Why do the leading technology brands invest heavily in research and development?
The technology industry worldwide is marked by fierce competition. Among the largest tech players are Apple, Amazon, Microsoft, Google and Facebook. These are the tech brands that enjoy monopolistic positions and are known for their global dominance. However, the most remarkable thing is how fast the tech industry has advanced in the last decade. Smartphones, social media, search engines, digital technology, cloud technology and other leading technologies have changed lives worldwide. The leading tech players focus heavily on innovation. While one reason is competition, the other is growth that the tech companies invest heavily in research and development. Research and development is mainly aimed at securing the future of the company in an intensely competitive industry environment. Even the largest tech players grapple with the fear of losing market share. Several of them are involved in legal battles with the governments of the US and various other nations because of monopolistic behavior and more reasons. Growth is a key factor that these companies are so aggressive in terms of R&D. However, product excellence and fast paced innovation are also key factors that drive heavy R&D investment in the tech industry. Another key focus for the large tech players is the creation of new opportunities. Most of them have invested in the latest technologies like AI, cloud computing and IoT to create new growth opportunities.
How much did the leading tech brands invest in R&D in 2020?
Nasdaq recently presented a list of the world’s top R&D spenders of 2020. The list included all the large tech brands based in the United States. Amazon has topped this list for the past many years. It is followed by Google, Huawei, Microsoft, Apple, Samsung, and Facebook.
Amazon has the largest R&D budget of all the tech players and the entire industry. Its R&D budget has also grown at the fastest rate. In 2020, the company spent $42.74 billion on research and development compared to $35.93 billion in 2019. Amazon was granted 2,244 patents in 2020 in areas including AI, Machine Learning and computer vision.
Alphabet (GOOG, GOOGLE):
Google has the second largest R&D budget in the tech industry. Its R&D expenses have also grown sharply in the previous five years having more than doubled between 2016 and 2020. In 2020, the company spent $27.57 billion on research and development or 15.1% of its net revenue for the fiscal. Alphabet was granted 1,817 patents in 2020. The main focus of Google’s R&D investments is AI which Sundar Pichai, CEO of Google, highlighted during the Q4 2020 earnings call.
Huawei is the third largest R&D spender in Nasdaq’s list. The Chinese smartphone giant spent $22.57 billion on research and development in 2020 or 15.9% of its net revenues for the year. One of the world’s largest patent holders Huawei was granted 2761 patents in 2020.
Intelligent cloud and personal computing are among the main focus areas for Microsoft. The US based tech giant, which is among the leading players in the cloud industry, spent $19.27 billion on research and development. Microsoft was awarded 2,905 patents in 2020, which was the fourth highest globally for the year.
Apple is famous globally for its focus on innovation. It is not the leading spender in terms of research and development but then its R&D budget is not a limitation on innovation either. Money is not the only resource that companies invest in innovation. IBM was spending 100 times as much as Apple spent on R&D when it released Mac. Steve Jobs had highlighted in 1998 that it was not about R&D dollars but about people, leadership and your knowledge of R&D. How well you understand the game will decide the conclusion. In 2020, Apple spent $18.75 billion on R&D or 7% of its net revenue for the fiscal. It was granted 2,791 patents in 2020.
The South Korean smartphone brand is also among the leading R&D spenders worldwide. Samsung spent $18.75 billion or 9% of its net revenue in 2020. In 2020, the company was granted 6,415 patents. The core areas where Samsung’s R&D efforts are focused include AI, robotics, data intelligence, and security.
The social media giant is also among the top R&D spenders in the world with a focus on innovation. Its business operates in a highly competitive and challenging industry environment. The company allocates a large part of its annual net revenue to research and development. In 2020, the company spent $18.45 billion on research and development, which was 21% of its net revenue for the year.
How does research and development aid the growth of the tech industry?
The tech industry has grown multiple times large in the last decade. Most of this growth has been driven by the development of ground breaking and game changing technologies like AI and machine learning. All the leading companies in the tech industry have focused heavily on research and development to find faster growth. From search algorithms to facial recognition software, AI and Machine learning, tech companies have developed a large number of disruptive technologies that have helped them grow at a much faster rate over the past several years.
Companies like Apple and Amazon have made research and development a core part of their organizational culture. However, while these companies are spending heavily on research and development, they are also highly cautious about where they are spending their R&D dollars. It has helped them cement their position in the industry. Most of them like Apple, Google, Amazon and Facebook enjoy monopolistic positions. These companies have continued to grow their R&D expenditure over the previous several years to strengthen their market position and market share. R&D is a critical source of competitive advantage for these brands.