“Almost every highly successful tech company,” writes Jan Dawson in his latest Tech.pinions post, “has a very high margin core business which essentially funds everything it does.”
It’s an interesting way to look at things, which Dawson has neatly summarized in the attached chart.
Then he drills a little deeper. What happens, he asks, when a company’s core business runs out of steam, either by saturating the market or losing share to nimbler competitors?
Microsoft (MSFT), for example, must find a new core to replace Windows, which is now winding down. Internet search ads are Google’s (GOOG) high-margin profit center, but its growth is linked to the growth of the Internet, which will eventually reach some natural limits.
Amazon (AMZN) is the conspicuous exception to Dawson’s rule. Its core business — Internet retail — is inherently low margin and minimally profitable. Amazon’s earnings have now shrunk year over year for three quarters in a row.
Apple, by contrast, is Dawson’s shining example, and the one that interests me.
You can read the rest of Dawson’s piece behind the Tech.pinions paywall, where you can also find tech analysis from the likes of John Kirk, Bob O’Donnell, Steve Wildstrom, Brian S Hall and the father-son team of Tim and Ben Baharin.
Their stuff goes for $0.25 a pop — an interesting business model. For me, the $50 annual subscription is invaluable.