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How the Tech Giants Make Their Billions

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How the Tech Giants Make Their Billions

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.

CompanyRevenue (2018)Net Income (2018)Margin
Apple$265.6 billion$59.5 billion22.4%
Amazon$232.9 billion$10.1 billion4.3%
Alphabet$136.8 billion$30.7 billion22.4%
Microsoft$110.4 billion$16.6 billion15.0%
Facebook$55.8 billion$22.1 billion39.6%
Combined$801.5 billion$139.0 billion17.3%

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.

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How COVID-19 Has Impacted Media Consumption, by Generation

This visualization explores how each generation’s media consumption is changing amid the frenzy of pandemic-induced quarantines.

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Media Consumption in the Age of COVID-19

As the coronavirus outbreak continues to wreak havoc across the globe, people’s time that would have otherwise been spent perusing malls or going to live events, is now being spent on the sofa.

During this period of pandemic-induced social isolation, it’s no surprise that people are consuming vast amounts of media. Today’s graphics use data from a Global Web Index report to explore how people have increased their media consumption as a result of the outbreak, and how it differs across each generation.

More Time to Kill

Global Web Index found that over 80% of consumers in the U.S. and UK say they consume more content since the outbreak, with broadcast TV and online videos (YouTube, TikTok) being the primary mediums across all generations and genders.

Unsurprisingly, 68% of consumers are seeking out pandemic updates online over any other activity. Gen Zers however, have other plans, as they are the only generation more likely to be listening to music than searching for news.

internet activities

Overall, younger generations are more likely to entertain themselves by playing games on their mobile or computer. Millennials also stand out as the foodie generation, as they are the most likely to be searching for cooking recipes or reading up on healthy eating.

Leaning on a Pillar of Trust

Across the board, consumers view the World Health Organization (WHO) as the most trusted source of information for any COVID-19 related updates.

This isn’t true everywhere on a regional basis, however. For example, while U.S. consumers trust WHO the most, UK consumers view their government as their most trusted news source overall.

media consumption trust

Trust in information shared on social media is higher than word of mouth from friends and family, and even foreign government websites. That said, it is lower than information shared on the radio or news websites.

The Need for Pandemic Positivity

While staying abreast of pandemic updates is important, ultimately, a positive mindset and the ability to switch off will help people cope better day-to-day.

Therefore, it seems reasonable that people are more inclined to invest in new subscription services since they have been in isolation, with almost one-third of Gen Zers considering purchasing Netflix, followed by Disney+.

media consumption subscription

Understandably, people are becoming increasingly worried about how much time they are dedicating to their screens. However, research suggests that screen time itself is no cause for concern. Rather, it’s the content we choose to consume that could have a significant impact our psychological well-being.

Perhaps most intriguingly, the TV shows and movies that are increasing in popularity on Netflix are about pandemics—which could signify the need for people to fictionalize the chaos we find ourselves in.

Regardless of what type of content we are consuming, the fact is that every generation is relying on their devices during this pandemic to inform and distract more than ever before, creating a huge opportunity for media companies to engage a captive audience.

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The Most Loved Brands, by Generation

Can a brand transcend time and be all things to all people? This graphic seeks to find out by visualizing the most loved brands by generation.

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The Most Beloved Brands, by Generation

When it comes to buying into brands, consumers are spoiled for choice.

The vast amount of options available makes it increasingly difficult for brands to build meaningful emotional connections with them—but for the brands that do, the payoff can be huge.

Today’s graphic pulls data from MBLM’s 2020 Brand Intimacy Report and visualizes the top 10 brands that different generations connect with the most.

Can Emotion Be Measured?

Brands that tap into consumers’ emotions can establish higher levels of trust. This in turn creates a culture of loyalty that could ensure a unique standing in the market and long-term growth.

In fact, intimate brands that have a strong emotional bond with their consumers tend to outperform top companies listed on the S&P 500 and Fortune 500 in both revenue and profit. To measure how brands emotionally connect with consumers, MBLM looked at four key factors:

  • Users: The existing relationship between a brand and a consumer
  • Emotional Connection: The degree of positive feelings the user has for a brand, and the extent to which their personal values align with the brand’s values
  • Archetype: The six markers that are present among intimate brands, which include fulfillment, identity, enhancement, ritual, nostalgia, and indulgence
  • Stage: The degree of intensity in the relationship across three phases: sharing, bonding, and fusing
  • Intimacy Score: Based on these four components, a score is assigned, ranging from 0-100

The total score also reveals which brands rank the highest across different age groups. While there are some commonalities across each generation, can brands be all things to all people?

