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How tech companies make money





Here’s How Tech companies make money


Chart: How 5 Tech Giants Make Their Billions

The Revenue Streams of the Five Largest Tech Companies

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
Last year, we published a chart showing that tech companies have displaced traditional blue chip companies like Exxon Mobil and Walmart as the most valuable companies in the world.
Here are the latest market valuations for those same five companies:
RankCompanyMarket Cap (Billions, as of May 11, 2017)Primary Revenue Driver
#1Apple$804Hardware
#2Alphabet$651Advertising
#3Microsoft$536Software
#4Amazon$455Online Retail
#5Facebook$434Advertising
TOTAL$2,880
Together, they are worth $2.9 trillion in market capitalization – and they combined in FY2016 for revenues of $555 billion with a $94 billion bottom line.

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Bringing Home the Bacon?

Despite all being at the top of the stock market food chain, the companies are at very different stages.
In 2016, Apple experienced its first annual revenue decline since 2001, but the company brought home a profit equal to that of all other four companies combined.
On the other hand, Amazon is becoming a revenue machine with very little margin, while Facebook generates 5x more profit despite far smaller top line numbers.
Company2016 Revenue (Billions)2016 Net Income (Billions)Margin
Apple$216$4621%
Alphabet$90$1921%
Microsoft$85$1720%
Amazon$136$22%
Facebook$28$1036%

How They Make Their Billions

Each of these companies is pretty unique in how they generate revenue, though there is some overlap:
  • Facebook and Alphabet each make the vast majority of their revenues from advertising (97% and 88%, respectively)
  • Apple makes 63% of their revenue from the iPhone, and another 21% coming from the iPad and Mac lines
  • Amazon makes 90% from its “Product” and “Media” categories, and 9% from AWS
  • Microsoft is diverse: Office (28%), servers (22%), Xbox (11%), Windows (9%), ads (7%), Surface (5%), and other (18%)
Lastly, for fun, what if we added all these companies’ revenues together, and categorized them by source?
Category2016 Revenue (Millions)% TotalDescription
Hardware$197,02036%iPhone, iPad, Mac, Xbox, Surface
Online Retail$122,20522%Amazon (Product and Media Categories)
Advertising$112,36620%Google, Facebook, YouTube, Bing ads
Software$31,6926%Office, Windows
Cloud/Server$31,3966%AWS, Microsoft Server, Azure
Other$60,17711%Consulting, other services (iTunes, Google Play), etc.
$554,856100%

Note: this isn’t perfect. As an example, Amazon’s fast-growing advertising business gets lumped into their “Other” category.
Hardware, e-commerce, and and advertising make up 76% of all revenues.
Meanwhile, software isn’t the cash cow it used to be, but it does help serve as a means to an end for some companies. For example, Android doesn’t generate any revenue directly, but it does allow more users to buy apps in the Play Store and to search Google via their mobile devices. Likewise, Apple bundles in operating systems with each hardware purchase.

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