The Big Five tech companies (Amazon, Apple, Facebook, Microsoft, and Alphabet/Google) have become some of the the most valuable publicly traded companies in the world, with founders like Jeff Bezos and Bill Gates sitting at the top of the world list of billionaires. With billions of people using their platforms around the world, these companies are leveraging user data to further bolster their market share.
At the same time, this data is a double-edged sword, as these same companies are often targeted for mishandling personal information. and all of them they have a similar origin story: They were founded or incubated in the fertile digital grounds of the West Coast. The company with the weakest claim to such origins would be Facebook, but it has even been based in Silicon Valley since June 2004.
In 2021, the five titans generated combined revenue of €1.2 trillion. What are the sources of this income and how is it broken down? A detailed chart from Visual Capitalist illustrates the main ways these big tech giants generate revenue, and how much they’ve grown in recent years.
There are two main ways big tech companies generate revenue: Either they sell you a product. or they sell you to you as a product to advertisers. Apple, Microsoft, and Amazon fall into the first category: Like most traditional companies, these companies offer customers a physical (or digital) product in exchange for money. More than half of Apple’s revenue comes from iPhone sales, Azure cloud services generate nearly a third of Microsoft’s total, and Amazon’s online stores account for nearly 50% of the company’s revenue.
On the other hand, Meta and Alphabet do things a bit differently. Instead of selling an actual product, these two tech giants make most of their money by selling their audience’s attention. Nearly 98% of Meta revenue comes from Facebook Ads and 81% of Google revenue come from advertising in various Google products. However, despite their various ways of generating sales, all of these companies have one thing in common: revenues have skyrocketed in recent years.
They make ungodly amounts of money. In 2021, the combined revenue of Alphabet, Amazon, Apple, Meta and Microsoft reached €1.2 trillion. Analysts expect the quintet’s combined sales to have topped $300 billion in the first three months of 2022, up 7% compared to the same period last year.
But they are considerably coy about how much many of their products and services actually make. Annual reports and other public disclosures tend to lump together large revenue streams and describe them in the vaguest of terms. Last year, for example, the sales of the five giants were divided into 32 business segments in total compared to 56 segments for the five highest-revenue US non-tech companies.
Apple divides its sales into five parts; Goal in only three. The category Alphabet labels “Google Other” generated $28 billion in revenue last year. It includes Google’s app store, sales of its smartphones and other devices, and subscriptions from YouTube, a subsidiary. Last year, YouTube’s advertising revenue, which Alphabet only revealed for the first time in 2020, reached 26 billion euros. That means that in 2021 “Google Other” and YouTube’s advertising business each made more money than four-fifths of the companies in the S&P 500 index of largest US companies.
The largest of them tend to be transparent. The iPhone is still Apple’s profit engine, Amazon gets most of its money from cloud computing, and Alphabet and Meta couldn’t survive without online advertising. Firms are considerably more coy about disclosing details about their smaller but fast-growing units.
Perhaps the biggest unannounced sources of profit for Alphabet and Apple are their app stores. The companies charge a commission on all app spending on these platforms, typically around 30% (although in an attempt to appease regulators, they are increasingly offering lower fees for small developers and those whose apps rely on subscriptions). ). In 2019, it was around 11 billion for Google. Analysts estimate that for the Apple store it was 22,000.
All this generates a lot of great profit pools. In Apple’s app store, for example, games account for 70% of all revenue, according to documents uncovered during the Epic court battle. Most of this comes from in-app purchases, like quirky avatar accessories or virtual currency. In 2017, 6% of app store game customers accounted for 88% of store game sales. Those big users spent, on average, more than 700 euros each year.
Amazon and Meta are less secretive about the sources of their revenue and profits. Despite its rebranding and pivot to the VR “metaverse,” Meta has no qualms about admitting that it continues to get 97% of advertising revenue. Amazon is even happy to reveal revenue from its controversial Marketplace, where third-party vendors sell their products, paying the equivalent of 19% of those sales for the privilege and competing with Amazon’s own retail business. Marketplace contributed $103 billion to Amazon’s top line in 2021, a six-fold increase from 2015 and 22% of the company’s total.
suffice to say that Instagram accounted for $42 billion of the revenue. of Meta last year, almost two-fifths of the total. It was possible because the social changes caused by the covid ended up driving the demand for products and services of the big technology companies. For example, lockdown restrictions forced people to shop online, causing e-commerce sales to increase. They also spent more time communicating on social media.
Mind you, that cash flow may be slowing down. Fears about rising inflation, Russia’s war in Ukraine and the possibility of a recession have sent tech companies’ share prices down. The NASDAQ is down 20% from its November high. The fall of the public markets is seeping into the world of startups. On March 24, Instacart, a grocery delivery company, cut its own valuation by 38%. Lower valuations, in turn, will make it harder for companies to raise capital. Investors say they expect to see startups tightening their belts in the coming months. That means less cloud spending and ads.