How big tech makes money ?

How Big Tech Makes Money

Let’s dig deeper, and see the differences in how these companies generate their revenue.

You are the Customer

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)

• Apple generates a staggering 62.8% of its revenue from the iPhone
• The iPad and Mac are good for 7.1% and 9.6% of revenues, respectively
• All other products and services – including Apple TV, Apple Watch, Beats products, Apple Pay, AppleCare, etc. – combine to just 20.6% of revenues

Amazon (Revenue in 2018: $232.9 billion)

• Amazon gets the most from its online stores (52.8%) as well as third-party seller services (18.4%)
• Amazon’s fastest-growing segment is offline sales in physical stores
• Offline sales generate $17.2 billion in current revenue, growing 197% year-over-year
• Amazon Web Services (AWS) is well-known for being Amazon’s most profitable segment, and it counts for 11.0% of revenue
• Amazon’s “Other” segment is also rising fast – it mainly includes ad sales

Microsoft (Revenue in 2018: $110.4 billion)

• Microsoft has the most diversified revenue of any of the tech giants
• This is part of the reason it currently has the largest market capitalization ($901 billion) of the Big Five
• Microsoft has eight different segments that generate ~5% or more of revenue
• The biggest three are “Office products and cloud services” (25.7%), “Server products and cloud services” (23.7%), and Windows (17.7%)

The remaining tech giants charge you nothing as a consumer, so how are they worth so much?

You are the Product

Both Alphabet and Facebook also generate billions of dollars of revenue, but they make this money from advertising. Their platforms allow advertisers to target you at scale with incredible precision, which is why they dominate the online ad industry.

Here’s how their revenues break down:

Alphabet (Revenue in 2018: $136.8 billion)

• Despite having a wider umbrella name, ad revenue (via Google, YouTube, Google Maps, Google Ads, etc.) still drives 85% of revenue for the company
• Other Google products and services, like Google Play or the Google Pixel phone, help to generate 14.5% of total revenue
• Other Bets count to 0.4% of revenue – these are Alphabet’s moonshot attempts to find the “next Google” for its shareholders

Facebook (Revenue in 2018: $55.8 billion)

• Facebook generates almost all revenue (98.5%) from ads
• Meanwhile, 1.5% comes from payments and other fees
• Despite Facebook being a free service for users, the company generated more revenue per user than Netflix, which charges for its service
• In 2018 Q4, for example, Facebook made $35 per user. Netflix made $30.

So while the tech giants may have many similarities, how they generate their billions can vary considerably.

https://www.visualcapitalist.com/how-tech-giants-make-billions/

AWS by the numbers

To understand the true scale of AWS, you need to look at the numbers.

• AWS has over 1 million active users in 190 countries
• AWS has 5x more deployed cloud infrastructure as their next 14 competitors combined
• Each day, AWS adds as much infrastructure as they used to run in total 7 years back
• Amazon S3 is designed to deliver 99.999999999% durability and scale past trillions of objects worldwide
• AWS partner, Netflix, accounts for up to one-third of Internet traffic during peak usage times
• AWS accounts for 41.5% of the public cloud market, bigger than Microsoft, Google, Rackspace, and IBM combined

References

1. https://www.visualcapitalist.com/stats-amazon-dominance-cloud/

Interesting data points and visualizations

1. Google is the undisputed top website in nearly every country in the world. In fact, Alphabet’s 11 domains in the top 100 ranking – including YouTube and a number of international versions of Google – racked up an impressive 90 billion visits in a single month. - Ranking the top 100 websites in the world. From the investment point of view, this may ranking may not reflect revenue ordering as the world has already gone mobile first and this ordering may not map 1:1 in the mobile first world. 
2. California is the largest economy today – it has a state GDP of $2.6 trillion, which is comparable to the United Kingdom. - Animation of 20 largest state economies in the US. 
3. The United States boasts 41% of the world’s millionaires, but it’s clear that the fruits of labor are enjoyed by only a select group—average wealth ($403,974) is almost seven times higher than median wealth ($61,667). This growing inequality gap knocks the country down to 18th place for median wealth.Countries wealth per capita