A startup usually looks up to the big technology companies and their business model to innovate and disrupt the market. A classical startup tale. Amid the recent discussions around the way Facebook operates, I was wondering how they generate their revenues. Moreover, what are its close technology company competitors do to earn money?
FAAMG dominating S&P500 and NASDAQ
Last year, in the middle of 2017, the financial services operator Goldman Sachs, introduced the acronym FAAMG. FAAMG stands for the initials of Facebook, Apple, Amazon, Microsoft, and Google (Alphabet). The reasoning of Goldman & Sachs for the coining of the term is the market power of the five players. Because they dominate the S&P500 as well as NASDAQ.
FAAMG Market Capitalization between the GDP of Germany and France
Market Capitalization of FAAMG, in the middle of 2017, was between the value produced in Germany and France, in 2017 (Statistica, 3.65 trillion US$ for Germany and 2.57 trillion US$ for France). That means Facebook, Apple, Amazon, Microsoft, and Alphabet (Google) represent an unimaginable 2,9 trillion US$ in combined market capitalization. The visualcapitalist.com website tells us more about the revenue streams of the top tech companies:
FAAMG Sources of income
Here it becomes exciting! Most companies have diversified their sources of income. But most operate in distinct categories for their principal revenues:
- – Apple is a hardware company with 84% of their income arriving from product sales
- – Alphabet is generating 88% of its revenues through advertising
- – Facebook is also relying on advertising for their income which counts for 97%
- – Amazon: For Amazon product sales amount to 72% of its income
- – Microsoft is the company with income balanced in the hardware, software and services categories
More details are in the above mentioned, vast infographic prepared by the visualcapitalist.com
Facebook and Google (Alphabet) count on advertising
Knowing where the revenue streams stem from helps us to understand the positioning of these two companies and the need to use the data collected from their users to maintain their leading positions. The better Facebook and Google know their users the better advertising works. This principle is age-old and well illustrated by the specialized press, for example, which displays advertising for particular audiences.
So, I am not taking a position on how good or bad the practices of Facebook and Google are because I do not know in detail what they are doing. The key is their operating mode fits their business model and companies -large and small- keep adapting their business model to market conditions, needs and requirements.
What is your Business Model?
My main interest was to determine the business model of the tech giants. If you are interested in evaluating your business model because you are a technology startup or any other business already operating, contact us!