Over the years, big tech (Google, Apple, Meta, Amazon and Microsoft) have emerged as some of the world’s biggest companies. Since its inception, Google has emerged as the biggest technology company globally, and in 2020, Apple hit a market valuation of $1.84 trillion – surpassing Saudi oil giant Aramco as the most valuable company.
Big tech’s total revenue in 2019 amounted to nearly USD900 billion. In terms of gross domestic product (GDP), it would make big tech the 18th largest country, ahead of Saudi Arabia.
Even though these tech giants have diversified their businesses into different fields and sectors over the years, their revenue stream is not that diversified.
More than 50 percent of Apple’s revenue comes from selling iPhones; 70 percent of Google’s and 98% of Meta’s revenue come from ads. Amazon collects a major chunk of its revenue from its e-commerce business. As of now, only Microsoft, being the oldest of them all, seems to have a considerable diversified revenue stream.
Revenue stream-breakdown
Importance of a diversified revenue stream
First, having a diversified revenue stream helps businesses stabilise their financial positions, reducing the risk of financial crises. Businesses can’t rely on a single source of sales and sustain themselves in the long run. Also, having multiple revenue streams helps the company grow.
In today’s age of rapid technological change, it isn’t easy to predict the future in the long run. Tomorrow, new emerging technology could leave either of the big tech’s major revenue sources completely obsolete.
Those at the helm of these tech giants are mindful of the short life span of any piece of technology. In this regard, all the five top tech firms discussed above have made tremendous efforts to diversify their businesses over the years. For example, Amazon, which started as an e-commerce company in the 90s, has now established itself as a leader in cloud technology with a market share of over 40 percent – Amazon Web Services alone accounted for 12.5 percent of Amazon’s revenue in 2020.
On the flipside, ignorance towards emerging tech has led to the downfall of several giants that were once considered the leaders of their respective fields. For example, Kodak, an American company was a market leader in the photography industry till the first decade of the 21st century. The company’s top-selling product was Kodachrome-a colour reversal film; however, digital cameras led to declining sales and ultimately, Kodak filed for bankruptcy in 2012.
To avoid a situation like Kodak, big tech companies have diversified over the years; however, the revenue generated from these sources is often, not at par with what the tech giants would like them to be.
Need to diversify more
Earlier this year, not just the big tech but major tech US-based stock companies’ stock went for a tailspin. Microsoft, Amazon, Google and Facebook have all announced hiring freezes. Microsoft is also set to let go of a small percentage of its employees.
In the month of May, Apple lost USD 220 billion in value in just three days of trading. Microsoft lost USD 189 billion. Alphabet’s valuation was down by USD 123 billion. Around USD 70 billion was wiped off Meta’s valuation.
Much of the growth reported by big tech was because of the pandemic. However, now, with a recession looming large due to uncertainties arising from a tighter monetary policy by the Federal Reserve, rising crude oil prices and the geopolitical crisis in Europe, tech giants are jittery. In a situation like this, it makes more sense for big tech to have multiple revenue streams.
Tech giants are trying, but it’s not enough
Meta launched Whatsapp cloud-based API this year. (The tech giant took a stab at the enterprise business with the launch of collaboration tool Workplace–positioned as a competitor to Slack–in 2016). The company is also betting big on the metaverse (rebranding itself from Facebook to Meta was a massive step towards this endeavour) and is expected to invest billions of dollars in the coming years. Meta also tried to make its mark in the crypto world; however, it failed miserably.
Google, which started as a search engine, has evolved significantly in the last decade. Google, often seen as a leader in innovation, has undertaken numerous projects and explored multiple avenues. What is interesting is that more than 100 Google projects have failed, including Google+ and Google Hangout.
Despite its failures, Google, in search of a newer revenue stream, has invested in self-driving cars (Waymo), drone deliveries (Wing), internet balloons (Loon) and smart home products (Nest). However, these ventures accounted for just 0.6 percent of Google’s revenue in 2020. Like Microsoft, Google is also betting big on quantum computing.
Apple, too, is working on an electric car which is scheduled for a 2024 release. Recently, the Cupertino-based company, which ventured into consumer finance with the launch of Apple Pay, announced that it is entering the Buy Now Pay Later (BNPL) market.
These companies have undertaken several robotics projects.
Tech giants are still relatively new
One reason the tech giants are yet to make considerable revenue in newer business streams is that most of them have started to diversify only in the last couple of years. Gaining market share and making a profit in a relatively new field is not that easy, no matter the number of resources you have at your disposal.
Microsoft, which was founded in 1975, has managed to diversify its revenue stream to a far greater extent compared to the other four. Microsoft made a name for itself globally with its Windows and Office products. However, currently, they are not Microsoft’s top-selling products. Instead, the company earns a majority of its revenue from its cloud business. Microsoft launched Azure in 2008.
Now, if we look at Meta, which was founded in 2004, has diversified into multiple fields over the years. However, in most cases, they are just starting out, and understandably, it is taking more time to build a whole new revenue stream.
AI for profit
Most of the tech companies worldwide, including the big tech, are diversifying into AI and ML related domains. In fact, over the years, all five big tech firms have invested billions of dollars in AI research and development. For example, Google’s expenses for R&D in AI amounted to USD 31.562 billion last year. Meta R&D expenses rose to USD 24.655 billion last year from USD 18.447 billion the previous year.
Big firms expect to make revenue by offering AI as a service or product, thus adding AI as another of their revenue sources.
Your reaction
Discussion
What's your take on this story?
No comments yet — be the first to share your view.