

Microsoft, Apple, and Google: where does the money come from? - matan_a
http://www.zdnet.com/blog/bott/microsoft-apple-and-google-where-does-the-money-come-from/4469?tag=mantle_skin;content

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tikhonj
A couple of interesting things popped out to me.

Microsoft is surprisingly diversified. It's nice to see their entertainment
division has been successful--that's my favorite part of Microsoft (outside
Microsoft Research, of course). I wonder if we'll see a separate, significant
mobile category in the future.

Apple makes a larger amount of money off iOS and less off OS X than I
expected. I guess I just see a disproportionate amount of Apple computers
around (mostly owned by college students).

Google wasn't surprising at all. Of course, this says more about me than
Google: I follow Google much more closely than Microsoft or Apple (I actually
use Google's products, unlike the other two).

It would have been nice to see Amazon here as well. They've been trying some
new things; I wonder how it's been working. (But not enough to go look myself
:p.)

It'll be interesting to see Facebook in the future too.

~~~
jedberg
Right now Facebook looks just like Google -- almost all the revenue comes from
display ads (it's in their S1).

And the thing with MS that really blows my mind is that they _lost_ 8 billion
dollars on the entertainment division before it became profitable. Imagine if
that had been it's own startup -- it would have never made it as far as it
has, because they would have run out of money long before ever being
profitable. So in hindsight, we have to give credit to MS for sticking with it
for so long.

~~~
omh
_So in hindsight, we have to give credit to MS for sticking with it for so
long_

Perhaps we should wait to see whether it ever pays back that 8 billion dollars
before giving them any credit?

~~~
hollerith
The main value Microsoft derives from the Xbox business is not the profit they
make from it, but rather the insurance policy it represents against disruption
of the PC market by the console market. It turns out that the console market
never did expand enough to disrupt the PC market (the way tablets are
currently threatening to do) but when Microsoft spent that 8 billion, they
could not have known that.

------
bilban
Excuse me for asking, but when we speak of revenue - we aren't speaking of
profits are we? (I'm from the UK.)

We have no idea of the net income for those divisions, as the expenses are
missing.

I'd have thought, the cost of advertising would be far less than producing say
a hardware unit like an iPhone.

I'd expect the wedges to be different if we saw the charts listing profits,
and that would be more interesting. Or am I missing something?

~~~
hollerith
Right: revenue means money taken in from sales.

We know that it costs Apple about $300 to make a $500 iPad 2 and the cost of
making an iPhone is known, too, and that cost is a lower fraction of the price
they get (from the carrier or retailer) than it is for Macs. Of course, Apple
had to spend many billions to make the _first_ iPad 2, and the $300 does not
include support costs (which I think are fairly minimal).

Point is that it is known that most of Apple's current profits come from iOS
device sales. Also it is a pretty safe bet that the profit on music and video
entertainment sales is fairly low as the owners of the music and video
entertainment are very good at negotiating. Finally, Apple has stated that
profit from app sales is much less than profit from even the least profitable
hardware lines (currently iPod and Mac).

It is interesting to note that even Apple and Microsoft do not know the net
income of the various divisions: since the success of the iPod brought new
interest and new credibility to the Mac line, thereby increasing Mac sales
significantly, and since it is impossible to know exactly how much Mac sales
were increased by this "halo effect', it is impossible to know how much of the
cost of developing the iPod should be assigned to the calculation of the net
income of the Mac division.

Similarly, Microsoft and everyone else knows that the immense market share of
Windows in the 1990s among consumers helped Microsoft's products to compete
against offerings by IBM, Lotus, Sun, etc, in the enterprise market where
Microsoft currently makes most of its money, but it is impossible to calculate
exactly how much of the cost of acquiring those consumers as customers should
be allocated to the Business division and the Server and Tools division.

Finally, for part of its life, Visual Studio was given away to qualified
developers because the availability of more apps for Windows was seen as
protecting and assisting that business, so a calculating of the "true cost
structure" of, e.g., the Windows and Windows Live division and the Server and
Tools division would have to take that into account.

------
rbanffy
After looking at the data a bit, it came to me why coming up with a single
coherent strategy is so hard for Microsoft - they have 4 equally important
product lines. If you ask someone what Microsoft makes, they'll answer 4
different versions, each one incorrect, because none of them accounts for more
than a third of the company revenue.

Apple has a much clearer picture - they are an iOS company that sells iOS
devices and their accessories, such as the Macs that connect to them. It seems
they have successfully invented the product that was to take "Apple Computer"
out of business - and are selling vast numbers of them.

For Google, it's even clearer. They have one product - user attention. Still,
that's a dangerous place to be in - they must invent the company that will
wipe Google out before someone else does it.

~~~
brudgers
> _"If you ask someone what Microsoft makes, they'll answer 4 different
> versions, each one incorrect, because none of them accounts for more than a
> third of the company revenue."_

Unless they answer "Software."

Microsoft has long had a clear coherent vision, "A computer on every desk and
in every home." The strategy, well, "Developers! Developers! Developers!"
comes to mind - they even get to eat their own dogfood.

~~~
rbanffy
But "Software" wouldn't be the whole truth either - a lot of revenue comes
from online services (such as Live) and "entertainment and devices".

~~~
brudgers
Well the whole truth includes research, mice, marketing videos, clouds, etc.

But software pretty much covers all four of the major categories to which your
previous comment alludes, IMO, YMMV, etc.

~~~
rbanffy
Yes, but their software offerings are very diverse. Even Windows, where OEM is
more important for desktop than server and the whole lot of different channels
that sell server software, be it Windows, SQL, Exchange, Dynamics... It's
hopelessly confusing.

