They ‘big 5’ technology companies of Apple, Alphabet (Google), Microsoft, Amazon and Facebook are at the forefront of how the latest technology is shaping the world. And bringing the latest technology to consumers around the world has proved to be an extremely profitable endeavour. Together they are worth almost $3 trillion, with 2016 revenues of $555 billion and profits of $94 billion. They are also sitting on a phenomenal cash pile of upwards of $330 billion, expected to more than double to $680bn by 2020, when profits are also forecast to hit $170 billion.
Companies hoarding cash is not usually something that is looked upon favourably looked on by investors. However, the ‘big 5’ seem to have a free pass in this regard as share prices continue to soar despite only Apple paying out dividends of any note. As a report in The Economist puts it, investors appear to feel safe in the knowledge “these firms are the dominant oligopolies of the 21st century and will extract a vast, rising, flow of profits”.
Where the world’s biggest tech companies currently make their money is interesting. However, even more interesting, and a window into the future of the latest technology in the world, is a look at their smaller but rising revenue streams as well as currently loss-making investments. A recent study by the Visual Capitalist, a digital media brand specialising visualisations of investment and business topics, breaks down how the big 5 generate their revenues and throws up a few surprises.
Apple’s revenues are very concentrated in hardware with 63% coming from iPhone sales, 10% from iPads and 11% from Mac computers. The remaining 16% of revenues are made up by ‘services’ and ‘other products’ which include replacement parts and revenues from the App Store. A recent investment in New Zealand company PowerbyProxi, bought for an undisclosed sum, indicates a wireless future for our hardware technology. Wireless charging is to be a future of the new iPhone X and 8 handsets and investing in a wireless hardware specialist like PowerbyProxi shows that this is a technology trend Apple wants to be at the forefront of.
Alphabet’s revenues are dominated by advertising revenues generated by Google AdWords and YouTube, which account for a whopping 88% of all income. Significant income is also generated by the Play app store and Pixel smartphones, which combine to 11%. That leaves only 1% generated by the company’s ‘other bets’ division. These include life sciences company Verily and smart homes brand Nest. Revenues from the ‘other bets’ division grew 82% in 2016 to $809 million, tiny for Alphabet, but net losses for the division were $3.6 billion, indicating heavy investment. Alphabet believe machine learning, artificial intelligence and smart homes technology will be key global technology trends and that means they almost certainly will be.
Of the Big 5, Microsoft has the most diversified revenue streams. Accounting for 28%, Microsoft Office is the company’s biggest earner. Enterprise server and cloud storage are next, bringing in 22% of revenues. Perhaps surprisingly, however, is that in 2016 Xbox revenues, 11%, were greater than those generated by Windows. This provides a clue that gaming technology will continue to be a huge business into the future.
AI, however, is also Microsoft’s biggest bet on the future of technology. Launched in 2016, Microsoft’s AI and Research group has grown its staff numbers to 8000+ already. The company is investing heavily both in terms of cash and human resources, a trend that backs up Alphabet’s similar bet on AI.
Amazon still makes most of its revenue, 72%, from sales on its ecommerce platform. However, its media division, Amazon Media, is growing quickly and now accounts for 18% of revenue. Tech-focused online streaming companies like Amazon and Netflix are now in a mammoth battle with traditional media companies, a trend that looks like it will continue into the coming years. However, it is the growing influence of Amazon’s cloud server unit, Amazon web services, that demonstrates that cloud storage is a technology trend here to stay. The unit now accounts for 9% of revenues, and is expected to keep growing quickly over the next several years.
Finally, Facebook’s revenues are almost completely derived from advertising, which adds up to 97% of all income. However, Facebook’s big bet on what the latest technology trends will be is focused on Augmented Reality via Virtual Reality. Zuckerberg believes that physical objects from board games to TVs will, within 10 to 20 years, be replaced by AR versions. He also believes the technology is not yet there but Facebook are investing heavily in AR and VR software and believe that, though they don’t yet know exactly how, being at the forefront of the trend will be key to the social media giant’s future.