I used to work for a Startup considered by many as tech company. Our devs cared a lot about code quality, visited meetups, engaged in the community etc. devs usually stayed for at least 3-5 yrs.
In contrast, there was a company that almost did the same business as we did. But, they were what people would have called a sales company, not a tech company. Decisions were based on sale opportunities, only. No one gave a shit about code quality, devs didn’t stay long and often were frustrated when they applied at our company.
Which one was more successful? Unfortunately they were... we were often slowed down by discussions about code quality, ways of working, ethics and disrespect for revenue driven decisions.
Maybe it was just an exception? But since then I have become skeptical when I hear about “tech” companies. I feel we nerds need to be value driven, too, and not die in beauty.
Code quality and developer experience matters because it enables you to quickly use a codebase to solve business problems. But you still have to focus on business problems.
A professed concern for code quality sometimes manifests itself in endless bikeshedding over small matters. At least initially, be a little bit skeptical of the person with one system behind him, who is determined to do this one right.
Your developer driven company may have great code quality and employee satisfaction but unless it has a FAANG-like niche all to itself, it will easily be beaten by the revenue driven agile sweatshop next door despite its low quality code and high turnover.
Good, clean, scaleable, and testable code only exist to rapidly support the above. The moment you choose tech value over buisness you are a risk not asset to a company.
I sware sometimes I see so many delusional software "engineers" who care more about building technically excellent systems that are either delivered late or dont solve a/the real problem... it disgusts me.
> Revenue and business impact are ALL that matter.
Sure, but only until your up-and-coming competitor eats your lunch because everything got taken over by a-hole MBA and PMP-types, everyone cool leaves, and the only people doing the work are disinterested consulting companies charging you through the nose.
Unless the the startup already nailed the startup part and is at $5-10M/yr or will flip with 0 revenue, you have no lunch to be eaten, just aspirations. Your biggest competitor is your internal non-business efforts that distract from experimenting with what gets people to pay in a repeatable way. Only after you have built a working revenue machine -- which (depressingly) can simply be VC revenue and hoping the music doesn't stop -- do you have a lunch to worry about. Luckily, as Twitter and friends show, once you have made that lunch, you can turn even the biggest Ruby fail whale and php ball of mud into engineering for scaling & doing tiny feature iterations.
Unfortunately, shiny engineering won't solve drastic product market fit iterations, and consumes the limited time & $$$ for achieving it. That's a lot of otherwise good habits and instincts to unlearn for engineers who never really had to go from idea to paying end users and instead needed to ride an existing monopoly and not break it: FANG, bigco, bank, consultants, etc. In a disturbing sense, a small # of new grads can fit in better on a startup team than a loud FANG cohort b/c most know how to do a bunch of small projects without being distracted by post-growth table stakes. (And you avoid the former-consultant "don't care about the end-customer, just the boss/politics" problem b/c of passion for the startup's mission vs. the tech.)
I've come to appreciate either:
Team 1: Staying tiny with people who demonstrably get that or are otherwise mission-focused (vs. tech-focused) until you do hit growth,
Team 2: Or massively over-fundraising and over-hiring (with high risk of fast death) simply to deal with sales/marketing/engineering that is only at say 10% efficiency of Team 1
>Your biggest competitor is your internal non-business efforts that distract from experimenting with what gets people to pay in a repeatable way
>Unfortunately, shiny engineering won't solve drastic product market fit iterations, and consumes the limited time & $$$ for achieving it. That's a lot of otherwise good habits and instincts to unlearn for engineers who never really had to go from idea to paying
Having worked in startups and the corporate world, I would apply this also to the role of product owner, who is often responsible for setting up those experiments to learn and also filling up the tech pipeline for the next sprint. I've seen product owners having a hard time to grasp if the technical need for things pitched by engineering is real or just premature optimization. You either need a more technical product owner or a tech lead that puts it's business hat on quite often.
So basically either naked greed or blue-sky-burn-rate ?
I think there's room for balanced consideration. Sometimes, yeah, revenue and time-to-market is everything. Sometimes there's a need for taking a risk and creating something new.
No: Either business-focused engineers, or enough money so that every 5 folks who aren't ("scale!" "this adds velocity!" "10% faster!") can add up to 1 developer who is.
The new business is the risk-taking endeavor. The job of the team is to derisk, taking the blue-sky concept to something the market will consume. That's so hard and requires so much listening/iterating/etc. that it makes most engineering cycles not spent on meeting customers in the middle (or helping finding alternate customers/offerings) is eating the seed corn. Most startups should assume "default dead" until the $5M/yr point.
There is an interesting question of how to do deep tech. ("10X cheaper spaceflight", not "Tensorflow for AIOps"). That's more capital intensive, and in turn, different kinds of business critical milestones. "We need to do X, Y, Z so we can get $5M gov contract Y and the next round." That deal does _not_ hinge on whether you've upgraded from React 3 to 4 and have a much more approachable graphql orm.
Your statement only applies for the FAANGlike companies/monopolies form SV working on the latest AI thingamajigs where they have enough AdSense/VC funds to support costly talent without worrying about making money.
