The emerging revenue sources of large technology companies like Apple and Microsoft may be an indication of their regard for certain intellectual property rights and their role in future growth and income.
Over the past several years, companies which were originally known primarily as hardware and software vendors have expanded to include cloud services, music streaming and other digital services, placing greater emphasis on audience adoption, data collection and subscription over single product sales.
Hardware and software sellers appear to have taken a page from the book of Internet businesses, such as Alphabet and Meta. Patent certainty and copyright ownership seem to matter less to these and other companies, although the data to substantiate this has yet to be presented.
The always revealing Visual Capitalist reports that in 2021, the Big Five tech giants—Apple, Amazon, Google (Alphabet), Meta, and Microsoft—generated a combined $1.4 trillion in revenue, a collective GDP that exceeds many leading nations. These businesses make their money in generally one of two ways:
- By seling products to a vast consumer base, or
- By selling their user loyalty to advertisers in the form of data
Only about half of Apple’s revenue (see graphic above), just 52.5%, still comes from iPhone sales. That percentage will likely shrink further. Azure cloud services generates almost a third of Microsoft’s total (higher than Amazon’s once leading cloud position), and Amazon’s online stores account for less than 50% of the company’s revenue.
For perennial U.S. patent grant leader, IBM, the future is clearly in the cloud. Hybrid cloud revenue reached $5 billion in the first quarter 2022, an increase of 17 percent year over year. Full-stack cloud capabilities from infrastructure to consulting brought in $20.8 billion of revenue over the past 12 months. IBM revenue for the twelve months ending June 30, 2022 was just under $60 billion, which makes the cloud responsible for more than a third of the IP giant’s revenue.
This is not surprising to those following these companies. However, not everyone can profit from cloud services. It does beg the question:
How has their IP perspective changed and where is it going?
Microsoft Revenue Breakdown
Meta and Alphabet do things differently. Rather than selling physical products (Chromebook’s not withstanding), these tech giants generate most of their revenue by selling their audience’s attention in the form of personal data. Nearly 98% of Meta’s revenue comes from Facebook ads, and 81% of Google’s revenue comes from advertising on various Google products.
Whether or not they legally own the data they control and monetize.
Where Does IP Fit In?
What does this say about the tech giants’ need for IP rights? The cloud by nature lends itself to an open-source environment. Still, users are not without the need for proprietary inventions and technology consulting. Content, too, as used by Apple Music and Amazon Music Unlimited has become commoditized if not marginalized for owners. For these two companies, the cheaper the better, with free being the best. (Spotify and Google’s YouTube have been the most aggressive about underpaying for content or not paying at all. Can patented inventions from SMEs and independents be far behind?)
While more than half of Apple’s revenue is still generated from iPhones, their shrinking global smart phone market share is at least 5% below Samsung’s and China’s Xiaomi is closing in on the iPhone. The future for Apple is in high margin areas like streaming and other cloud services, wearables and pricer, “elite” devices, which appear to have more to do with branding than breakthrough innovation and proprietary rights.
Changing Nature of Big Tech Revenues
The net-net: The changing nature of big tech revenue streams foretell where their fortunes are likely headed and, possibly, their decreasing regard for IP rights. A decade ago Microsoft relied on mostly Windows and Office for the bulk of its revenue. Today, they represent a declining 13.8% and 23.7% share of the pie. Azure Cloud Services now generates an amazing 31.3% of total revenue, relatively little of that dependent on IP rights. Gaming (Xbox) and LinkedIn represent at growing 9.1% and 6.1%, respectively.
User loyalty is important to all businesses today. For tech giants, it is an essential they can scale and monetize – and probably can not live without. Proprietary inventions, although still extremely important to leading companies, appear to be less of a differentiator than they once were. Look for brand and trade secrets to possibly fill the gap.
Tap here the full infographic, “How do big tech giants make their billions?”
Image source: VisualCapitalist.com
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