Digital companies, just like regular old companies, calculate their profit by subtracting their expenses from their revenue. The revenue comes from what they sell, rent, subscribe, or do (as a service) for consumers or business customers. And their expenses are usually some combination of costs for stock, running costs, marketing, admin, and – in the case of digital businesses – potato chips and a ping-pong table for the office.
But the regular way of doing things is just a standard, and some of the most successful companies vary this theme in interesting ways in order to consolidate their customer base and squash out the competition. They still make a huge profit as a total – just not in terms of percentage profit margin. Domination is more important than a quick profit for these guys.
The people at Headway Capital decided to take a closer look at seven of these Death Star companies’ business models. They found data for the latest fiscal year from publicly available SEC 10-K filings and annual reports, and used it to create a new set of alluvial diagrams. (They changed the names of some operating segments slightly to make the companies more directly comparable.) The diagrams show revenue coming in, costs going out, and the profits that resulted.
Apple has been around a bit longer and has had a good chance to develop its products and a loyal customer base. The iPhone now accounts for less than 20% of the smartphone market, but Apple claims 87% of the industry’s profits. Like the previously-mentioned companies, Apple has the might to change the consumer culture landscape with aggressive design decisions.
Amazon, the third largest digital media company, reported only a $10.1 billion net profit on a $232.9 billion revenue in 2018. This is one of the lowest percentages for any big digital company. But thanks to their purchase of Whole Foods and the establishment of physical stores such as Amazon Books stores, Amazon 4-Star outlets, Amazon Pop-Up sites, and Amazon Go stores, plus the $25.7 billion Amazon Web Services, the company is likely to remain tilted towards the green.
Google underwent a restructure to became Alphabet in 2015. Don’t you just hate it when digital companies use real words for their names? Google itself provides 99.6% of Alphabet’s revenue, but the restructure and $21.4 billion spend on research and development indicate that search will become a less and less significant part of the business. Alphabet is also invested in CapitalG (an equity investment fund), robot car company Waymo, and Wing – a drone-delivery company. This ‘Other Bets’ department generated nearly $600 million in revenue in 2018, up 23% from the previous year.
Like many big corporations, Alphabet sometimes seems to consider itself above the law. In July 2018, the European Union fined the company $5.1 billion - 3.7% of the company’s annual revenue – for blocking rival advertisers. It is a significant step in the EU’s efforts to create a fairer world and break up monopolies.
Today Apple is the world’s most profitable company. The ‘luxury’ device business made a $59.5 billion net profit in 2018. iPhone sales are a big part of that, but of course Apple’s continuing domination is also founded on the selling of other interconnected, proprietary devices and systems. They also made a buck of two from Apple TV and Watch, Beats products, AirPods, HomePod and iPod touch, and other Apple swag.
Facebook is a big investor in research and development. They pumped $10.2 billion into this department in 2018 - 32.5% more than in 2017, and 18.4% of Facebook’s total revenue (a bigger percentage than Apple, Amazon, or Google).
Around 20% of the world’s human population is on Facebook - 1.6 billion daily users. In many ways it is the most fully-functional advertising machine in the world, combining reams of personal data with the ability to utilize people’s personal posts and feeds for marketing. Ad revenue accounted for around $55 billion in 2018, but the company was able to pay for snacks with the $826 million of loose change that came from its money transfer unity, called Payments.
Nike has been a desirable brand for many years, despite consistently coming under fire for unscrupulous employer tactics among other things. As the chart shows, they achieve this success partly through a full-on marketing strategy which, in 2018, included $3.6 billion spent on “demand creation” (everything from marketing and ads to paid celebrity endorsements.) Nike has also shored up its profits by going direct-to-consumer with a number of physical stores including the Nike Live store (and app) launched in LA in the year in question.
But with a revenue of $36.4 billion, the company just about manages to maintain a $2bn profit margin. Branded trainers are the main deal, followed by other sports clothing and equipment. They make a bit on top from their interest in Converse, plus licensing revenue from the likes of Air Jordan.
Uber is banking on total world domination, so the contentious cab firm spent around $457 million working on self-driving cars and the like in 2018, plus another billion on other R&D projects. The company is still operating at a loss, despite 14 million taxi rides per day and $9.8 billion in revenue from taxi fares in 2018 (plus a chunk of change from food delivery). The company is present in more than 700 cities, and each time it tries to take over a new city it spends a shedload of money on sign-up bonuses and rider discounts to undermine existing local businesses.
However, the company is playing a risky game, and shares dipped 7.6% on Uber’s IPO day earlier this year – a value loss of $618m, the biggest of any company in these circumstances since 1975.
Disney’s masterplan has long been to become a media giant, shifting a ton of studio films and making serious revenue from merchandising, licensing, theme parks etc. The ‘Horny Jeff’ company now has its fingers in a number of pies, with its parks and resorts bringing in around one-third of the revenue, and 41.2% coming from its media networks. Disney likes to spend its money sucking up smaller companies such as Pixar in 2006, Marvel Entertainment in 2009, Lucasfilm in 2012, and, most recently, parts of 21st Century Fox.
Read next: You Won’t Believe How These 10 Famous Companies Started Out (infographic)
But the regular way of doing things is just a standard, and some of the most successful companies vary this theme in interesting ways in order to consolidate their customer base and squash out the competition. They still make a huge profit as a total – just not in terms of percentage profit margin. Domination is more important than a quick profit for these guys.
