At a glance, it can appear to be the sector’s biggest technology groups have lots in the commonplace.

For starters, all 5 of the Big Tech agencies (Amazon, Apple, Facebook, Microsoft, and Alphabet) have emerged as some of the maximum valuable publicly-traded groups in the world, with founders which includes Jeff Bezos or Bill Gates sitting atop the global billionaire list.

These tech giants also have a customer-dealing with aspect to their enterprise this is the front and center. With billions of human beings using their structures globally, those corporations leverage consumer facts to tighten their grip even more on marketplace proportion. At the equal time, this facts is a double-edged sword, as those identical companies often discover themselves in the crosshairs for mishandling non-public statistics.

Finally, all of these groups have a similar foundation story: they were based or incubated on the fertile digital grounds of the West Coast. The agency that has the weakest declare to such origins would be Facebook, but even it has been primarily based in Silicon Valley given that June 2004.

Sizing Up the Tech Giants

For all in their commonalities, plainly there is much less of a mold for how these tech giants emerge as generating cash flow.

But before we get to how Big Tech makes its money, permit’s start through searching at the financials at a better level. The following records come from the 2018 10-K reports filed ultimate year.

Together, the Big Five tech giants combined for just over $800 billion of sales in 2018, which would be most of the international’s 20 largest international locations in phrases of GDP. More exactly, they might just edge out Saudi Arabia ($684 billion GDP) in phrases of length.

Meanwhile, they generated a total of $139 billion of net earnings for his or her shareholders, properly for a 17.3% profit margin.

How Big Tech Makes Money

Let’s dig deeper, and spot the differences in how these businesses generate their sales.

You are the Customer

In the broadest feel, three of the tech giants make cash inside an equal manner: you pay them money, and they give you a service or product.

Apple (Revenue in 2018: $265.6 billion)

Apple generates a fantastic sixty two.8% of its revenue from the iPhone
The iPad and Mac are suitable for 7.1% and nine.6% of sales, respectively
All other products and services – such as Apple TV, Apple Watch, Beats products, Apple Pay, AppleCare, etc. – combine to simply 20.6% of sales

Amazon (Revenue in 2018: $232.Nine billion)

Amazon receives the maximum from its online stores (52.Eight%) in addition to 0.33-celebration seller services (18.4%)
Amazon’s fastest-developing segment is offline income in bodily stores
Offline sales generated $17.2 billion in modern revenue, developing 197% yr-over-year
Amazon Web Services (AWS) is well-known for being Amazon’s maximum worthwhile section, and it counts for 11.Zero% of sales
Amazon’s “Other” segment is also growing fast – it especially includes ad income
Microsoft (Revenue in 2018: $110.4 billion)

Microsoft has the maximum different sales of any of the tech giants
This is a part of the cause it presently has the most important market capitalization ($901 billion) of the Big Five
Microsoft has eight exclusive segments that generate ~5% or extra of sales
The biggest 3 are “Office merchandise and cloud services” (25.7%), “Server merchandise and cloud offerings” (23.7%), and Windows (17.7%)
The ultimate tech giants price you not anything as a consumer, so how are they well worth so much?

You are the Product

Both Alphabet and Facebook also generate billions of bucks of revenue, but they make this cash from advertising. Their systems permit advertisers to a goal you at scale with terrific precision, that is why they dominate the web advert enterprise.

Here’s how their sales smash down:

Alphabet (Revenue in 2018: $136.8 billion)

Despite having a much wider umbrella name, ad sales (via Google, YouTube, Google Maps, Google Ads, and many others.) still drive 85% of sales for the employer
Other Google products and services, like Google Play or the Google Pixel phone, assist to generate 14.5% of total sales
Other Bets be counted to zero.Four% of sales – these are Alphabet’s moonshot tries to find the “next Google” for its shareholders
Facebook (Revenue in 2018: $fifty five.8 billion)

Facebook generates almost all revenue (ninety eight.Five%) from commercials
Meanwhile, 1.5% comes from bills and other prices
Despite Facebook being an unfastened carrier for users, the employer generated extra revenue in line with a person than Netflix, which costs for its service
In 2018 Q4, for example, Facebook made $35 per user. Netflix made $30.
So at the same time as the tech giants may additionally have many similarities, how they generate their billions can range considerably.

Some are advertising products to you, while others are marketing you because of the product.