Spending Is Big Tech’s Superpower
When the tech giants splurge on big-ticket investments, it’s great for them but hard for others to keep up.,
the on tech newsletter
Spending Is Big Tech’s Superpower
When the tech giants splurge on big-ticket investments, it’s great for them but hard for others to keep up.
This article is part of the On Tech newsletter. Here is a collection of past columns.
I keep writing about the bonkers dollars that Big Tech companies are generating in revenue and profits. But what may be even more astounding is what the technology giants are spending to keep their businesses humming and growing long into the future.
I have watched, mouth agape, as America’s five biggest tech superstars — Apple, Microsoft, Google, Amazon and Facebook — have splurged on big-ticket investments in their businesses. That includes specialized equipment to assemble iPhones, hulking computer hubs and undersea internet cables that zip YouTube videos to your phone, and the warehouses for Amazon workers to assemble and ship orders.
What the companies spend on physical assets that last for years — capital expenditures, for you wonks — is one of the best glimpses at how Big Tech leverages success into even more success.
The combined profits of these five companies climbed more than 25 percent in the most recent year, according to financial statements. The tech giants have the cash and the permission from their investors to spend almost whatever it takes to stay on top. It’s an advantage that few companies can match.
One example: In the past year, UPS spent the equivalent of about 5 cents of each dollar of its sales on more planes, trucks, delivery depots, package handling equipment and software to manage it all, according to the company’s financial statements. My calculations from Amazon’s disclosures show that the company’s similar category of spending works out to 13 cents for each dollar in sales.
UPS and Amazon do not do exactly the same things. Amazon’s major investments include technology hubs for its cloud computing business. UPS delivers for many businesses, while Amazon mostly handles packages for itself.
Both companies have done dandy in the pandemic surge of online shopping. But UPS is scaling back what it spends on long-lasting assets while Amazon is spending far more each year.
The good news is that this is exactly what we want rich and successful companies to do: Invest a big chunk of their wealth to improve their business — for their benefit and ours. When Microsoft drops big bucks to upgrade its computer centers, it helps all the businesses that use online versions of Excel and Outlook. When Amazon outfits its warehouses with new assembly lines, orders might move more efficiently to our homes.
We can be impressed and still wonder whether anyone can keep up with Big Tech’s levels of investment.
How does a driverless car start-up compete with what Google and Apple can spend on sensors, computer chips, prototype laboratories and the best minds to figure it all out? (The answer: It doesn’t. A lot of driverless car start-ups have given up or sold to bigger companies.)
General Motors recently said that it’s going to devote about $10 billion a year on big-ticket assets to remake itself into an electric vehicle and tech company. That includes overhauling factories and investing in new projects like electric battery development.
That’s only about half of what Facebook spends, in both raw cash and the percentage of each company’s total annual sales, for computer centers and other long-term investments. In short, Facebook’s investments to shoot Instagram posts around the world are far more than GM has earmarked 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 don’t stay that way for long. What seems potentially different now, though, is the existence of a handful of overwhelmingly dominant companies in a dynamic sector of the economy with the power to spend anything to stay on top.
Before we go …
Neighborhood watch for delivery couriers: In New York, people who deliver restaurant food form nightly patrols on bridges and roadways to help deter robberies. Some couriers told my colleague Coral Murphy Marcos that they believed the police hadn’t done enough to protect them from a surge in thefts of couriers’ electric bicycles. New York Magazine wrote last month about courier patrols and organizing.
Did you hate the food, or something else? Axios writes about instances in Washington of “review bombing,” or people leaving negative reviews on a restaurant’s Yelp page to protest its policies about masks or vaccinations. Yelp has elaborate systems to try to weed out people who bad mouth a restaurant they have never been to.
Behind China’s crackdown on video games: An anthropologist writes in Sixth Tone about the Chinese government’s recent time limits on children playing video games. “Underlying China’s internet addiction panic are deeper social problems related to the social transformations of the past 40 years,” Rao Yichen says. (My colleagues wrote last month about China’s gaming restrictions.)