The Chosen One

There are very few brands that have the luxury of retaining loyal customers from different age brackets. Amazon, however, manages to transcend age. The retail giant appears in the top five for Millennials, Gen X, and Baby Boomers—with the latter awarding the brand their #1 spot.

Every generation named “enhancement” as Amazon’s defining trait, meaning their lives have improved as a result of the relationship. The “ritual” trait also scored high, with users claiming the brand has become ingrained into their daily behavior.

Ranked: Top Brands by Generation

Gen Z and Millennials (18-34)

Sony-owned PlayStation holds the title for the most intimate brand among Millennials, climbing up from the 8th spot in 2019. Impressively, more than 50% of Millennials have an emotional connection to the brand, with men having a particularly strong affinity for it.

Having recently celebrated its 25th anniversary, the gaming brand’s success has been fueled by the increasing popularity of multiplayer and professional gaming, as well as new product innovation—with five of the ten best selling consoles owned by PlayStation.

RankBrandScoreIndustry   
#1PlayStation78.3Media and Entertainment
#2Amazon76.6Retail
#3Target68.7Retail
#4Disney67.8Media and Entertainment
#5Ford67.4Automotive
#6Jeep66.8Automotive
#7Apple65.9Technology
#8YouTube63.0Media and Entertainment
#9Xbox59.8Media and Entertainment
#10Nintendo56.8Media and Entertainment

Interestingly, when Gen Z (18-24) are singled out, Microsoft-owned Xbox ranks as #1, increasing its score to 73.5 in 2020 from 49.7 in 2018.

Gen X (35-54)

As the generational middle child, Gen X did not grow up with the same access to technology. However, their tech adoption is almost on par with Millennials, with similar adoption rates across tablet and smartphone ownership.

It is no surprise therefore, that Apple has captured the hearts of this generation, sitting proudly in first place. When the iPhone launched in 2007, this group was between 22-41 years old, so they have likely been loyal followers of the tech brand since its earlier days.

RankBrandScoreIndustry   
#1Apple72.1Technology
#2Amazon66.8Retail
#3Netlix66.1Media and Entertainment
#4Jeep65.1Automotive
#5Disney65.0Media and Entertainment
#6Ford63.6Automotive
#7Samsung58.5Technology
#8Xbox57.0Media and Entertainment
#9Walmart55.2Retail
#10Nike54.6Apparel

While this generation has no qualms about shopping online, 72% of them shop in brick and mortar stores and are satisfied with doing so—which may be part of the reason why retail giant Walmart joins Amazon in the top 10.

Baby Boomers (55-64)

Controlling almost 70% of disposable income in the U.S., Baby Boomers are arguably the most influential of all consumer groups.

While they feel the most emotionally connected to Amazon, it’s also true that Apple was another tech brand to win the affection of this age group.

RankBrandScoreIndustry   
#1Amazon70.0Retail
#2Toyota63.6Automotive
#3Apple61.4Technology
#4Costco61.2Retail
#5Macy’s55.2Retail
#6Hershey’s54.8Consumer Packaged Goods
#7Hewlett-Packard54.4Technology
#8Pillsbury51.8Consumer Packaged Goods
#9Kellogg’s50.0Consumer Packaged Goods
#10Pepsi50.0Consumer Packaged Goods

This generation dominates almost 50% of consumer packaged goods (CPG) sales in the U.S.—which likely explains why the rest of their top brands are more traditional household names, such as Macy’s, Hershey’s, and Kellogg’s.

It is also clear from the ranking that this group values brands with nostalgic qualities, as well as the ability to provide them with moments of indulgence.

The Changing Brand Landscape

The brand and consumer relationship has shifted with the ages, but each generation’s unique value system has remained the most important piece of the puzzle.

It is worth noting that none of the Baby Boomer’s favorite brands appear in the ranking for those aged 18-24 (Gen Z). Are the preferences of younger generations signalling a cultural shift, in which we place more value on distraction rather than satisfaction?

Note: The 2020 Brand Intimacy Report covers an age range of 18-64. The way that the ranking is structured makes it difficult to reflect conventional demographic groups (e.g. Gen Z, the Silent Generation etc.)

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