Telling them "you are a software company" won't give a coherent strategy that
encompasses both OEMs for Windows Home and enterprises for multi-license packs
of Windows, Office, Windows Server, SQL, Exchange, Dinamics, Sharepoint and so
on. And would not help the very promising ecosystem around the Xbox.

I think they'd be better off had the DoJ ordered the company to be broken into
smaller pieces.

------
rimantas
The funny thing would be to animate those charts for the few last years.
Microsoft and Google would not change much, but Apple's pie would be changing
like crazy: no iPhone prior to 2007, no iPad before 2010.

~~~
omh
If we want to see the change over time then it would be much nicer to see
something like a stacked line/bar chart than an animated pie chart.

This could also show how the absolute amount of revenue has changed. I suspect
that in MS's case it would be roughly similar, whereas for Apple the iPhone
has come from nothing and total revenue has exploded.

~~~
bretpiatt
You are completely wrong.
[http://finance.yahoo.com/q/is?s=MSFT+Income+Statement&an...](http://finance.yahoo.com/q/is?s=MSFT+Income+Statement&annual)

58->62->69 ... that is their trailing three years i revenue in billions. They
grew two Facebooks last year.They have more than doubled in size and profit
over this last decade when Google supposedly killed them off. They've actually
grown more than the entire size of Google to put it in some perspetive.

~~~
onemoreact
His comment is that the ratio of Microsoft's income streams has been steady
not it's magnitude. I think MS is a much better stock buy than Google or
Apple, but that's due to P/E concerns not ability to create new markets
quickly.

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jklp
I'm surprised to see such a large chunk of Microsoft's revenue coming from
"online services". Does anyone know what this is - surely it can't be from
Bing?

Also I've noticed that there's no segment in Apple's chart for App Store
commissions, nor from iTunes. Is this classified under "other music", or are
those divisions so small they don't fit in the chart?

~~~
sathyabhat
Presumably Xbox Live

~~~
dangrossman
No, that's in E&D.

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irrelative
I think that the data presented here is really interesting -- it presents an
obvious root cause for decisions and what might be driving those decisions.

However, presenting the data with pie charts isn't really acceptable. 3d pie
charts, even less acceptable. And 3d pie charts with gradient shading is worse
still. If you want readers to take data-driven articles seriously, please
learn even the basics of data visualization and how to best demonstrate the
differences in data, and how to further compare the data contained. A side-by-
side stacked bar chart would allow viewers to easily compare values relative
to each other within the bar chart, and also to visually compare across the 3
companies.

~~~
pixie_
It's not that bad. The slices are pretty big. I got the gist of it.

~~~
hessenwolf
Tests have shown that humans a crap at judging the relative size of the
slices. But, yeah, it's not a life-or-death chart, so prettiness is surely
allowable.

[http://en.wikipedia.org/wiki/Pie_chart#Use.2C_effectiveness_...](http://en.wikipedia.org/wiki/Pie_chart#Use.2C_effectiveness_and_visual_perception)

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rayhano
Incredible how Apple has ONLY really fulfilled its potential with the iPhone
and iOS... so all this Mac vs PC was a distraction...

~~~
microtherion
Keep in mind that the Mac OS side of Apple has been growing at better than 20%
per year since the introduction of the iPhone. Not too shabby, except when
compared against the truly explosive iOS side growth.

------
yatsyk
Apple got most of the revenue from iPhone and iPad products that appeared just
few years ago. iOS devices drives sales of other Apple products such as
macbooks for sure so we could speculate how small revenue would be without
these devices.

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nchuhoai
> What business is Google in? If you said search, guess again.

Really? Advertising, search ... semantics. Everyone knows that AdSense/Adwords
is Googles money making machine

~~~
sukuriant
No, sorry. They're two very different things. Search would be, to the general
public, providing answers to questions they have. No one should say search
upon any analysis, though, because search in and of itself isn't likely to
make money -- well, except for selling unique user's searching habits to other
companies for demographics information so that THEY can create better ads.

Advertising, on the other hand, is what happens when you weight certain search
results higher than others because they pay you more money, or when you, as
Google does, separate out potentially interesting advertisements for you to
click on.

You can run a search engine without being a business, without making money,
and without having advertisements or search results weighted by how much money
they gave you.

That said, how does Duck Duck Go make money?

~~~
saurik
That all makes "search" an inexact answer, not an incorrect one; akin to
answering "their stores" for "how does Best Buy make money?" as opposed to
"selling products"; your "normal" person will just look at you cross-eyed for
that correction and complain about "semantics". (That said, I agree with you
that not analyzing it far enough to at least get to the also-vague-sounding
"advertising" is probably not actable.)

~~~
dangrossman
$11 billion of Google's ad revenue is from non-Google websites. They run the
largest display advertising network in the world (thanks to the DoubleClick
acquisition). Search is just one channel for their ads.

~~~
bmuon
That was totally missing in the article. It'd be really interesting to see the
difference between display advertising and ads in search results.

~~~
saurik
From the actual filings this article is making those pie charts with, Google
reports 72% of their advertising revenue comes from websites they operate.

They also reported paying 51% (AdSense for Search) and 68% (AdSense for
Content) of the fees (which they defined as the revenue) to the "Google
Network Member".

Doing the math out, that would indicate that the advertising profit from their
own websites accounts for 85-90% of their total profit from advertising.

In essence, the fact that they "run the largest display advertising network in
the world" is actually in any way "where they make the money".

(Of course, the money they get from that isn't "chump change", and I'd even
make the argument that if they didn't run that off-Google advertising network
their core advertising business would have less content available.).

