Total Revenue vs. Net Income and the Top 5 Global Companies' Revenue Sources

Total Revenue vs. Net Income and the Top 5 Global Companies’ Revenue Sources

Summary

Despite their enormous influence on our contemporary society and economy, their overall impact is very hard to quantify or summarise. Governments especially have found difficulty in designing or adapting legislation to these global players, despite the growing and significant need for action in areas such as privacy regulation and taxation.

What does the chart show?

The pie chart displays the combined revenue breakdown of the top five largest global tech companies, measured in billions of US Dollars. The largest proportions of revenue coming from Hardware (iPhones, Macs, Xbox), Online Retail (Amazon), and Advertising (Google, Facebook). The bar chart shows total revenue per company alongside net income in billions of US dollars. The revenue figures are following the deduction of operating costs and plowback for each of these top five tech companies. The top five tech companies displayed are also the largest companies by Market Capitalisation.

Why is the chart interesting?

In terms of regulation, there is growing concern around the increasing profitability of data collection and sales. Online advertising forms the largest portion of revenue for Facebook and Alphabet, with each increasingly specialising in ever more varied data collection about personal lives and interests and search activity. More recently, Amazon has emerged as a strong player in online advertising, with advertisements becoming one of the fastest growing contributors to revenue. Amazon is uniquely positioned to collect data specifically about what users purchase or hope to, making it more efficient for advertisers to create targeted, profitable content than with the data collected by Facebook and Google. Prior to GDPR introduction in Europe, many websites switched from operating opt-in to opt-out data use regimes. This, among numerous high-profile data breaches, have caused data regulation to become a more prominent issue over the past decade. Many companies have hitherto pointed to user autonomy over the manner and extent to which they share data. Facebook in particular has been under fire for its year-by-year roll back of default privacy settings (you can see this in action with a helpful visualization by clicking here). These developments correspond with recent research in the field of behavioral economics about active versus passive consumers. Companies are fully aware that most users are passive, and thereby unlikely to actively change their privacy settings. This makes manipulation of the defaults the most advantageous data collection strategy for tech companies. Lawmakers in the United States have actively contributed to this trend via the introduction of legislation permitting Internet Service Providers to monetise for advertisers such sensitive information as web browsing history and social security numbers. European policymakers have taken a more cautious stance towards open data collection, with the introduction of GDPR in May 2018.

There has been a lack of clarity about how to appropriately tax these corporations, whose revenues are not derived from operations that fit into traditional tax schedules. Ultimately, these companies derive great value from their users, who receive many of the services free of charge. Some policymakers, including Chancellor Philip Hammond, have postulated that these companies should be taxed flatly on profits generated from the nations’ population howsoever this is achieved, rather than focusing on the tax revenues from product sales which companies often pass on to their customers. There is increasing urgency for governments to evolve and act. However governments appear unable to ascertain the effects of such new taxes. As new policies like tax reforms are implemented, new research is necessary in areas such as tax incidence to identify the exact effects of new policies on the behaviour of increasingly powerful global tech actors. However, the effect of the tax environment on where these companies choose to base their workforce is significant. Income tax receipts, along with the multiplier effect, from thousands of workers, many of whom are highly paid, contribute a significantly higher share of national tax receipts than corporation tax.

Despite the rapid development of tech giants since the turn of the millenium, there has also been interesting discussion of their ability to sustain such impressive growth. This year, Apple iPhone sales declined for the first time and Facebook and Google, who rely heavily on advertising, have been mired in controversy not only relating to data collection, but also their promotion and provision of advertising to divisive content such as hate speech. In the midst of these uncertainties and against a backdrop of cheaper, more democratised innovation in the tech space, tech giants such as Alphabet have made concerted efforts to diversify as a means of staying relevant. For Microsoft, sales of its defining product ‘Windows’ have declined to just 9% of annual revenue. The software giant has increasingly looked to monetisable add-ons such as Microsoft Office and emerging software markets such as cloud computing for potential sources of future growth. In 2016, cloud services such as Microsoft Server and Azure made up 22% of total revenue. The future seems more bleak for ‘one-trick’ companies such as Apple, which rely heavily on hardware sales and may struggle to continue to produce the innovations that propelled them to global tech leadership. Given the perceived stalling of innovation in new ‘i’ hardware (ranging from laptops to tablets and phones), competitors such as Samsung and Huawei have gained ground. For the past few years, Android has secured a position as the world’s most popular phone operating system, largely gaining popularity by virtue of its openness and price point compared to the once-dominant iOS. Another large casualty of such innovation concerns has been the Chinese tech giant Tencent, whose reliance on WeChat, online entertainment, and e-commerce is being increasingly challenged by new players such as JD, now China’s largest online retailer.

Another area of contention among policymakers has been the use of cloud services by key institutions such as banks, hospitals and schools. Last July, the European Banking Authority highlighted the exposure of the banking system to severe issues should any one of the relatively few large cloud services suffer a breakdown. This has prompted discussion among policy makers over the reliance of such fundamental institutions on a relatively small number of incredibly large, unaccountable companies.

Week 3, 2019

Posted by Aimée Allam