In 2005, one of the most intriguing advertising stunts of the internet age was hatched.
Alex Tew launched the The Million Dollar Homepage, where anyone could “own a piece of internet history” by purchasing pixels-plots (minimum of 10×10) on a massive digital canvas. At the price of just one dollar per pixel, everyone from individual internet users to well-known companies like Yahoo! raced to claim a space on the giant digital canvas.
Today, The Million Dollar Homepage lives on as a perfect record of that wacky time in internet history – or so it seems. However, the reality is that many of the hyperlinks on the canvas are now redirects that send incoming users to other sites, while over 20% of them are simply dead.
Here are the links that still work on the Million Dollar Homepage today:
The revealing graphic above, via John Bowers, raises the question – how do hyperlinks disappear, and what implications does this “digital decay” have?
The internet is stitched together by an incalculable number of hyperlinks, but much like cells in an organism, the sources and destinations have a finite lifespan. Essentially, links can and do die.
Most “link rot” is the result of website restructuring, or entities going out of business and pulling their website offline.
A high-impact example of this is when Yahoo! pulled the plug on GeoCities, one of the first popular web hosting services. In one fell swoop, roughly 7 million websites (containing a plethora of animated gifs, auto-playing midi files, and traffic counters) went dark forever.
Links can also die because of more deliberate reasons, as well. In 2015, the editor-in-chief of Buzzfeed, Ben Smith, came under fire for deleting thousands of posts from the site (including content that was critical of Buzzfeed advertisers). Journalism has traditionally acted as a public record, so this type of “decay” has serious implications on the credibility of media brands.
This idea of a public record is at the heart of why digital decay is an issue worth addressing. Once millions of links simply burn out, what will people in the future know about society in the early-ish days of the internet? What record will remain of people’s thoughts and feelings in that era?
I worry that the twenty-first century will become an informational black hole.
– Vint Cerf, Internet pioneer
Perhaps more urgent are public records that live in the digital realm. Supreme Court decisions and academia lean heavily on citations to build their arguments. What happens when those citations simply vanish? A Harvard study found that 49% of the hyperlinks in Supreme Court decisions are now broken.
Even that ubiquitous resource, Wikipedia, has serious issues caused by digital decay. Over 130,000 entries link to dead pages – a troubling development, as linked citations are what lend entries their credibility.
Backing Up The Internet
A handful of people are taking steps to archive the internet.
The most well-known solution is Internet Archive’s Wayback Machine, which has archived hundreds of billions webpages over the past 20 years. Even the The Library of Congress – which is well known for archiving digital information such as tweets – contracts Internet Archive to do its web crawling.
The academia-focused Perma is another example of a company looking to create permanent records of the web sources (particularly citations).
Many of the weird and wonderful forums and hand-coded homepages of early internet lore may be gone, but we’re finally taking steps to combat digital decay. As awareness grows, avoiding an “informational black hole” may be possible.
How the Tech Giants Make Their Billions
Collectively, the Big Five tech giants combine for revenues of $802 billion, which is bigger than Saudi Arabia’s economy. Here’s how it breaks down.
How the Tech Giants Make Their Billions
At a glance, it may seem like the world’s biggest technology companies have a lot in common.
For starters, all five of the Big Tech companies (Amazon, Apple, Facebook, Microsoft, and Alphabet) have emerged as some of the most valuable publicly-traded companies in the world, with founders such as Jeff Bezos or Bill Gates sitting atop the global billionaire list.
These tech giants also have a consumer-facing aspect to their business that is front and center. With billions of people using their platforms globally, these companies leverage user data to tighten their grip even more on 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 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. 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.
Sizing Up the Tech Giants
For all of their commonalities, it seems that there is less of a mold for how these tech giants end up generating cashflow.
But before we get to how Big Tech makes its money, let’s start by looking at the financials at a higher level. The following data comes from the 2018 10-K reports filed last year.
|Company||Revenue (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||$16.6 billion||15.0%|
|$55.8 billion||$22.1 billion||39.6%|
Together, the Big Five tech giants combined for just over $800 billion of revenue in 2018, which would be among the world’s 20 largest countries in terms of GDP. More precisely, they would just edge out Saudi Arabia ($684 billion GDP) in terms of size.
Meanwhile, they generated a total of $139 billion of net income for their shareholders, good for a 17.3% profit margin.
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.
Some are marketing products to you, while others are marketing you as the product.
Animation: The Top 15 Global Brands (2000-2018)
This stunning animation shows a dramatic change in the world’s most valuable global brands. Watch tech companies like Apple shoot up the rankings in style.
Animation: The Top 15 Global Brands (2000-2018)
Time travel back to the early-2000s, and a list of the world’s most respected brands might be surprising.
Tobacco company Marlboro is still one of the top 15 global brands with a value of $22 billion, while companies like Nokia and AT&T also help to round out the group.
Aside from Microsoft, the tech companies at the time were mostly focused on hardware and services. HP was considered a top global brand at the time, and even IBM was still making PCs until the year 2005.
The Platform Revolution
How times have changed.
In today’s animation from TheRankings, you can see how the list of the top 15 global brands has evolved over the last two decades or so.
The visible shift: as soon as Google hits the rankings in 2008 (2:21 in video), it becomes clear that the money is on the software side – particularly in coding software that ends up as a dominant consumer platform.
Shortly after, companies like Apple, Facebook, and Amazon enter the fold, quickly climbing to the top. Here are the final numbers for 2018 in terms of brand value, with data coming from Interbrand:
The Problem with Hardware
What’s the difference between the big hardware firms of old, and the successful ones that dot the list today?
From a business perspective, hardware companies need to have a bold and accurate vision of the future, constantly taking innovative strides to beat competitors to that vision. If they can only make incremental improvements, the reality is that their competitors can enter the fold to create cheaper, similar hardware.
Samsung, which finished 2018 as the world’s sixth most valued brand, is a good example of this in practice. The company has had the top-selling smartphone for every year between 2012-2018 – an impressive feat in staying on top of consumer trends and technology.
Despite Samsung’s success, it remains stuck behind four other tech brands on the list – all companies almost exclusively focused on platforms: Microsoft, Amazon, Google, and Apple.
Why are Platforms so Dominant?
Constant innovation is a good barrier to entry if you can keep doing it – but the platforms have an even more bulletproof strategy: being everywhere at once.
Facebook uses the powerful network effect from billions of people as a moat, and then it buys up-and-comers (Instagram, WhatsApp) to cover even more ground. As a result, competing with Facebook is a nightmare – even if you could theoretically acquire new users at $1 per user at a ridiculous scale, it would require a marketing investment of billions of dollars to make inroads on the company’s audience.
Microsoft owns various platforms (Windows, Xbox, LinkedIn, Azure, etc.) that help insulate from competition, while Google’s strategy is to be everywhere you need to search, even if it’s in your living room.
Because platforms have massive scale and are ubiquitous with consumers, it gives them the ultimate pricing power. In turn, at least so far, they have been able to establish the world’s most powerful consumer brands.
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