It is no longer news that tech companies are the most valuable in the world. To put it into perspective, the revenue from the top 5 tech giants (Apple, Amazon, Facebook, Alphabet, and Microsoft) added together is more than Saudi Arabia’s Gross Domestic Profit. More so, the founders and CEOs of these companies also show up on the global billionaire lists. This article will explain how these tech giants are able to make this kind of money.
Product/Service for Money
Apple, Amazon, and Microsoft share the same revenue model – they offer you a unique service for a fee. Let us do a breakdown of the services these three companies render.
Apple generated US$265.6 billion in 2018, of which their primary products/services were the iPhone (62.8%), MAC and iPad (9.6% and 7.1% respectively), with other products (Beats, Apple Pay, Apple Watch, etc.) taking up only 20.6%.
Amazon, on the other hand, made US$232.9 billion last year. They are predominantly an e-commerce giant but generated a considerable part ($17.2 billion) of their 2018 revenue from their brick-and-mortar outlets. Offline sales grew by 197% last year, making it their fastest-growing segment. This e-commerce company further generated 11% of its 2018 revenue from its most profitable segment – Amazon Web Services (AWS).
Of all the tech giants, Microsoft has the most spread-out revenue, and that is why they have the largest market capitalization at US$901 billion. Microsoft has nine different revenue segments, with eight segments generating close to 5% or more of their total revenue. Their three most profitable segments are Office Products and Cloud Services (25.7%), Server products and cloud services (23.7%), and Windows (17.7%).
Product/Service for Free
The other two tech giants’ revenue generation model is more complex because they also offer you services but charge nothing for the services – Alphabet are the owners of Google, and as we know, they offer fantastic services like YouTube, Google Maps and more for free. Furthermore, Facebook is also completely free to use but generates more revenue than Netflix which charges for its services. Let’s see how they do it.
These tech giants make billions of dollars every year, and most of this money comes from advertising. Alphabet cashs off its sublime advertising on all their platforms, including Google, YouTube, Google Ads, Google Maps, Android, and many more. Interestingly, even though this company also produces smartphones and Android OS, advertising makes up a massive 85% of its total revenue.
In 2018, Facebook had a net income of US$22.1 billion and generated a whopping $55.8 billion in revenue, of which 98.5% came from ads, and the remaining 1.5% from payments and other fees. The company utilizes the network effect that billions of users create, and they have a policy of purchasing other smaller companies with good potential.
Tech companies are undoubtedly the most valuable in the world, as they generate unbelievable sums yearly. This short article highlights ways in which these tech giants make their billions consistently, and classifies them into two broad groups – Companies that sell you a product or service, and those that market you as a product or service.