Watch, Beats products, Apple Pay, AppleCare, etc., only account for 20.6% of revenue.
Amazon (Revenue in 2018: $ 232.9 billion)
- Amazon makes the most of its online stores (52.8%) as well as third party vendors (18.4%)
- Amazon's fastest-growing segment is offline sales in physical stores
- Off-line sales generate current revenues of $ 17.2 billion, up 197% from one year to the next.
- Amazon Web Services (AWS) is known to be Amazon's most profitable segment and accounts for 11.0% of its revenue.
- Amazon's "Other" segment is also growing strongly – it mainly includes sales
Microsoft (Turnover in 2018: $ 110.4 billion)
- Microsoft has the most diversified income of all giants of technology
- This is one of the reasons he currently has the largest market capitalization ($ 901 billion) of the five
- Microsoft has eight different segments that generate about 5% or more of revenue
- The top three are "office products and cloud services" (25.7%), "server and cloud services" (23.7%) and Windows (17.7%).
The other giants of technology charge you nothing as a consumer. How are they so much?
You are the product
Alphabet and Facebook also generate billions of dollars in revenue, but their money comes from advertising. Their platforms allow advertisers to target you on a large scale with incredible accuracy, which is why they dominate the online advertising industry.
Here's how their income breaks down:
Alphabet (Turnover in 2018: $ 136.8 billion)
- Despite a larger generic name, advertising revenue (via Google, YouTube, Google Maps, Google Ads, etc.) still accounts for 85% of the company's revenue.
- Other Google products and services, such as Google Play or the Google Pixel phone, generate 14.5% of total revenue.
- Other bets account for 0.4% of revenue – this is Alphabet's litmus test to find the "next Google" for its shareholders
Facebook (Turnover in 2018: $ 55.8 billion)
- Facebook generates almost all revenue (98.5%) of ads
- 1.5% comes from payments and other fees
- Although Facebook is a free service for users, the company has generated more revenue per user than Netflix, which charges for its services.
- In Q4 2018, for example, Facebook earned $ 35 per user. Netflix makes $ 30.
Thus, although technology giants may have many similarities, the way they generate their billions may vary considerably.
Some sell you products, while others sell you as a product.
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