Big Tech Myths And Facts: Vision Pro, Google Culture, Digital Ad Market Edition
It’s a weird time for Big Tech. Technology companies are setting revenue and profitability records yet conducting deep rounds of layoffs as they try to figure out computing’s next act. AI and mixed reality have plenty of promise, but they’re expensive to develop and no sure thing. Flagship businesses, meanwhile, don’t stop their ebbs and flows just because something cool is on the horizon. The result is flux: a mix of high hopes, euphoria, and confusion.
This week, Alphabet, Amazon, Meta, Microsoft, and Apple all reported earnings, and we got a glimpse into what’s real and what’s not as we looked at their numbers. So, for the first time — and likely not the last in this murky moment — let’s look at some big tech myths and facts in February 2024.
Myth: The Vision Pro will be meaningful for Apple in the near to mid-future
The way Tim Cook talks about the Vision Pro, you’d think he’s seen god in there. On Thursday, he called it “a revolutionary device, built on decades of Apple innovation,” and said it was years ahead of its competitors. Apple brought in $119.58 billion in the most recent quarter, yet the Vision Pro is expected to reach a max of $4 billion in revenue by 2027, according to Morgan Stanley. Despite the initial hype, this device won’t be close to its mature, mass-market version until 2030, and perhaps later. As Reality Labs has been to Meta, the Vision Pro could be a money-losing albatross for Apple. While Apple would certainly like to see near-term results, the real bet is that Vision Pro will pay off way down the road
Fact: Apple has a China problem
Apple has bet big on China, with approximately 20% of its iPhone revenue coming from the country. But adoption of Chinese phones in the region is hurting Apple’s business, and it might be a major impediment to future growth. Apple’s sales in Greater China shrank nearly 13% last quarter, its only region where sales fell. And though the company broke a streak of four consecutive quarters of revenue contraction, its guidance suggested its revenue will shrink again next quarter. Not ideal for the world’s second most valuable public company.
Fact: Google’s culture is holding it back
Google’s executives were unusually frank as they spoke with analysts this week about their culture. Explaining the company’s recent job cuts, Google president Ruth Porat made clear the intent is to kick the company’s culture into gear, not specifically to improve margins. “We talked a lot this quarter about organizational efficiency and structure,” she said, “and we’re focused on removing layers to simplify execution and drive velocity.” In non-jargon speak, that means Google’s leadership recognizes the company’s moving too slow, and will cut managers it believes have allowed that slowness to take root.
Myth: The digital advertising business is struggling
Meta added an incremental $7 billion in ad revenue this past quarter, a growth number that by itself would be a top-ten annual ad business globally. Alphabet grew its ad business by $6 billion on the quarter, and that growth alone would be the 11th biggest ad business outside of China. Amazon, meanwhile, grew its ad business by about 25% last year, coming in at $47 billion. These stats come from Madison and Wall, a firm run by superstar advertising analyst
Brian Wieser, and indicate that the digital ad market is roaring. No slowdown here.
Fact: AI is already a big business
Microsoft now has 53,000 customers using its Azure AI service to train and run AI models. It’s one thing to add a service for existing customers, but the company said that one-third of those 53,000 customers are new to Azure over the past year. That top-line growth shows a surge of developers running to build with AI and paying well for it. Microsoft’s cloud revenue grew 24% overall in 2023.
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