Microsoft, Apple, and Google: How three tech giants have evolved in the 21st Century

Microsoft, Apple, and Google: How three tech giants have evolved in the 21st Century

Summary: Apple's a hardware company, Microsoft's a software company, and Google makes almost all of its income from advertising. All three companies have been trying for years to diversify their revenue streams. How's that working out?

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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.

msft-revenue2

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. 

msft-operating-income

(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.

aapl-revenue

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.)

goog-revenue

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.

Topics: Microsoft, Apple, Google, Tech Industry

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  • Great Analysis

    Great Analysis,
    but I think the numbers only doesn't tell everything,
    for example, while products and services of Microsoft like Windows, and Bing for example are different, but they rely in each other,
    If Windows go down, everything will go down, people use bing which is integrated in IE which comes with Windows.
    If No Windows, no Bing, no azure (because it's mainly used to be tied up with a windows environment).
    So every product have an indirect relation to the services.
    The same apply to other companies,
    But i think Google is in the most dangerous situation , because unlike Microsoft and Apple, they don't sit on their own solid technology, but they rely on a mix of closed source running on top of open source half packed code that they don't control all of it, and all is financed by the advertisement money.
    When you get money from Product "A" to spend on "Product "B" which does not generate money,this is the worst business plan ever (It's not legal too in some countries) ! and That's what Google do.
    A good business is where all your products and services are self profitable, that's why Apple here is the most healthy company of the three.
    FadyNabilNashed
    • Windows is a lot less critical than you think it is

      Bing is also the default on all Apple devices, as well as BlackBerry.

      Azure isn't terribly dependent on Windows (other than as a hosting platform, but only Microsoft need know that) - it can run all the standard Linux and FOSS stacks, has a pretty spectacular node.js support, and there's a great SDK for connecting Apple's Cocoa and CocoaTouch environments to an Azure back end. You can rely on totally non-Microsoft stuff and have an absolutely first class Azure set up.

      Office 365 has fantastic Mac, iOS, and Android clients.

      Now - I'm pretty sure Microsoft wants Windows to succeed, and will flourish more easily if it does. But let no one make the mistake of thinking Microsoft's fate depends on it.
      Mac_PC_FenceSitter
      • Enterpise is key

        Microsoft just owns enterprise. Servers, eCommerce, Exchange, Database, and now Cloud. There are many entrenched Microsoft business services, I wouldn't be surprised if Consumer software and Windows is only half of the MS revenue. Apple and Google are desperately dependent on consumer for gadgets and advertising.
        Sean Foley
        • Sean Foley: "Microsoft just owns enterprise"

          Perhaps, in your world of fantasy computing.

          I suspect that IBM, HP, Oracle, Dell, SAP, Amazon, Red Hat, SUSE and Canonical, Ltd., just to name several enterprise-focused companies, would strongly disagree.

          And back on topic, Apple is also doing quite well in the enterprise with the iPhone and iPad.
          Rabid Howler Monkey
          • Some of those companies would have the right to disagree

            and some would not. Seeing Canonical held in that company, for instance, is a bit ridiculous.
            Mac_PC_FenceSitter
          • Canonical, Ltd's, Ubuntu server cloud deployments

            are nothing to sneeze at.
            Rabid Howler Monkey
          • All of those companies...

            ...have made their fortunes on the back of Microsoft Windows and Windows enterprise infrastructure for decades! Apple and Google do almost nothing for others. For example; IBM may be partnering with Apple tomorrow, but for the past 2 decades Microsoft has been their partner.
            Sean Foley
          • Sean Foley: "All of those companies..."

