5 ms·

Microsoft, Apple, and Google: where does the money come from?

85 points by matan_a 15y ago

nchuhoai 15y ago
> 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 15y ago
  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 15y ago
    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 15y ago
      $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 15y ago
        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 15y ago
        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.).
- rbanffy 15y ago
  Unless you pay for it, search itself won't be a revenue driver.
irrelative 15y ago
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_ 15y ago
  It's not that bad. The slices are pretty big. I got the gist of it.
  - hessenwolf 15y ago
    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_and_visual_perception http://en.wikipedia.org/wiki/Pie_chart#Use.2C_effectiveness_...
tikhonj 15y ago
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 15y ago
  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 15y ago
    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 15y ago
      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.
rimantas 15y ago
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.
- bwarp 15y ago
  Excellent idea. I'd also like to see less proportional charts i.e. with areas representing cash rather than proportion as well. Then we can see how much more or less one division in one company makes than another in the other company.
- omh 15y ago
  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 15y ago
    You are completely wrong. http://finance.yahoo.com/q/is?s=MSFT+Income+Statement&annual http://finance.yahoo.com/q/is?s=MSFT+Income+Statement&an... 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 15y ago
      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.
yatsyk 15y ago
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.
jklp 15y ago
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 15y ago
  Presumably Xbox Live
  - dangrossman 15y ago
    No, that's in E&D.
- sdfx 15y ago
  It seems to be Bing and Bing-related revenue together with ads [1]: "OSD revenue increased primarily as a result of growth in online advertising revenue. Online advertising revenue grew $100 million or 21% to $572 million, reflecting continued growth in search and display advertising revenue" Xbox related revenue, including Live and Downloads are part of the Entertainment and Devices division. [1] http://www.microsoft.com/investor/EarningsAndFinancials/Earnings/SegmentResults/OnlineServicesDivision/FY12/Q1/performance.aspx http://www.microsoft.com/investor/EarningsAndFinancials/Earn...
- djenryte 15y ago
  Found a Wikipedia article detailing Microsoft Online Services: http://en.wikipedia.org/wiki/Microsoft_Online_Services http://en.wikipedia.org/wiki/Microsoft_Online_Services
- jpadkins 15y ago
  Hotmail and MSN have a lot of traffic.
bilban 15y ago
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?
- fjarlq 15y ago
  Yep, Ed Bott didn't bother to talk about profit. A glaring omission in my opinion.
- hollerith 15y ago
  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 15y ago
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.
- bedris 15y ago
  they must invent the company that will wipe Google out before someone else does it. That's a great turn of phrase. Nicely done!
- brudgers 15y ago
  >"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 15y ago
    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 15y ago
      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.
rayhano 15y ago
Incredible how Apple has ONLY really fulfilled its potential with the iPhone and iOS... so all this Mac vs PC was a distraction...
- microtherion 15y ago
  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.

85 points by matan_a 15y ago

> 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 15y ago
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 15y ago
  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 15y ago
    $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 15y ago
      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 15y ago
        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.).
rbanffy 15y ago
Unless you pay for it, search itself won't be a revenue driver.

irrelative 15y ago

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_ 15y ago
It's not that bad. The slices are pretty big. I got the gist of it.
- hessenwolf 15y ago
  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_and_visual_perception http://en.wikipedia.org/wiki/Pie_chart#Use.2C_effectiveness_...

tikhonj 15y ago

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 15y ago
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 15y ago
  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 15y ago
    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.

rimantas 15y ago

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.

bwarp 15y ago
Excellent idea. I'd also like to see less proportional charts i.e. with areas representing cash rather than proportion as well. Then we can see how much more or less one division in one company makes than another in the other company.
omh 15y ago
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 15y ago
  You are completely wrong. http://finance.yahoo.com/q/is?s=MSFT+Income+Statement&annual http://finance.yahoo.com/q/is?s=MSFT+Income+Statement&an... 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 15y ago
    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.

yatsyk 15y ago

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.

jklp 15y ago

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 15y ago
Presumably Xbox Live
- dangrossman 15y ago
  No, that's in E&D.
sdfx 15y ago
It seems to be Bing and Bing-related revenue together with ads [1]: "OSD revenue increased primarily as a result of growth in online advertising revenue. Online advertising revenue grew $100 million or 21% to $572 million, reflecting continued growth in search and display advertising revenue" Xbox related revenue, including Live and Downloads are part of the Entertainment and Devices division. [1] http://www.microsoft.com/investor/EarningsAndFinancials/Earnings/SegmentResults/OnlineServicesDivision/FY12/Q1/performance.aspx http://www.microsoft.com/investor/EarningsAndFinancials/Earn...
djenryte 15y ago
Found a Wikipedia article detailing Microsoft Online Services: http://en.wikipedia.org/wiki/Microsoft_Online_Services http://en.wikipedia.org/wiki/Microsoft_Online_Services
jpadkins 15y ago
Hotmail and MSN have a lot of traffic.

bilban 15y ago

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?

fjarlq 15y ago
Yep, Ed Bott didn't bother to talk about profit. A glaring omission in my opinion.
hollerith 15y ago
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 15y ago

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.

bedris 15y ago
they must invent the company that will wipe Google out before someone else does it. That's a great turn of phrase. Nicely done!
brudgers 15y ago
>"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 15y ago
  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 15y ago
    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.

rayhano 15y ago

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

microtherion 15y ago
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.