Profit per employee for some large tech companies | Hacker News Reader

Profit per employee for some large tech companies

royal.pingdom.com

71 pointsDocSavage37 comments

A little googling puts Craigslist at 81 million in revenue. I don't know how much of that disappears into serving 9 billion page views a month and the payment on their Victorian mansion in San Francisco, but before that at 24 employees they're over $3 million.

And looking at the numbers for HP and IBM, I am becoming ever more convinced that small is the way to go and big companies are just not the place to be.

I'm amazed that IBM has 20 times more employees than Google. I thought I was working at a big company, but apparently there's big and then there's BIG.

It was like how in one of the recent news reports, NEC just laid off more than the entire population of Google. We're peanuts compared to them.

And then there's Nintendo, at an estimated $1.6 million per employee:

http://www.joystiq.com/2008/09/16/nintendos-profits-per-empl...

It's $967k profit per employee. The $1.6 million per employee is apparently cash flow, not profit.

The most recent report has them at a great $2.9 billion profit over last year, depending on yen/$ conversion rate. http://markets.ft.com/tearsheets/financials.asp?symbol=jp:79...

The article says they have 3000 full-time employees even though many company functions are handled by contractors/outsourcing. The full vs. contract employee argument throws some noise into the original article's conclusions, since some of those high-tech companies probably use fewer contractors (more full-timers) than Google.

I'd be interested in knowing how Blizzard and Valve fare in this sector. Specifically, I'd like to know the labor efficiencies of running virtual world game services and digital content delivery platforms.

I doubt they can beat the cash cow of

  * making a profit on all hardware sold
  * taking a cut on every copy of every game sold, at essentially zero cost to them

The only comparable business is Apple's iPhone and iPod Touch ecosystem. The other console manufacturers cross-finance the hardware with game sales.

Valve own Steam, and take a cut on every game sold on their platform without having to sell any hardware.

More interesting to me is expense per employee:

http://zentu.net/snaps/exp.png

(Disclaimer: I studied accounting)

Amazon, Google and Apple also have the most expensive employees; the cost-per-head is almost 900K.

More interesting to me is expense per employee:

I think indirect expenses per employee would probably be a much better metric. Amazon buys and sells lots of stuff, which pushes up both their revenue per employee and their expenses per employee; similarly, Google pays websites to place adsense adverts and then resells the space via adwords. On the other hand, eBay just puts buyers and sellers together and doesn't act as intermediary, so the value of goods sold via eBay isn't reflected in eBay's revenue or expenses.

It's a basic maxim of economics (and accounting) that equivalent transactions should be treated equivalently; and whether goods pass directly from seller to buyer (as with eBay) or through an intermediary (as with Google or Amazon) therefore shouldn't affect how we compare the companies.

Is this just taking the total expenses of the company and dividing by employees?

It doesn't seem right to count server costs and bandwidth (for example) as part of how expensive employees are.

servers and bandwidth are tools companies use to make employees more efficient, so yeah, it should be counted.

Since you studied accounting, can you translate the combination of expense and profit per employee into return-on-investment (ROI) per employee?

It's not the appropriate number. Profit margin makes more sense.

ROI is useful in a case where you make an expenditure now, and get back money (or savings) in the future. For example, you automate shipping for $1 million, and save $300,000 a year, for an ROI of 30%.

It doesn't work for employees, except to the extent that you're taking an up-front hit ("We paid for her to get a Master's degree") in exchange for something else ("Now she's more productive").

Managerial accounting was my area of specialty; I was simply pointing out that there is also a cost associated with treating employees well. I think Google's numbers may be a bit high because it has so many people who work for it for free.

Now, if we could get some metrics about salaries, this could become even more interesting.

Why is that more interesting? It looks like you're dividing revenue by employee count. A high figure there just gives you efficiency, effectively the same thing that the profit per employee gives you. It says nothing about how expensive the employees are, Google isn't actually paying 900K per head.

It looks like you're dividing revenue by employee count

No, not dividing, only subtracting. Accounting 101: Income - Expense = Profit. The article gave us two pieces of the data: Income and Profit. If something is neither income nor profit, it is an expense.

Grinding down the details into something like "profit per employee" tells only half of the story; it's like looking at only one side of a balance sheet and basing conclusions on that.

