The Economist - USA (2022-01-22)

TheEconomistJanuary22nd 2022 BriefingTechnologyandinnovation 17

gimeencouragesspendingtobeputdown
as r&d if possible, which can distort
things.Butthatcanhardlyexplainthe34%
increase since 2019: thetax regime has
beenunchangedthroughoutthattime.
Capital expenditure—which mostly
goestowardsdatacentres,butalsoinAma­
zon’s case fulfilment centres—has also
grown, to $131bn a year. In the past 12
monthstheBig Five’sshareofcashflow
fromoperationsinvestedinr&dandcapi­
talexpenditurewas53%.Thatcomparesto
a medianof32%foralls&p500firms.
Onereasonfortrulyvastspendingis
trulyvastcompanies.Therevenuesofthe
BigFive,whichhaveacombinedmarket
valueofover$9trn,almosttripledbetween
2015 and2020.Butthoughwhenexpressed
asa proportionofsalesincreasedinvest­
mentlooksmoremodest,it isstillreal(see
chart1).Spendingonr&drosebya third
overthesameperiod,fromabout9%of
salesto12%,andcapitalexpendituregrew
bymorethana quarter,risingtwopercent­
agepointstoabout9%ofsales.
Buta crucialpartofitisthatthereare
specificgoalsthefirmswantto achieve
thatrequirea lotofr&d. Appleisonthe
lookoutforthepieceofhardwarethatwill
becomethenewiPhone,beit a carorvirtu­
al­reality(vr) headset.Amazonisrelent­
lesslytryingtoimprovetheefficiencyofits
warehousesanddeliverysystemandex­
pandtherangeofindustriesmakinguseof
AmazonWebServices. ForMeta,whichhas
seen its main offering, Facebook, es­
chewedbyyoungerpeople,a newbigthing
maybetheonlywaytosecuresurvival:its
recentname change will be for naught
withoutthenewtechtobackit up.
ResearchersattheBigFivepublished
over16,000 scientificpapersin thefive
years to 2019, and their topics provide
someinsightsintowhatisgoingon.Core
businessesarebeingburnished—arecent
paper from Amazon discusses ways of
“avoiding duplicates in the search re­
sults”—andsomeesotericpossibilitiesex­

plored—apaperfromateamwithmem­

bersinGoogleResearchprovidesinsights

intoa“humansurgicalsample fromthe

temporallobeofthecerebralcortex”. But

differentpublicationpoliciesatdifferent

companiesmakeithardtoputthedatato

quantitativeuse.

Alphabetisgenerouswhenitcomesto

publication,seekingtoattractresearchers

whowouldn’t joinacompanywhichre­

quired themto hide theirlightunder a

bushel.Asa resultAlphabetlooksgoodin

measuresbasedonpublications:itisthe

fourth­highest­ranked corporate institu­

tioninthecurrenteditionoftheNatureIn­

dex,whichmeasurestheimpactofaca­

demicresearchinthesciences(Roche,a

Swisshealth­carefirm,topsthelist).Apple

ismuchstricteraboutpublication. Butthat

doesn’tmeanit islessinnovative.

Cars,themetaverseandeverything

Analystsreckonthatsomewherebetween

5%and20%ofthetechgiants’massive

r&dspendinggoestowardswhat,forthe

purposes of this article, we are calling

“frontiertechnologies”:themetaverse,au­

tonomousvehicles,healthcare,space,ro­

botics,fintech,cryptoandquantumcom­

puting.(Artificialintelligence,ai,isnow

soubiquitousthatwearenotcountingit as

a frontierinitself.)Welookedatacquisi­

tions,investmentsandemploymentdata

to seewhich of thecompanies seemed

mostinterestedinwhat.

OverthepastthreeyearstheBigFive

haveacquired110­oddcompanies,accord­

ingtodatafromPitchBook,a researchout­

fit(thesedatadonotincludethe$69bnac­

quisitionofActivisionBlizzardbyMicro­

softannouncedthisweek,whichisreport­

edonintheBusinesssection).Thereisa

limittohowmuchthesedatacanreveal.In

mostcasesthedealsizewasnotmadepub­

lic and many smaller acquisitions are

treatedasrecruitmentandsonotintheda­

ta.Believersin“killeracquisitions”may

seesomeofthesedealsasattemptstohin­

derinnovation rather thanaccelerate it.

But evenif thatis the case,they show

wherethecompaniesarefocused.

Ofthe40­odddealsthatcamewithfig­

ures attached, the total valuation was

roughly$50bn.Overa quarterofthefirms

acquiredspecialisedinaiorincrunching

vastdatasets.Perhapsa quarterofthem

weredevelopingfrontiertechnologies(see

chart2 fora breakdown).

Microsoftisthebigspender.InAprilit

agreedtobuyNuanceCommunications,a

health­care­focused cloud and software

provider,for$19.7bn,inthelargestacquisi­

tionforwhichwehavedatainthepast

three years. It hasalso bought startups

which facilitate cloud services,such as

Mover.io,whichhelpsbusinessesshiftda­

tatothecloud,andCloudKnox,a cyber­se­

curityfirm.Google,whichlagsbehindMi­

crosoftandAmazoninitscloudoffering,

snappedupthreecloud­basedstartups,in­

cludingActifio.Italsoboughtthreewear­

ablesfirms,includingFitbit,onwhichit

spent$2.1bn,reflectingitsgrowinginter­

estinhealthcare.

In terms of single­mindedness, the

clearest signal is Meta’s pursuit of all

thingsmetaverse.Ofthe 13 firmsthatwork

inaugmentedreality(ar) orvrwhichwere

bought for a public price, Metabought

eight,includingBigBoxvrandDownpour

Interactive.Appleboughtanotherfour,in­

cludingNextvrandIKinema.Butitshigh­

estprioritybythismeasurewasai. Ofits 22

purchasessince 2019 morethanhalfhave

beenai­relatedstartups.

Anotherwindowintotheprioritiesof

fourofthefivecompaniesiswherethey

choosetotakeminoritystakes.Ofthe 101

companiesinwhichPitchBookdatashow

the firms investing overthe past three

yearsmorethana thirdareactiveinfron­

tiertechnology.TheexceptionhereisAp­

ple,which makes veryfewsuchinvest­

ments,noneofwhich havebeeninthe

frontierareas.

Here, too, the choices are revealing.

Takethefiveinvesteesthatmakecars.Am­

azoninvestedintwo,AuroraandRivian.

The latter,inwhichithasa20%stake,

wentpublicinNovemberandisvaluedat

Bigspenders

R&Dspending ,$bn

Source:Bloomberg *Estimate

1

Microsoft

Apple

Meta

Alphabet

Amazon

6050403020100

11.

6.

20.

12.

12.

13.

4.

21.

1.

11.

13.

2.

10.

13.

6.

2011 2016 2021* As%ofrevenue

Buyers and markets

Big Five tech firms, by frontier, 2019-

Sources:PitchBook;TheEconomist

2

Metaverse Cars Health care Space Robotics Fintech Crypto

Apple nil

Microsoft

Meta

Alphabet

Amazon

15129630

Investments, number of deals

129630

Acquisitions, number of deals