This article is part of the On Tech newsletter. Here is a collection of past columns. I keep writing about the bonkers dollars Big Tech companies generate 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 make and ship orders.
The companies spending 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. According to financial statements, the combined profits of these five companies climbed more than 25 percent in the most recent year. 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 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 spending category works out to 13 cents for each dollar in sales.
UPS and Amazon do not do precisely the same things. Amazon’s significant investments include technology hubs for its cloud computing business. UPS delivers to many firms, while Amazon primarily 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 spends 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 thecompaniess 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. Many driverless car start-ups have given up or sold to bigger companies.) General Motors recently said it would 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 baw cash and the percentage of each company’s total annual sales, for computer centers and other long-term investments. In short, Facebook’s acquisitions to shoot Instagram posts worldwide 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. However, what seems potentially different now is 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? AYelp has elaborate systems to weed out people who bad mouth a restaurant they have never been to. 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. Behind China’s crackdown on video games: An anthropologist writes about the Chinese government’s current time limits on children playing video games. In Sixth Tone “(My colleagues wrote last month about China’s gaming restrictions.) Underlying China’s internet addiction panic are deeper social problems related to the social transformations of the past 40 years,” Rao Yichen says.Hugs to this
Here are glorious portraits of cows, including a group on a white sand beach (?!?!). The Atlantic recently recirculated this 2019 collection of moo images.