Everywhere else around the world software development is just a SCRUM powered meet grinder where if you don't sprint fast and cheap enough your competitors will eat your lunch.
You avoid low quality code because it has business impact. If it didn't, you'd write it as fast as possible shrug, run/distribute, and move to the next problem (what is exactly what is correct for run-once code).
If some MBA with PMP certs decides to actively ignore the business impact of your bad code, it means he is stupid and incompetent. But that does not mean that code quality is an end on its own.
Er, they also exist to support the quality of life of the engineer. Suppose your company asks you to spend 6 months writing PHP in an untestable codebase. And you know that you need to have testable code in order to make progress in a codebase. It is better for you to stay off that project, even if it theoretically would make massive revenue gains for the company.
Why?
Because if the company's revenue doesn't matter to you when annual review time rolls around and you get fired because you didn't accomplish much in the past 6 months. So yes, you should care about business goals, but only insofar as they support the stability of your family life.
> Revenue and business impact are ALL that matter.
You might want to look up b-corporations if you haven't. They take into account employees, communities, and the environment as parts of their charters.
I'd heard about them for a while but didn't realize the difference they made until speaking to Lorna Davis, who was instrumental in the largest conversion to a b-corp yet.
I don't claim it's the best introductions to them, but the conversation was on my podcast, so you can hear her personal inside account: http://joshuaspodek.com/guests/lorna-davis.
I worked for a B corporation, it’s a meaningless label that was used to beef up our pitches to clients and investors. There’s no oversight by the B organization to actually make sure that it’s companies are adhering to the label’s mandates.
> I see so many delusional software "engineers" who care more about building technically excellent systems that are either delivered late or dont solve a/the real problem
That's a management failure not software engineers doing the wrong thing. Software engineers should care more about building technically excellent systems just like safety auditors should care most about safety. It's management's job to prioritize the wants of the business and the wants of the engineers and decide when they align and when they don't.
It likely comes from the fact engineers would rather build than sell, except selling is part of the iterative process! (The most crucial part as it obliterates wishful thinking on what the market needs)
So I am confused. A tech company sell tech, no?
I.e. amazon ecommerce is not a tech company. AWS is.
So if tech company is selling tech, and company A tech is better (e.g. 1 year - 2 year more advanced) than B tech, why would revenue matter?
Isnt that what google did to yahoo? Apple to Nokia?
And now kubernetes does to AWS?
Amazon is a business that has classic technology-heavy segments that involve every type of engineer/programmer/developer and it has retail segments (retail customer service, retail warehousing, retail logistics, etc.), among countless others (HR, accounting, legal, marketing). It does both traditional retail and sells technology products & services (Kindle, smart speakers, tablets, AWS, et al.). At this point they're even doing custom chips; and of course they're increasingly into the media and advertising businesses.
For a monster like Amazon it particularly doesn't make sense to call it a technology company or an ecommerce company (or a media company or an ad company). It's a company - really a conglomerate - and it does/sells x y z. AWS is as much a critial part of what Amazon is today as its retail business (on a value basis, AWS is drastically more valuable, and will be even more so in the future). One day they may be split apart, however that is likely a decade into the future or more.
I had a first time similar related experience with a startup in Tokyo. The company was focused on IoT related projects and started by purely business oriented individuals with not much tech experience. Their strategy was to hire as many "foreign" engineers to focus on the development while they push out for investment and business opportunities. Unfortunately, there was an internal clash between the engineers and the business side over code quality vs just pushing some buggy IoT related application into production which led to over half the engineering team quit in under 6 months I being one of them. Somehow though they are still afloat a year after using the barely working buggy app that we finished before we left.
It's an unfortunate reality that sometimes good is the enemy of good enough.
I do think it's easy to go too far the other way, though. You can plan to throw one away. You can write a quick and dirty MVP. You can throw money at the scalability problem if you're lucky enough to have it. Sooner or later, though, you are the player with the established offering. Unless you want to keep rewriting it from scratch every few months, at greater and greater cost as your offering grows, you need decent code at that point to maintain reasonable progress in supporting whatever your next revenue-driven features might be.
There's such a fine line to walk there where you avoid bad decisions "because customer X wants it" and recognition that giving the customer what they want is what you are there to do / what sells.
I just had a discussion that was "We're not going to do this how they want as that is too wonky / would send the code in all sorts of strange directions ... but we're still going to give them what they want in spirit."
If we had just said no, or blown off the sales guy's POV, probabbly lose a lot of traction with that customer.
The reality is that both engineers and sales have their own respective forms of myopia. Engineers often bias towards elegant code and architecture, salespeople bias towards whatever the last sales lead said on the phone. Both have some value, but neither one will unlock a massively scalable market. To do so you need some vision beyond what the sales lead is saying on the phone or what is easy to design elegantly. Not just that, but you also need rapid iteration and not to fall so in love with your early thinking that you can't effectively capture new insight along the way.
