How to spend it: Tech giant edition

The Financial Times’ “How to Spend It” series advises the super-rich on which yachts, handbags, and other “worldly pleasures” to lavish their millions on. But what if the magazine dedicated an issue to the corporate equivalent of its readers, the uber-wealthy consumer tech giants: Google, Apple, Facebook, and Amazon (GAFA)?

The consumer tech platforms would make worthy cover stars. The ten largest tracked by Omdia generated more than $1tn in revenue in 2019, marking a 680% rise on 2009 (see Figure below). GAFA alone accounted for over $780bn in 2019. Excluding Microsoft (and including Twitter), revenue for the top ten increased nearly tenfold, or 947%, over the decade. To put that into perspective, total revenue for the top 10 telcos has grown by only 13% since 2011, remaining broadly flat at about $860bn for the past three years.

GAFA’s buying power is even more newsworthy. At the end of 2019, the four companies had a combined $337bn in cash and short-term investments. That could buy a lot of tech, talent, content, and startups – or even leading players in pretty much any market they want to enter. The giants of traditional telecoms and media – AT&T, Walt Disney, Comcast, and Charter Communications – had less than a tenth of that, at $28bn.

So how should the consumer tech giants spend it? Here's Omdia's curated selection:

• Becoming media companies – albeit temporarily. No doubt Amazon and Apple will continue to spend billions of dollars on original TV shows and movies. Omdia forecasts that Amazon alone will spend $28bn over 2020 –23, and according to media reports, Apple has even held talks about acquiring MGM, the owner of the rights to the James Bond franchise and producer of The Handmaid's Tale TV series. But it would be a mistake to think such moves are about becoming the "new HBO" or even the "new Netflix." They are about becoming what they've always been, but for TV: two-sided platforms lodged between as many businesses and consumers as possible. Once they've established that position – and their cut of purchase, subscription, and advertising revenue – the tech giants' investments in creating content will likely slow.
• Not just video games, but video gaming. Digital games already generate more revenue than premium online video, digital music, and e-book services combined. Omdia is not bullish about Google Stadia and Apple Arcade, forecasting total cloud and subscription revenue to grow to just single-digit fractions of total games revenue. But video gaming promises much more than just monthly fees and purchases to the tech giants. It's one of the few forms of mass-market media relatively untouched by advertising, a fact that surely hasn't passed by Google or Facebook, which recently acquired cloud-gaming platform PlayGiga. The need for cloud infrastructure to meet the ever-growing technical demands of games also promises to be a major driver of revenue for Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform. But most importantly, video gaming is an increasingly powerful cultural force, with more and more kids and adults choosing to play, watch, and talk about games, or just hang out in their virtual worlds over conventional forms of media and social networking.
• A greater stake in the direct-to-consumer retail revolution. Amazon is the only company to have seriously challenged Google and Facebook's 57% share of the $320bn digital advertising market in recent years, reporting $14bn in “other” revenue in 2019, primarily from advertising. Amazon's success has been due largely to its ability to more closely link advertising to purchases, thanks to its strength in online retail. Google and Facebook have been fighting back by incorporating more payment and ecommerce features into the Facebook app, Instagram, YouTube, and Google Images amongst other services. But they could take the battle to another level by acquiring Shopify, Square or one of the other start-ups helping a growing wave of digital-savvy brands to sell directly to consumers and avoid bricks-and-mortar and online retail giants – including Amazon.
• Artificial intelligence (AI) to offset flaws in their DNA. Fake news, fraud, bullying, toxic content, and copyright infringement are the inevitable results of platforms that enable almost anyone to post almost anything, anonymously. Tech giants will increasingly invest in AI aimed specifically at identifying and countering such behavior. That includes Amazon and Spotify, as well as social media giants Facebook and YouTube, as challenges posed by counterfeit goods and fake listeners show that any scale platform can be gamed. Twitter's June 2019 acquisition of Fabula, a start-up developing deep learning technology to detect the spread of misinformation online, points to the kind of acquisitions the tech giants might make. Investment will be aimed first at reducing risks around reputation, revenue, and regulation, and later at turning security and privacy protection into a differentiating feature. Expect Apple to try to steal a march in this race to become the consumer's most-trusted AI-augmented provider.
• Building the "new Internet." Despite being characterized as riding "over the top" (OTT) of telcos' networks, the tech giants are spending plenty on infrastructure. Omdia estimates that Google's parent Alphabet, Amazon, Microsoft, Facebook, and Apple's combined capital expenditure (capex) topped $83bn in 2019, eclipsing the $80bn by the top five highest spending telcos. Alphabet spent almost as much as China Mobile – operator of the world's largest mobile network with 0.9 billion subscribers. Much of the tech giants' spend has been on datacenters, but also on submarine cables, dark and lit fiber, and content delivery networks (CDNs) to connect and extend their physical infrastructure's reach. The next frontier will be enabling "edge computing" by placing compute and storage even closer to consumers and enterprises. Many telcos have long hoped that their ownership of fixed and mobile access networks would allow them to dominate this space, especially after the arrival of 5G. But Amazon, Microsoft, and Google are better-placed to design, develop, and monetize edge applications, leveraging their existing, thriving digital media and cloud services businesses. Partnerships like Verizon's with AWS look like the best way forward – though agreeing mutually beneficial terms can be a major source of argument and angst.
• Lobbyists, lawyers, fines, and taxes. As the tech giants become more singular, the more they will be singled out for regulation. Google is already facing over $9bn in anti-trust fines from the European Commission, and Facebook was fined $5bn by the US Federal Trade Commission in 2019 for privacy violations. Amazon has been under investigation by both bodies. Numerous policymakers have also drafted regulations that don't name specific companies, but will clearly hit the tech giants the hardest. Others are forming task forces to understand how these amorphous companies compete, and whether regulation needs to fundamentally change. The tech giants are trying to get ahead of the game by "embracing" regulation – or rather, taking the lead on defining any laws or guidance. Ultimately, the costs will be relatively small for the tech giants in the short- to-medium term. For example, although Alphabet, Amazon, Apple, and Facebook reportedly spent record amounts on lobbying in the US in 2019, the actual amount – $53m – is a drop in their oceanic finances. Any substantial fines and taxes will take several years to impose or collect. But the tech giants must address concerns over their impact on competition, economies, and societies. If they just sit back and watch the world burn, they'll only end up rulers of the ashes.