Musk-Apple spat and revenue woes of FAGMA firms


The recent spat between new Twitter owner Elon Musk and Apple has shed light on the shifting power dynamics in big tech. Musk accused Apple of nearly stopping advertising on Twitter, and also drew attention to the 30% commission that it charges app owners like Twitter on its app store. At the heart of such disagreements between tech giants is revenues and market dominance. While App Store commissions are a big part of Apple’s second-biggest revenue stream (i.e., services), ads bring about 89% of Twitter’s revenues as of 2021.

Eventually, Apple chief Tim Cook met Musk, and Apple stepped up advertising on Twitter, but the episode highlighted lines of fragility behind bulwarks. Facebook (Meta), Amazon, Google (Alphabet), Microsoft and Apple—or FAGMA—dominate the tech world with mammoth revenues, profits and market share. Together, they had collective revenues of about $1.38 trillion in 2021—about three times the budget of India’s central government—and a brisk year-on-year growth of 28%. Yet, they are pulled and pushed by factors that could threaten their sustained growth, and hence investor interest.

One source of creative tension is revenue diversification. Four of these five companies draw a majority of their revenues from a single segment. Facebook and Alphabet earn 98.3% and 78.8% of their revenues, respectively, from ads. Apple earns 52.1% of its revenues from iPhone sales. Amazon gets 64.6% of its revenues from e-commerce. The exception is Microsoft, whose largest source of revenue is server products (36.7%), followed by Office products (23%) and the Windows operating system (10.6%).

Amazon’s Success

THE CONCENTRATION of revenues is an indicator of the tech giants’ power in the market. However, it comes with its own challenges. For example, Amazon won market share by offering better prices to customers. This implied low margins for itself, and also for its partners. It has also been accused of using data unfairly to launch its own products on the platform, which could up its margins, but at the cost of its partners.

Amazon’s efforts to diversify have borne fruit. While most don’t think of Amazon as being in the ads business, it is becoming a dominant player. In the latest quarter, ads brought in almost $10 billion of revenues for Amazon, more than what YouTube earned for Google. Its ad revenues grew faster than both Alphabet’s and Meta’s. Amazon’s most successful diversification to date is Amazon Web Services, its cloud business that has contributed to more than half of its operating profits since 2014.

Hardware Pains

HOWEVER, AMAZON’S foray into hardware has not been as successful. When it launched its smart speakers, many believed that voice would eventually turn out to be the primary interface with digital devices, and Alexa would play a major role in that transition. However, Alexa and the related devices business reportedly led losses in the first quarter of this year, and were also a key target for the large layoffs announced by Amazon recently.

Similarly, Microsoft’s attempts to gain entry into the personal computers business have been underwhelming. Microsoft launched its Surface computers in 2012 with much fanfare. Former CEO Steve Ballmer was betting on devices even as the tech giant’s mantra became ‘family of devices’. However, it failed to make a dent in the computer market, struggling today to sustain a 2% market share. Under Satya Nadella, who took over as CEO in 2014, the strategic focus of Microsoft has shifted away from devices.

Conflicting Goals

ONE PROBLEM tech companies face in diversification is that areas too distant from their cores don’t have any special advantages, and those close to their cores could lead to conflicts of interest. For example, Facebook expanded its ad revenues by buying Instagram, but it faced complaints of monopolistic behaviour. Its attempts to build a new business, Metaverse, is riddled with challenges.

While Apple has built successful ancillary products such as Airpod, it has not come up with a whole new category, as it did with iPhone in 2007. While its app store revenues are growing, it has faced pushback from companies unhappy with its commission rates. In 2020, Epic Games sued Apple for blocking its game Fortnite after it tried to sidestep the commission. Apple has now relaxed commissions for select categories, but the last word might not have been said. is a database and search engine for public data.

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