Spending is Big Tech’s superpower

This article is part of the On Tech newsletter. Here is a collection of past columns.

I keep writing about the crazy dollars big tech companies make in revenue and profit. But what is perhaps even more amazing is what tech giants are spending to keep their businesses buzzing and growing long into the future.

I watched, speechless, America’s five biggest tech superstars – Apple, Microsoft, Google, Amazon, and Facebook – splurge on expensive investments in their businesses. This includes specialized equipment to assemble iPhones, towering computer hubs, and underwater internet cables that zip YouTube videos to your phone, as well as warehouses for Amazon workers to assemble and ship orders.

What companies spend on physical assets that last for years – capital expenditures, for you fools – is one of the best insights into how Big Tech leverages success for even greater success.

The combined profits of these five companies soared more than 25% in the most recent year, according to financial statements. Tech giants have the money and the permission of their investors to spend almost anything to stay on top. This is an advantage that few companies can match.

An example: Over the past year, UPS has spent the equivalent of about 5 cents of every dollar of its sales on more planes, trucks, delivery depots, parcel handling equipment and more. software to manage everything, according to the company’s financial statements. My calculations from Amazon’s disclosures show that the company’s similar expense category equates to 13 cents for every dollar of sales.

UPS and Amazon don’t do exactly the same things. Amazon’s main investments include technology hubs for its cloud computing business. UPS delivers for many businesses, while Amazon primarily handles packages for itself.

The two companies have made a dandy in the pandemic surge in online shopping. But UPS is reducing its spending on durable assets while Amazon spends significantly more each year.

The good news is, that’s exactly what we want rich, successful businesses to do: invest a large chunk of their wealth to improve their business – for their benefit and ours. When Microsoft spends a lot of money on upgrading their data centers, it helps all businesses that use online versions of Excel and Outlook. When Amazon equips its warehouses with new assembly lines, orders can be delivered more efficiently to our homes.

We can be in awe and still wonder if anyone can keep up with Big Tech’s investment levels.

How does a self-driving car startup compete with what Google and Apple can spend on sensors, computer chips, prototype labs, and the best minds to figure it all out? (The answer: no. Many self-driving car startups have given up or sold to bigger companies.)

General Motors recently said it would spend around $ 10 billion a year on expensive assets to grow into an electric vehicle and tech company. This includes overhauling factories and investing in new projects such as the development of electric batteries.

That’s only about half of what Facebook spends, both in gross cash and as a percentage of each company’s total annual sales, on data centers and other long-term investments. In short, Facebook’s investments to take Instagram posts to the world are way more than GM has planned to reinvent a 113-year-old American industrial icon.

The question I keep coming back to in this newsletter – and I don’t know the answer – is whether Big Tech is invincible. History suggests that dominant companies do not stay dominant for long. What looks potentially different now, however, is the existence of a handful of extremely dominant companies in a dynamic sector of the economy with the power to spend anything to stay on top.

  • Neighborhood watch for delivery people: In New York City, people delivering food to restaurants form night patrols on bridges and roads to help deter thefts. Some couriers have told my colleague Coral Murphy Marcos that they believe the police have not done enough to protect them from an upsurge in thefts of e-bikes from couriers. New York Magazine wrote about courier patrols and organizing last month.

  • Did you hate food, or anything? Axios writes about cases in Washington of “review bombing” or of people leaving negative reviews on a restaurant’s Yelp page to protest its policies on masks or vaccinations. Yelp has devised systems to try and eliminate people who denigrate a restaurant they’ve never been to.

  • Behind the Chinese crackdown on video games: An anthropologist writes in Sixth Tone about recent time limits imposed by the Chinese government on children playing video games. “China’s internet addiction panic underlies deeper social issues related to social transformations of the past 40 years,” said Rao Yichen. (My colleagues wrote about gambling restrictions in China last month.)

Here are beautiful portraits of cows, including a group on a white sand beach (?!?!). The Atlantic recently re-circulated this 2019 collection of moo images.

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