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Wednesday, October 27, 2021

Spending Is Big Tech’s Superpower

This article is part of the On Tech newsletter. Here is the collection past columns

I continue to write about the crazy dollars big tech companies are making in revenue and profits. But what may be even more astounding is what tech giants are spending to keep their businesses growing and growing long into the future.

I watched in amazement as America’s five largest tech superstars – Apple, Microsoft, Google, Amazon, and Facebook – went broke with massive investments in their businesses. This includes specialized equipment for assembling iPhones, huge computer hubs and underwater internet cables that record YouTube videos on your phone, and warehouses where Amazon employees can collect and send orders.

What companies spend on physical assets that last for years – capital expenditures, for you weirks – is one of the best examples of how big technology transforms success into even more success.

According to financial statements, the combined profits of these five companies have grown by more than 25% over the past year. The tech giants have the money and permission from their investors to spend pretty much whatever it takes to stay on top. This is an advantage that few companies can match.

One example: Last year, UPS spent roughly 5 cents on every dollar of its sales on additional planes, trucks, delivery depots, package handling equipment and software to manage it all, according to the company’s financial statements. My calculations based on Amazon disclosures show that a similar category of expenses for the company is 13 cents for every dollar of sales.

UPS and Amazon don’t do the same thing. Amazon’s major investments include technology hubs for its cloud computing business. UPS delivers goods to many businesses, while Amazon mainly handles packages for itself.

Both companies have succeeded in the online shopping pandemic. But UPS is cutting its spending on long-term assets, while Amazon spends much more each year.

The good news is that this is exactly what we want rich and successful companies to do: invest most of their wealth in improving their business – for their benefit and for us. When Microsoft invests big money in modernizing its computer centers, it helps all businesses using online versions of Excel and Outlook. When Amazon equips its warehouses with new assembly lines, orders can arrive more efficiently at our homes.

We may be impressed and still wonder if anyone can keep up with the investment in Big Tech.

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How does a self-driving car startup compete with what Google and Apple can spend on sensors, computer chips, prototype labs, and the best minds to figure it out? (Answer: No. Many self-driving startups have surrendered or sold to larger companies.)

General Motors recently said it is going to spend about $ 10 billion a year in high-value assets to grow into an electric vehicle and technology company. This includes refurbishing factories and investing in new projects such as developing electric batteries.

This is only about half of what Facebook spends in both net cash and as a percentage of each company’s total annual sales on computer centers and other long-term investments. In short, Facebook’s investment in capturing Instagram posts around the world is far more than GM has invested in inventing the 113-year-old American industrial icon.

The question that I keep coming back to in this newsletter – and I don’t know the answer – is whether big technology is invincible. History suggests that dominant companies don’t stay that long… But what seems potentially different now is the existence of a handful of dominant companies in a dynamic sector of the economy that can spend anything to stay on top.

  • Neighborhood watch of delivery couriers: In New York City, food delivery men form night patrols on bridges and roads to help prevent burglaries. Some couriers told my colleague Coral Murphy Marcos that they thought the police hadn’t done enough to protect them from the surge in courier e-bike thefts. Last month, New York Magazine wrote about courier patrols and the organization.

  • Did you hate food or something else? Axios writes about incidents in Washington DC of “survey bombing” or people leaving negative reviews on Yelp’s restaurant page to protest its policies regarding masks or vaccinations. Yelp has sophisticated systems to try to weed out people who say bad things about a restaurant they’ve never been to.

  • Behind China’s crackdown on video games: The anthropologist writes in Sixth Tone about the Chinese government’s recent restrictions on allowing children to play video games. “At the heart of the internet addiction panic in China are deeper social issues related to social transformation over the past 40 years,” says Rao Yicheng. (My colleagues wrote last month about restrictions on games in China.)

Here are some gorgeous portraits of cows, including a group on a white sandy beach (?!?!). The Atlantic recently re-released this collection of 2019 moo images.

World Nation News Deskhttps://www.worldnationnews.com
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