Following the path of digitalization in Slovenia and Europe: How do we help tech giants make unimaginable profits?

In 2021, the so-called “Big Five” technology companies – Apple, Amazon, Google (Alphabet), Meta (formerly Facebook) and Microsoft – generated a combined 1.4 trillion US dollars in revenue. Last year, the GDP of the largest and most populous country in South America – Brazil – was about the same, and Spain’s GDP in 2021 was a few tens of billions of dollars less, the fourth largest country in Europe. The big five technology companies together earned nearly 2.5 million US dollars per minute in the first quarter of 2021.

Below, we will look at how internet companies can generate huge revenues every year, even if they offer their services for free or at a low price. We’ll also look at what data they collect about us and what they do with it, focusing primarily on Google and Facebook. Finally, we will summarise what the EU is doing to limit the growing influence of tech giants.

Unimaginably high revenues of tech giants

As mentioned above, the five most prominent technology companies in the world in 2021 generated a combined $1.4 trillion in revenue, which differed in the amount and way the companies made that money. Graphs prepared by the media company Visual Capitalist show that in 2021, with almost $470 billion in revenue, the lion’s share was contributed by Amazon, owned by the second richest man in the world – Jeff Bezos.

Amazon is followed by Apple, Alphabet (Google), Microsoft and Meta in terms of revenue, contributing “only” 118 billion US dollars to the total share. Although all five technology companies come from similar and related industries, they make money mainly in two different ways: either they sell us a product, or they sell “us” as the product to advertisers.

Apple, Microsoft, and Amazon fall into the first category. Like most traditional businesses, these companies offer customers a physical (or digital) product in exchange for money. More than half of Apple’s revenue comes from iPhone sales, Microsoft Azure cloud services generate almost a third of Microsoft’s revenue, and Amazon’s online stores account for nearly 50 per cent of the company’s revenue.

Meta and Alphabet, on the other hand, do things a bit differently. Instead of selling an actual product, these two tech giants make most of their money by selling their audience’s attention. Nearly 98 per cent of Meta’s revenue comes from Facebook ads, and about 81 per cent of Google’s revenue comes from advertising on various Google products, according to 2021 data.

Almost the whole world uses Google and Facebook

In a general sense, the internet is a computer network that connects several networks. However, in everyday terms, the internet often refers to services such as the World Wide Web (WWW), e-mail, and direct, “online” chat. The international term internet is a portmanteau of the English phrase “interconnected network”.

In colloquial terms, the internet is often equated with the search engine, Google Search, developed by Google, whose parent company is Alphabet. Indeed, you’ve probably heard (or used) the English phrase “Google it”, which means to find or check certain information about something or someone using Google Search.

Google Search has become synonymous with the internet or the World Wide Web, as it is used by almost all internet users worldwide. In 2021, according to Statista, the number of internet users worldwide was an estimated 4.9 billion. Of these, 86.6 per cent of all searches on the Internet were conducted using the Google search engine (data from February 2021), and according to the website StatCounter, from April 2021, this number is even higher – 92.2 per cent.

Like Google, Facebook is the dominant brand in its field – social media. With approximately 2.93 billion monthly active Facebook users in the first quarter of 2022, Facebook is the most used online social network globally. In addition, Instagram and WhatsApp are among the top five social networks, and both applications are also owned by Facebook’s parent company Meta.

“Free services”

While this is probably already general knowledge, it should be noted that one of the most common ways internet services companies can generate profit without charging users for access to content is through advertising revenue. As can be seen from the above figures, a vast number of users visit Google and Facebook daily and spend quite some time on them.

Each of these users, of course, represents a potential customer for other businesses that offer their products and services via the internet. Companies that want or need exposure to potential customers can purchase advertising space on no-cost content sites in an effort to reach consumers to whom they may otherwise be unable to deliver a marketing message.

Websites such as Google and Facebook thus charge fees to other companies that do business on the internet to present a particular advertising message to those users, either as a broad or customised advertising campaign. Businesses that advertise no-cost content sites can pay for greater exposure to their intended audience through higher placement in search results or targeted messages to specific consumer groups.

However, companies that offer free internet services are also able to generate revenue through the collection of data from their users and provide that valuable information back to companies who want or need it. This data collected, such as location, browsing habits, shopping behaviour, and unique interests, can be used to help e-commerce companies tailor their marketing campaigns to a specific set of online consumers.

The website security.org has broken down the data collection of tech giants in more detail. Of all the tech companies, Google collects and stores, by far, the most of our information (but Facebook is not far behind) – “if it’s data, there’s a good chance that Google is collecting it”. Google collects information such as our name, phone number, payment information if we made any purchases through Google, email address, emails we write and receive, stored videos, photos, documents and spreadsheets and our comments on YouTube.

Google also records our search terms, videos watched, views and interactions with third-party content and ads. If we use Google to make or send text messages, it also collects the calling and receiving party’s numbers, forwarding numbers, times and dates of your calls and texts, call durations, routing information, types of calls, etc. With all this information, it is not surprising that they can create highly personalised offers that are hard to resist.

We have already written in the article How tasty are computer cookies, and why do we need them at all about what data companies collect about us on the world wide web, with the help of cookies.

What is the EU doing regarding this area?

As Marko Želko has already written in this article, the EU intends to limit the influence of tech companies and monitor their operations in more detail with the Digital Markets Act (DMA). Together with the parallel Digital Services Act (DSA), the DMA will address several social and economic issues by limiting the market power of large online platforms and making the digital market safer, fairer, and more competitive.

Both proposals are expected to be put to a final vote in Parliament in July 2022 before being formally adopted by the Council and published in the Official Journal of the European Union. The DMA Regulation will enter into force 20 days after its publication, and the provisions will apply six months after that.

Author: Rok Žontar

Keywords: tech giants, adds, profits, Apple, Amazon, Google, Meta, Microsoft, DMA, DSA.

Disclaimer:

This article is part of joint project of the Wilfried Martens Centre for European Studies and the Anton Korošec Institute (INAK) Following the path of digitalization in Slovenia and Europe. This project receives funding from the European Parliament. 

The information and views set out in this article are those of the author and do not necessarily reflect the official opinion of the European Union institutions/Wilfried Martens Centre for European Studies/ Anton Korošec Institute. Organizations mentioned above assume no responsibility for facts or opinions expressed in this article or any subsequent use of the information contained therein.