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Looking Under the Hood of Big Tech Reveals Where Profits Are Huge & Possibly Unfair

The Economist April 30th 2022 pp51-53 |Business|Technology profits|”The secrets of big tech” “We dig inside the finances of Apple, Alphabet and others

Read The Economist for all the details

Summary by 2244

Who knew in 2021 “the combined revenue of Alphabet, Amazon, Apple, Meta and Microsoft reached $1.4trn” and so far 2022 is even better. Recent quarterly reports on April 26th reveal some profit characteristics as well with Alphabet having $16.4bn on revenue of $68bn or 24%, Microsoft $16.7bn on revenue of $49.4bn or 34% and Meta $7.5bn on revenue of $27.9bn or 27%.

The big tech companies as compared to non-Tech companies have revenue and profit concentrated on key segments. See charts provide here by 2244 from Amazon’s data shows that about half of revenue is from online stores, Apple more than half from IPhone, Alphabet about 70% from advertising, Microsoft more than half from Server/Cloud, and Meta all from advertising.

The Economist, notes three growing concerns with tech companies. There’s “a high concentration of profits, waning customer loyalty and the sheer sums at risk from assorted antitrust actions.”

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Concentrated profits, for Apple its the IPhone, for Amazon it’s cloud computing, and for “Alphabet and Meta…[it’s]...advertising.”

App stores for Alphabet and Apple are “the biggest untrumpeted sources of profits.” They get up to 30% commission on in-App purchases. What’s huge is that costs for App stores are low and this creates profits of 78% for Apple and 62% for Google.

Search profit margins for both Google and Apple are even higher. Meta reportedly makes 97% profit on its online advertising. When looking at overall advertising revenues the bigs like Alphabet and Meta own more than 90% of all online advertising revenue. The biggest buyers of these ads are “retail, entertainment and consumer-goods.”

Like many other things in business, 20% of the impressions on advertisements generate 80% of the revenue. The high value impressions are “the ones aimed at users likely to make a purchase” this is referred to as “cookie concentration.”

Brand loyalty, not surprising, is not absolute and reportedly, as an example, “20% of IPhone” users, based on 2019 and 2020 data, subsequently purchased another make. This is also true in the commercial space as investors put about 10% of money into start-ups. With inflation and fears of inflation inflows to tech are waning.

These concerns could fuel more government intervention in America, Britain and Europe. “The Digital Market Act (DMA) is Europe's aim to “rein in” big tech which may have 40% of total revenue at risk in the European markets. In America, the Department of Justice is targeting Google’s 30% take on the APP store and this could move to 11% as agreed to already with Spotify. Apple has a similar yet smaller exposure. Amazon could see a drop of 16% if “it is barred from mixing its own retail operations with those of third parties on Marketplace.”

Some regulators are still mentioning the potential of breaking up some of the big tech companies, think of Meta without Instagram and What’s App as an example.

The big hit, is unlikely to materialize and certainly not fast in America, could total $330bn in total for the big four Alphabet, Amazon, Apple and Meta. This is an effort to “stop platform owners from … giving preferential treatment to their own products.”


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