Over the past week, I’ve been blowing the virtual dust off more than a decade’s worth of annual reports from Microsoft, Apple, and Google.
My goal was to follow the money and figure out how each company's business has changed over the past decade. Consider this a follow-up to my February post, "Apple, Google, Microsoft: Where does the money come from?"
My tally starts with financial results for 2002, the year after Microsoft signed a historic consent decree that settled the U.S. v. Microsoft antitrust lawsuit. It was also the first full year after the introduction of the iPod, which was the first step on Apple's transformation from a PC company to one that revolutionized mobile computing and communication. The earliest annual report I could find for Google was from 2003, the year before its big IPO.
In Microsoft's case, the question I was most interested in was "How dependent is the company on Windows?" The Windows monopoly began crumbling as soon as the settlement was signed (although it's debatable how much influence that lawsuit had on the market).
Over the past 10 years, Microsoft has shifted its reporting structures a few times, making it hard to draw perfect comparisons over time. But the chart below, which shows revenue from the desktop versions of Windows and related products, is close enough.
In 2002, the Desktop Platforms division accounted for 33 percent of Microsoft's total revenue. That percentage has been steadily dropping, and in fiscal 2013, the corresponding division (which now includes Microsoft's Surface hardware) was responsible for only 25 percent of the company's steadily rising total revenue. Server products, Office and other desktop applications, and cloud services increased steadily during that time.
Looking at operating income (what's left of revenue after you subtract expenses) tells a more interesting story.
From 2002 through 2004, Windows was the dominant contributor to Microsoft's profits, accounting for as much as 89 percent of total operating income. But that began changing in 2005 as those investments in enterprise software and cloud services began to pay off.
(The big dip in 2012? That's the $6.2 billion writedown of the aQuantive purchase, which was part of a failed attempt for Microsoft to go big in advertising.)
The company's no longer as dependent on Windows as it once was, but that division still makes a substantial contribution to the bottom line. If the PC industry declines sharply in the next few years, the impact will still be painful in Redmond.
Apple, which in 2002 had been slowly recovering from a near-death experience that brought Steve Jobs back as CEO, was still mostly driven by its Mac product line in those early days. In 2002 and 2003, 79 and 72 percent of the company's revenues, respectively, came from the sale of Macs.
The percentage dropped to 59 percent in 2004 and slipped to 45 percent the next year.
In 2007, Apple Computer changed its name to Apple Inc., in a perfectly accurately reflection of how its business had evolved. Today, Macs account for only 13 percent of revenue.
What's astonishing about that Apple chart is that if you took away everything else and only left the Mac division behind, it would still be a business with more than $20 billion in annual revenue and solid profits. The Mac group hasn't declined so much as it's been left behind by the astonishingly fast-growing iPhone and iPad divisions, as well as their accompanying app stores.
Finally, there's Google, which has been spectacularly successful at growing revenues year after year, almost exclusively from its advertising business. In this chart, the dark green is revenue from advertising. The slim section in light green indicates other revenues. (I've backed out revenues from Google's brief ownership of Motorola Mobility for 2012 and 2013, before it agreed to sell that division to Lenovo.)
Unlike Microsoft and Apple, Google hasn't yet succeeded in establishing a significant alternative source of revenue to the one that made it successful. But it's clearly trying.
I found this explanation of the "Other revenues" line from the company's 2013 annual report extremely interesting. In 2011, that line had been negligible. But it jumped sharply the next two years:
Other revenues in our Google segment increased $2,619 million from 2012 to 2013 and also increased as a percentage of the segment revenues. The increase was primarily due to growth of our digital content products, such as apps, music and movies. Additionally, we experienced an increase in our hardware revenues due to Chromecast, directly-sold Nexus products and Chrome OS devices.
The Google Play store brings in a significant amount of revenue on the strength of its massive installed base, with additional revenue coming from Google's dabbling in hardware.
But there's no mention of Google Apps, the paid, business-focused version of the free Gmail and Google Docs services, nor do Google's infrastructure and cloud services contribute a significant portion of that thin slice of non-advertising revenue.
When Google files its 2014 annual report early next year, I'll be looking carefully to see if either of those product lines have broken out of the "too small to be counted" category.