Friday 20 April 2018

Which tech giant will become world's first trillionaire business?

History maker?: Jeff Bezos’s Amazon,
History maker?: Jeff Bezos’s Amazon,

Margi Murphy

Amazon, Google and Apple are all in the running to become the first ever company to be valued at $1 trillion, with analysts believing we could see history being made as early as this year.

Amazon

It reported the largest profit in its history on Thursday evening. The retailer drew millions of new customers to its Prime subscription, which offers next-day delivery and other benefits including Netflix-style streaming. Shares rose more than 6pc. Chief executive Jeff Bezos, now the richest man in the world, added billions to his fortune.

Amazon could be on course to take the trillion mark thanks to its mammoth presence and a series of smart, future-proof investments. Amazon is widely recognised as transforming retail through its marketplace, but it also has a consumer electronics division and a booming cloud storage company.

History maker?: Tim Cook’s Apple
History maker?: Tim Cook’s Apple

Weaknesses: Amazon has failed to fully crack the entertainment market and its streaming service, Amazon Prime Video, has yet to overtake Netflix despite big investments. It makes famously paltry profits given its size and has yet to pay a dividend. Amazon is the largest cloud provider - providing computing power needed for businesses around the world.

But just as large enterprises were considering paying Amazon a fee to host all its systems and data rather instead of using servers on their premise, the Spectre bug hit the headlines.

Prospective customers may be thinking twice about placing their sensitive information into a shared cloud if they believe there is even the smallest chance it might be visible to others.

Opportunities: Amazon has correctly singled out the demand for near-instant shipping as consumers turn to online shopping. Huge investments in its super-fast delivery service, including using drones to deliver packages within 30 minutes, will keep customers visiting Amazon.com even if competitors step up e-commerce. Amazon is also growing its ad offering, which grew 60pc in the last quarter.

Google

Google, now a subsidiary of parent company Alphabet, is one of the most recognised brands in the world. Its primary business as the information sorter of choice and miner of the world's data to be converted into ad revenue is likely to continue for the foreseeable future, and it has the cash to absorb rival technologies that threaten it.

History maker?: Mark Zuckerberg’s Facebook
History maker?: Mark Zuckerberg’s Facebook

Weaknesses: Google has seen its traffic acquisition costs rising over the past 12 months, which could spell trouble for 2018.

These costs are payments sent to other companies to direct consumer and business traffic to its website. Consumers are increasingly searching across a mix of mobile, desktop and tablets, bumping up costs, so much so that rising advertising revenues toward the end of 2017 were not enough to offset them.

In light of this Google announced surprisingly disappointing earnings on Thursday, sparking a share price drop.

"Alphabet is heavily, heavily reliant on Google advertising revenue and there is creeping competition in the advertising business (Facebook for some time, and Amazon also creeping in)," says Forrester analyst Colin Colburn. "That will be an interesting story to see how it plays out over the coming quarters."

Opportunities: Google has expanded into cloud storage and consumer electronics to rival Apple. Its flagship smartphone, the Google Pixel 2, was widely regarded as one of the best on the market upon its launch in October last year, and a worthy opponent to the iPhone X.

Its purchase of smartphone manufacturer HTC suggests big plans for its hardware division. In its latest earnings report, Google said hardware sales doubled on the same period last year. Though we have been here before: it bought Motorola for $12.5bn in 2012 and sold it for $2.9bn two years later, having extracted the patents it wanted.

Apple

Apple is the world's biggest company, overtaking South Korean electronics giant Samsung to become the largest seller of smartphones. On Thursday evening, it posted the largest quarterly profit of all time, despite a fall in iPhone sales. A company that sells less, but earns more, signals greater things to come.

Sales for Apple Watch and Apple TV have also improved.

Weaknesses: Depending on how you interpret the results, selling fewer of the expensive iPhone X is either genius or a red flag. Generally, appetite for smartphones appears to be falling slightly, which means Apple may no longer be able to count on huge sales every year it brings out a new version of its flagship device.

Sales of Apple Mac computers have also fallen as people spend less on desktop computers.

Opportunities: Apple's hotly anticipated HomePod will launch next week, with the company taking a big step into the market for smart speakers.

The smart speaker will take on Amazon's Echo and Google Home, costing significantly more than both. But it is likely to appeal to its core customer base, who are looking for high quality design and sound. It is a return to the time before the iPhone, when Apple focused on music and the iPod.

© Daily Telegraph, London

Telegraph.co.uk

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