Google, Microsoft, Apple: Where does the money come from?
If you want to know why a company acts the way it does, just follow the money.
That's what I've been doing for the past few years with the SEC-mandated earnings reports for the three largest public companies in computing. (For a look back at previous editions, see my 2012 and 2014 installments.)
All three companies filed reports in January. Because the fiscal year for Google's parent company, Alphabet, ends on December 31, I was able to use its 10-K annual filing and examine its business based on a full year's revenue. For Apple and Microsoft, which have a different fiscal year, I used the quarterly 10-Q reports.
Here's a snapshot of each company, showing revenues by product category as a percentage of the total. (Yes, there's a case to be made for looking at the profitability of each of those segments and to consider the international balance of each company's business. But all three companies are large and profitable, and because revenue is the measure that's most fully reported, it offers the best comparison.)
Google (Alphabet)
Larry Page and Sergey Brin changed their company's corporate structure last year, turning Google into a subsidiary of a new parent holding company, Alphabet, Inc.
The org chart might look different, but the business hasn't changed. Google still contributes virtually all of Alphabet's revenue (99.4 percent), and the overwhelming majority of that revenue (89.9 percent) comes from advertising.
Six years ago, Google earned 97 percent of its revenue from advertising. That's slipped in recent years to 90 percent. The other 10 percent comes primarily from the following segments, in order: sales of apps and media content in the Google Play store; Google-branded hardware such as Chromecast and Nexus phones; fees for apps and cloud services; and licensing revenue.
One detail that isn't obvious from this chart is the shift in where Google's advertising growth is coming from. From 2013 to 2015, the share of ad revenue from Google Network Members' websites decreased from 24.6 percent to 20.2 percent, with Google's own sites benefiting from the shift.
Under the new reporting structure, Alphabet combines "multiple operating segments that are not individually material" into a category called Other Bets. This includes businesses such as Access/Google Fiber and Nest. But the actual revenue from these projects ($481 million for the entire year) is too small to show up in my chart.
Microsoft
Teasing information out of Microsoft's official reports is a tricky job. Its latest reorganization divides the company into three reporting segments with names that are oh-so-Microsoft: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
Yes, you need a secret decoder ring (and a copy of Excel) to figure out what's in each of those segments. Fortunately, there are enough clues in the Management's Discussion and Analysis section of the 10-Q to break out most of those details.
Unlike Google and Apple, which each have a single dominant product, Microsoft has spread its chips around the table, with no product contributing more than 20 percent of the total.
Microsoft Azure is growing rapidly and is reported in the same group as traditional server products (SQL Server is up, Windows Server is down). Collectively, that pair is at the top of the list.
I was surprised to see gaming in such a dominant position. Xbox hardware is a big part of that number, but the acquisition of Mojang (maker of Minecraft) and dramatic increases in Xbox Live services and sales of games made more of a difference.
The most startling bar on that chart is the one for Windows OEM revenue. That was once Microsoft's core product. Now it's barely over 10 percent of total revenue, as cloud services and enterprise software have picked up the slack. That's an impressive transformation.
Apple
The iPhone continues to be the cash cow of Cupertino, accounting for more than 68 percent of the company's total revenue in the final quarter of 2015. That's up from 55 percent in 2013.
The Mac segment has continued to grow steadily, bucking the trend in the larger market for PCs. The iPad segment, on the other hand, has shrunk significantly, from 18 percent in 2013 to just over 9 percent at the end of 2015.
It doesn't look like the iPhone juggernaut will slow down anytime soon, but it's also not clear where Apple's next big thing will come from.
But given how important iPhone is to its revenues, it's no wonder Tim Cook and company are fighting ferociously to protect its reputation and maintain its independence in the face of legal demands from United States courts.