Sunday, March 29, 2020

And You Thought Selling Groceries was a Low-Margin Business

Cheap computing, storage and communications are basic assumptions upon which products and business models are built these days. Our ability to commercialize millimeter wave spectrum for mass market communications hinges on the cost of signal processing, for example. Before the advent of cheap signal processing, millimeter wave communications could not be used for mass market access networks because the signals would not travel far enough to be useful. 

The same trend has been evident in storage for some time, as prices approach zero. 



The issue for retail service providers is how to sustain a business model, when, in some cases, it can be argued that the cost of supplying a gigabyte of usage is less than the revenue generated by supplying it. 

One analysis of firm profits conducted by Aswath Damodaran of New York University suggests mobile operator net profit margins are less than one percent. 

  

One might make similar observations for the revenue generated by voice and messaging. That, simply, is why many believe access providers must move into additional roles and segments of the internet ecosystem, as hard as that might be, despite the risk and cost. 

Date updated:
5-Jan-20
Created by:
Aswath Damodaran, adamodar@stern.nyu.edu
What is this data?
Profit margins 
Home Page:
Data website:
Companies in each industry:
Variable definitions:
Industry Name
Number of firms
Gross Margin
Net Margin
Advertising
47
25.81%
3.30%
Broadcasting
27
47.68%
29.83%
Cable TV
14
61.71%
8.55%
Computer Services
106
24.64%
4.34%
Entertainment
107
40.90%
11.73%
Heathcare Information and Technology
129
47.65%
8.90%
Information Services
69
55.53%
19.13%
Retail (Online)
70
45.25%
4.57%
Software (Entertainment)
86
64.46%
20.53%
Software (Internet)
30
62.64%
2.07%
Software (System & Application)
363
71.37%
19.54%
Telecom (Wireless)
18
57.96%
0.79%
Telecom. Equipment
91
55.74%
12.55%
Telecom. Services
67
55.71%
4.27%

It is worth noting that net profit margins in the retail grocery business are 1.44 percent, according to Damodaran. Mobile services might have slimmer margins than the notoriously thin-margin grocery business.

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