Thanks for subscribing to Trendline.
Today, we are looking at the ginormous amount of money spent on research & development (R&D) by the Big Tech companies.
But first, what kinds of costs are classified as “R&D”
R&D costs is mainly the money spend by companies to develop new products and services. For example, engineering costs related to writing code for the new iPhone.
Tech companies have a lot of employees with high salaries (e.g. software engineers) A lot of these employees work on writing code for new products / services and their salaries are counted as “R&D costs”. This is a big driver of R&D cost being high.
Apart from Tech, another industry where R&D costs are high is pharmaceuticals. E.g. Merck & Co. spent $12.2B (25% of Revenue) on R&D in 2021.
Tech is a very competitive industry, and often, these costs are essential for companies to find their next breakthrough revenue source (e.g. AWS for Amazon,= or the iPhone)
These 5 companies, spent a total of $190 billion in last 12 months on R&D.
Couple of interesting observations from the chart above:
- Amazon spends more money on R&D, than Google and Apple combined. I was shocked to see this! However, Amazon is known to place a lot of new bets and this costs reflect that.
- Meta is investing heavily in R&D, relative to its size. While it has always been a big spender on R&D, this has ramped up recently with its pivot into the Metaverse
A big question for investors to answer is if these high costs are justified and if (or when) will they bear fruit in finding new growth avenues for companies.
📢 Shoutouts to other newsletters you may like
- Why do we love brands like Nike, Coca-Cola, and Apple? Because they tell great stories. “Stories for Selling” is the newsletter that sends you a new, short, re-applicable case study every week on a marketing campaign where brands tell stories effectively. It’s all built for you to take home key lessons and reapply them in your business or content. And it’s totally free. Sign up here → (LINK)
- China has 1.4b people and is the world’s 2nd largest economy. It matters. Yet the mainstream media does a poor job covering it. What can you do? Subscribe to Ginger River Review (LINK) to understand what is important to China’s leadership and its people. Learn what the media won’t show you from people on-ground in China.
- Check out TimeMachiner (LINK) where Aaron shares irresistible stories from fascinating corners of the internet
That’s all for this week. Thanks for reading! 👋
Data driven visuals and stories on Technology, Business & Stocks. Subscribe to up your Data Quotient (DQ)