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Initially, you might think that the world is being dominated by technology giants. Indeed, it may seem like the world’s biggest technology companies have a lot in common, well not all is as you would think.
The Big Five Tech companies (Amazon, Apple, Facebook, Microsoft, and Alphabet) have become established as some of the most valuable publicly-traded companies in the world, with founders such as Jeff Bezos or Bill Gates hitting the top spot on the global billionaire list.
Most of the tech giants have millions if not billions of people using their platforms globally. These companies have created the scale and size of businesses that make it hard for others to compete. There are few if any companies now that could scale to the same size and offer the same breadth of products as Amazon.
Each of the big tech companies has one thing in common though. They all leverage user data to create personalised and tailored services. In fact, many handle our most sensitive data on a daily basis. At the same time, this data is a double-edged sword, as these same companies often find themselves in the crosshairs for mishandling personal information.
Finally, all of these companies have a similar origin story: they were founded or incubated on the fertile digital grounds of the West Coast of the USA. The company that has the weakest claim to such origins would be Facebook, but even it has been based in Silicon Valley since June 2004.
For all of their commonalities, it seems that there is less of a mold for how these tech giants end up generating cashflow.
To start with let’s do a roundup of their financials. The following data comes from the 2018 10-K reports filed last year.
Company | Revenue (2018) | Net Income (2018) | Margin |
---|---|---|---|
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 | $16.6 billion | 15.0% |
$55.8 billion | $22.1 billion | 39.6% | |
Combined | $801.5 billion | $139.0 billion | 17.3% |
Together, the Big Five tech giants together account for a staggering turnover of over $800 billion of revenue in 2018. This would put them among the world’s 20 largest countries in terms of GDP. More precisely, they would just be ahead of Saudi Arabia ($684 billion GDP) in terms of size.
Meanwhile, they generated a total of $139 billion of net income for their shareholders, at a 17.3% profit margin.
Let’s dig deeper, and see the differences in how these companies generate their revenue.
In the broadest sense, three of the tech giants make money in the same way: you pay them money, and they give you a product or service.
Apple (Revenue in 2018: $265.6 billion)
Amazon (Revenue in 2018: $232.9 billion)
Microsoft (Revenue in 2018: $110.4 billion)
The remaining tech giants charge you nothing as a consumer, so how are they worth so much?
Both Alphabet and Facebook generate billions of dollars of revenue, but they make this money from advertising. Each time you update your profile on Facebook or search on Google, they use this information to target ads. These platforms allow advertisers to target you at scale with incredible precision, which is why they now dominate the online ad industry.
Here’s how their revenues break down:
Alphabet (Revenue in 2018: $136.8 billion)
Facebook (Revenue in 2018: $55.8 billion)
So while the tech giants may have many similarities, how they generate their billions can vary considerably.
Some are marketing products to you, while others are marketing you as the product.