            All of those companies I listed are doing just fine with Linux servers. Oracle, IBM and HP are even still making money from UNIX servers (Solaris, AIX and HP-UX, respectively). Both Oracle and SAP have lots of enterprise apps for Android in Google Play.
            Rabid Howler Monkey
          • not so accurate

            While all these companies oracle,sap do exist in enterprise,they have a small share,or they exist mainly in one service,
            Microsoft now is the king of enterprise software, Linux mainly is used for web servers especially in the consumer oriented web sites, but almost all the special enterprise applications and servers runs on windows and windows server, many of them uses SQL server, a lot of services are running on IIS web server and ASP.NET special web services.
            So yes Microsoft is a big mane in the enterprise and will continue to be for decades
            FadyNabilNashed
          • Your confused

            You really ain't got a clue about enterprise IT if your comparing Microsoft strength in enterprise to Apple selling a few Ipads to all the top companies. Products like Exchange, Lync, Sharepoint Windows server, Hyper V, Sql have all risen from nowhere to become either number 1 or 2 in each of their respective areas. You mentioned Amazon well keep an eye there as Azure is closing up fast on their number one spot.
            saf312
          • saf312: "Your confused"

            Nope. Read my post again. I did not include Apple amongst the "enterprise-focused companies" which I listed as "IBM, HP, Oracle, Dell, SAP, Amazon, Red Hat, SUSE and Canonical, Ltd.".

            However, the iPhone *is* currently the leading smartphone in the enterprise and Apple is making a ton of money as a result. Interesting that you mentioned that "Apple selling a few Ipads" when the iPad *is* currently the leading tablet in the enterprise. A foolish attempt to minimize Apple's current success.

            Why don't you tell me how any one of the companies I listed aren't "enterprise-focused" companies. Waiting ...
            Rabid Howler Monkey
        • But isn't software

          just another "gadget" in the sense that it serves a purpose as does a smartphone, the difference is one exists in the physical world, the other in the electronic world of the computer.
          William.Farrel
        • desperate

          ((( "Apple and Google are desperately dependent on consumer for gadgets and advertising." )))

          Right. Apple is so "desperate" that their iPhone division alone brings in more money than all of Microsoft's divisions — including enterprise — put together. I'll bet Microsoft wishes it were as desperate as Apple.
          buddhistMonkey
          • Where is the profit chart

            I noticed they put a revenue chart for apple but not a profit chart. Apple has way more revenue since they are selling hardware. However, that hardware has a cost, whereas software doesn't have much after it is developed. Apple is still more profitable than Microsoft, but the profit chart would be a lot closer to Microsoft. The Revenue chart makes it look like Apple dwarf Microsoft.
            ymcpa73
          • Not so

            Apple makes enormous profits, much larger than Microsoft. They have well over $150 billion in cash on hand right now, and the amount is growing by more than $10 billion per quarter.

            The reason I didn't include a chart for Apple is that, unlike Microsoft, they don't break out operating income by division. So it's not possible to create a corresponding chart.
            Ed Bott
      • You are almost right about Bing

        The default search on your cellular device is dependent on your cell phone provider. I was actually a little upset that all of my Windows phones defaulted to Google for search while I was on TMobile (except when using the app of course).

        Satya's strategy for Microsoft definitely moves away from Windows, as he declared the intent that the feature set on the iOS and Android versions of the software would include the same features as the Windows version. As you noted, very little of Azure has any dependencies on Windows.

        I personally think his strategy pretty much spells the end of Windows as we know it as it removes the OS's strongest selling proposition, but assuming that they can pull it off will not spell the end for Microsoft.
        jebailey1120
        • Maybe they can do that on Windows Phones?

          But I don't think carriers are allowed to modify defaults on iOS devices, and Siri is hardcoded to Bing, so that can't be changed. Not sure about Blackberry - mine defaults to Bing, Bing maps is the default app, but maybe carriers can change that?
          Mac_PC_FenceSitter
        • Not iPhone

          "The default search on your cellular device is dependent on your cell phone provider."

          Not if your cellular device is an iPhone.
          rbgaynor
    • google

      I believe google is the one with the most problems all though they do have many many projects none of them are 100 percent, there is many bugs in the android, when was the last time you tried to install your own version on your phone, oh wait you cant but its free to download just good luck trying to install it, the fact is google is narrow minded, apple is open minded, microsoft follows apple but with more money. I personally never liked microsoft yet I used almost all of its products, why because I can install them easy of use, darn google, they made a good start but they never finish their projects.
      _cal_
    • one thing wasn't clear to me

      In the Apple chart it says Mac. I'm assuming it is the total of Mac sales meaning operating system and hardware. Microsoft I'm assuming you mean just the operating system. Is this true?
      apoteke