The people at Headway Capital decided to take a closer look at seven of these Death Star companies’ business models. They found data for the latest fiscal year from publicly available SEC 10-K filings and annual reports, and used it to create a new set of alluvial diagrams. (They changed the names of some operating segments slightly to make the companies more directly comparable.) The diagrams show revenue coming in, costs going out, and the profits that resulted.
The money flow
Amazon has famously preferred growth to profits, and made a loss for the first four years and unremarkable profits for the next 10, before finally giving its investors some pocket money. The rewards are now showing through the sheer size and domination of the company. Uber is another company that regularly reports big losses, as it attempts to dominate the taxi industry in cities around the world, blocking out local businesses and exploiting workers. The business spends money on building its driver and customer base and developing new technologies.Apple has been around a bit longer and has had a good chance to develop its products and a loyal customer base. The iPhone now accounts for less than 20% of the smartphone market, but Apple claims 87% of the industry’s profits. Like the previously-mentioned companies, Apple has the might to change the consumer culture landscape with aggressive design decisions.
How Amazon spends its revenue
Amazon, the third largest digital media company, reported only a $10.1 billion net profit on a $232.9 billion revenue in 2018. This is one of the lowest percentages for any big digital company. But thanks to their purchase of Whole Foods and the establishment of physical stores such as Amazon Books stores, Amazon 4-Star outlets, Amazon Pop-Up sites, and Amazon Go stores, plus the $25.7 billion Amazon Web Services, the company is likely to remain tilted towards the green.
How Alphabet (Google) spends its revenue
Google underwent a restructure to became Alphabet in 2015. Don’t you just hate it when digital companies use real words for their names? Google itself provides 99.6% of Alphabet’s revenue, but the restructure and $21.4 billion spend on research and development indicate that search will become a less and less significant part of the business. Alphabet is also invested in CapitalG (an equity investment fund), robot car company Waymo, and Wing – a drone-delivery company. This ‘Other Bets’ department generated nearly $600 million in revenue in 2018, up 23% from the previous year.
Like many big corporations, Alphabet sometimes seems to consider itself above the law. In July 2018, the European Union fined the company $5.1 billion - 3.7% of the company’s annual revenue – for blocking rival advertisers. It is a significant step in the EU’s efforts to create a fairer world and break up monopolies.
How Apple spends its revenue
Today Apple is the world’s most profitable company. The ‘luxury’ device business made a $59.5 billion net profit in 2018. iPhone sales are a big part of that, but of course Apple’s continuing domination is also founded on the selling of other interconnected, proprietary devices and systems. They also made a buck of two from Apple TV and Watch, Beats products, AirPods, HomePod and iPod touch, and other Apple swag.
How Facebook spends its revenue
Facebook is a big investor in research and development. They pumped $10.2 billion into this department in 2018 - 32.5% more than in 2017, and 18.4% of Facebook’s total revenue (a bigger percentage than Apple, Amazon, or Google).
Around 20% of the world’s human population is on Facebook - 1.6 billion daily users. In many ways it is the most fully-functional advertising machine in the world, combining reams of personal data with the ability to utilize people’s personal posts and feeds for marketing. Ad revenue accounted for around $55 billion in 2018, but the company was able to pay for snacks with the $826 million of loose change that came from its money transfer unity, called Payments.
How Nike spends its revenue
Nike has been a desirable brand for many years, despite consistently coming under fire for unscrupulous employer tactics among other things. As the chart shows, they achieve this success partly through a full-on marketing strategy which, in 2018, included $3.6 billion spent on “demand creation” (everything from marketing and ads to paid celebrity endorsements.) Nike has also shored up its profits by going direct-to-consumer with a number of physical stores including the Nike Live store (and app) launched in LA in the year in question.
But with a revenue of $36.4 billion, the company just about manages to maintain a $2bn profit margin. Branded trainers are the main deal, followed by other sports clothing and equipment. They make a bit on top from their interest in Converse, plus licensing revenue from the likes of Air Jordan.
How Uber spends its revenue
Uber is banking on total world domination, so the contentious cab firm spent around $457 million working on self-driving cars and the like in 2018, plus another billion on other R&D projects. The company is still operating at a loss, despite 14 million taxi rides per day and $9.8 billion in revenue from taxi fares in 2018 (plus a chunk of change from food delivery). The company is present in more than 700 cities, and each time it tries to take over a new city it spends a shedload of money on sign-up bonuses and rider discounts to undermine existing local businesses.
However, the company is playing a risky game, and shares dipped 7.6% on Uber’s IPO day earlier this year – a value loss of $618m, the biggest of any company in these circumstances since 1975.
How The Walt Disney Company spends its revenue
Disney’s masterplan has long been to become a media giant, shifting a ton of studio films and making serious revenue from merchandising, licensing, theme parks etc. The ‘Horny Jeff’ company now has its fingers in a number of pies, with its parks and resorts bringing in around one-third of the revenue, and 41.2% coming from its media networks. Disney likes to spend its money sucking up smaller companies such as Pixar in 2006, Marvel Entertainment in 2009, Lucasfilm in 2012, and, most recently, parts of 21st Century Fox.
The Finances of 7 world-dominating companies
These companies may no longer be cute little start-ups but they own much of all that is good and bad in the world, and there is nothing – nothing! – we can do to stop them. However, if you work for a small digital company, you can at least study their accounts and use them to inspire your own entrepreneurial innovations and maybe scrape something back for the little guy. Just remember, dotcom friends: stay ethical!
Read next: You Won’t Believe How These 10 Famous Companies Started Out (infographic)