It says nothing about how expensive the employees are

I wasn't implying that any of the top 3 were actually paying 899K or 871K or 863K per head, but if that is the amount of resource expenditure it requires to make X amount of profit, it certainly does reveal a bit about how companies are managing their resources . . . a metric any investor would be interested in knowing.

Edit: P.S. Here's the data if you would like to play with the sorts: http://www.zentu.net/snaps/expsort.ods

Again, it goes back to efficiencies. Google has few employees for the amount of revenue it generates (high revenue per employee) but also has fairly high costs (millions of servers). They could be paying all of these people minimum wage and your formula would still show high expense per employee.

I get what you're trying to show, but calling the employees expensive because there happen to be a lot of expenses is misleading. They are only expensive if the expenses actually related to the employees.

I think this accounting discussion at the per-employee metric is getting out of hand. We're facing a very real apples-and-oranges conversation on expense when comparing Oracle (software) versus Amazon (retail). The margin -- and revenue -- focuses are completely different. If Amazon sustains growth with a 15% profit margin, that's cause for celebration; if Oracle's margin dropped to 15%, heads would roll.

One point that that the article didn't mention, is that a very large fraction of Apple's employees are retail staff. I'd be curious to see how Apple's profit per employee measures up against Best Buy or Wal-Mart.

http://www.wolframalpha.com/input/?i=apple+profit+%2F+apple+...

http://www.wolframalpha.com/input/?i=best+buy+profit+%2F+bes...

http://www.wolframalpha.com/input/?i=walmart+profit+%2F+walm...

For a 30 years old company Microsoft is still pretty impressive.

Heh, when I worked at Microsoft we once had a division-wide developer meeting, and a business dev guy was doing a presentation on how well the company is doing financially. At one point he said "As you can see from this chart, your division is doing quite well, earning XXX dollars in profit per developer!" At that point we all just sort of looked around at each other while trying to reconcile the difference between our salary and the number, and he paused for a few seconds. You could see a bit of discomfort on his face as he realized exactly what he said and who he said it to. I never heard this figure given in any future division meeting :)

    # $210k profit per head in 2008: Google
    # Just over $30k: IBM, Yahoo, Amazon and Dell.
    # Around $64k: Oracle and Intel.
    # Around $120k: Adobe and Cisco.

Does it exclude their market capitalization?

Yes. It's profit per employee. Market cap is based on (shares) x (stock price). Stock price is based on the whims of investors, and profitability is based on product costs and the whims of consumers :)

IBM has almost 400,000 employees? woah that's crazy.

IBM is also a vertically integrated company, they do many things like services, software, chips, etc. It's not really a good comparison.

Google is also vertically integrated. They're famous for their NIH syndrome - they tend not to use anything developed outside the company.

Not true, Look at chrome, Its mostly leveraging various externally developed pieces of sw, and then adding some sauce (process isolation) into the mix.

Google unlike other companies knows how to leverage open-source for its profit and does it like no other

Vertical integration has led to some of the largest companies in history. It started with Andrew Carnegie and his steel company at the end of the 1800's. It fell out of favor around the 1970's and shifted to a mentality of focus.

Although it's nice to see these numbers, I'm a bit sceptic and think one should not over-interpret them.

Reason: Who says this is a systematical effect due to their organizational strucuture? I know I'm being picky now, but you could also be the leader in this table if you were selling half of your assets in one year.

or lay off a lot of employees.

I'm amazed that the numbers are so high.

What does it cover? Do any of them do any significant profit sharing? Google provides lots of creature comforts, are they paid for by the 'profit' or are they some of the costs before profit is calculated?

This is based on net income, which is basically everything that's left over after salaries, CapEx, perks, contractors, etc. It's money that goes to the shareholders, at least in theory. (In practice, it often gets blown on overpriced acquisitions, so it's money that goes to the entrepreneurs. ;-))

This is why you want to be a shareholder and not an employee...

I'm think Profit per employee of Google and Balsamiq is the same. Interesting.

This is a cute but silly measurement, isn't it? Salaries are part of the expenses you subtract out to get profit.

Do the employees actually get paid that amount or is it just another cute metric?

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