Profits steer our digital future
Dae In Chung
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By Shira Ovide
To help understand where our digital lives are going next, I’ll steal a line from “All the President’s Men”: Follow the money.
Why is Spotify going big into podcasts? Because music streaming is a financial death trap and Spotify has to find something that isn’t. Uber’s push into delivering everything is a classic tactic: If one business isn’t profitable, use it as a foundation to sell something else that is. Apple is branching into fitness class subscriptions and (maybe eventually) cars because it’s trying to find a second act after the iPhone.
The companies that shape how we spend our time and money and remodel industries make choices based not only on what’s compelling to us but also on what’s helpful to their bottom lines.
This is not bad! Money is handy! And I’m oversimplifying companies’ complex strategies. While profit motives don’t explain everything, they are a useful lens to see where technology is headed and why.
To illustrate this, I’ll look at two successful tech giants: Amazon and Google.
Amazon got its start in retail, where making a profit of a few pennies from each dollar of merchandise sold is considered great. Just about anything that Amazon does next is relatively more profitable than buying blenders and dog food from the manufacturers and reselling them to us.
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It’s one reason that Amazon can wade into a gazillion different businesses that might not make immediate sense — even groceries, which is a skimpy profit business. It’s the magic of starting life with crummy profit potential. Anything new is probably more profitable.
Google, on the other hand, got its start in digital advertising, which is basically pure profit. Just about anything it does next pales in comparison.
Even if Google doesn’t make as much of a profit on each fresh dollar of sales, getting into new fields keeps the company humming and extends its technologies into new areas. That’s true for Amazon, too.
But Amazon and Google’s divergent profit origins create an interesting dynamic. Selling cloud-computing software to businesses generates the majority of Amazon’s pretax profits. But for Google, which is in the same business and wants badly to compete with Amazon, cloud computing will never be as profitable as Google’s main money machine. Does that even subtly reduce Google’s incentives to get serious about this business?
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This is an issue for Apple, too. Selling an Apple car may simply not generate the same profit as it’s used to. Apple is probably aiming for the luxury car market, and even the fancy car companies most likely generate lower profit margins than those of iPhones. (Seriously, Apple is really good at money.)
I don’t want to be myopic about this. Apple rethinking transportation is an exciting prospect for us and could keep the company a technology leader for decades to come. But corporations’ profit motives will affect what technologies they pursue vigorously or not.
Tech companies love to talk about divining our deepest desires and changing the world. Money is an uncouth motivation. But sorry. Money does make the world and technology go ’round.
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