Both of those styles of company focus are often beat out by companies that consider themselves to be customer service companies. A sale is step one, then you deliver the great customer experience which they actually signed up for. Development is a tool to improve that experience. But the company itself is delivering a service... that happens to be tech-based.
Im gonna use this in quotes "I have become skeptical when I hear about “tech” companies. I feel we nerds need to be value driven, too, and not die in beauty." Thanks.
If it makes you feel any better, I worked at the "sales company" and they certainly aren't winning big. I think you're just underestimating the amount of factors involved in determining business success.
I'm not convinced by these claims:
> While Airbnb’s accounting suggests that its revenue has minimal marginal costs, a holistic view of Airbnb’s market shows that the company effectively pays hosts 86 percent of total revenue.
You could make the same statement about a payment processor (with 1% fees it would "effectively" pay users 99% of revenue) but I think in both cases the company has zero marginal costs in the sense that it can scale to additional revenue pretty much for free, in comparison with say a factory that has to hire new workers and buy more raw materials to get more revenue.
The problem is that this labelling does nothing but infer potential profitability.
1. Notice how the author mentions the term "tech industry"? However, when most people talk about "tech companies" they refer to it as an industry. It's not.
2. People get lost in the semantics and just think companies are a binary "tech co" or "not a tech co". I disagree. Tech is actually an operating model which can help propel a company into high gross margins. When we analyze businesses we usually put them on a spectrum of "IT Support Business" -> "Tech Enabled Business" -> "Tech Lead Business" (with the latter synonymous with that people call a "tech company").
3. A "Tech company" and a "software company" is nothing more than an investors way to imply underlying business fundamentals, which usually translate into high gross margins. It can often be used to cloud judgement about the actual underlying fundamentals.
* Software creates ecosystems
* Software has zero marginal costs
* Software improves over time
* Software offers infinite leverage
* Software enables zero transaction costs
So to the extent a business meets those 5 points, it's a 'tech' company. He goes through a a few companies and sees how well they fit those points (netflix, airbnb, peloton, wework) to give an intuition for it.
The definition is apparently made from rubber. Let's talk, for example, "Software offers infinite leverage" (infinite apparently meaning "able to serve the whole world", but I guess "infinite" is just a synonym for "somewhat large-ish" here).
The article says this about Uber: "Uber is able to serve the entire world, giving it maximum leverage". Followed by this about WeWork: "WeWork is limited by the number of locations it builds out".
Uber didn't start with the ability to serve the entire world, and that ability was earned not through software, but through lots and lots of money and aggressive regulatory arbitrage (i.e. breaking laws faster than regulators could react to). What's to say that WeWork can't spend money to grow into a worldwide service?
I see this article as a list of interesting market features, but I don't buy that you have to have all of them to be a tech company, or that only companies with all of them will succeed.
um, there are very real marginal costs in the primary revenue centers of Apple (hardware), Google (TAC: traffic acquisition cost), Netflix (bandwidth) and Amazon (logistics).
"Infinite" leverage is also a misnomer: Ford and GE enjoyed terrific leverage when they optimized giant-scale industrial processes (the assembly line and six sigma, respectively). Politicians and lawyers enjoy much greater leverage than software engineers, whose code requires much more "maintenance" (in practice) than laws and legal contracts. Economically speaking, Wall Street traders enjoy fabulous leverage, though arguably they're getting replaced by algorithms.
> Fifty years ago, what is a tech company was an easy question to answer: IBM was the tech company, and everybody else was IBM’s customers. That may be a slight exaggeration, but not by much: IBM built the hardware (at that time the System/360), wrote the software, including the operating system and applications, and provided services, including training, ongoing maintenance, and custom line-of-business software.
Fifty years ago, IBM was the computer company. There were other tech companies: Xerox, Tektronix, Texas Instruments, and Western Electric to name a few. Today "tech" largely means computing, especially applied to marketing and advertising automation, but back then it meant something quite different to be working "in technology".
I was thinking the same thing. Apparently tech means software now, at least according to the author.
For example, what about companies like DuPont. Surely they are a technology company. Are they also a tech company? The author provides no framework to address the question which, in my mind, means they were largely unsuccessful in their attempt.
I think its silly to call "anything with an app" a tech company.
For instance, uber is a transportation company, not a tech company. They may have been considered tech when they were developing self-driving cars but I think that was abandoned for now?
Anyway, the point is that being in the internet and having an app is par for the course of any industry today. You're not on the brave frontier of tech anymore, you're just using existing tech to implement your business model.
This is trying to be too clever by a half with the semantics. When people say they're going to Uber somewhere, they're not saying they're going to use a post-paid software to connect with individuals offering rides. The fact they've skirted the labor laws to technically not be the employers is neither here nor there.
I honestly can see where you are coming from but I think the IRS distinction is important here.
Uber isn't saying, "you must drive from 9am to 5pm. you must use our vehicle and company expense account."
Mechanics get hit with these types of laws as well. Mechanics are often required to bring their own tools to work, but since they often work at the business' garage during the business' hours (not at their home garage at 2am for example), they are W2.
You are exactly right that the service rendered is exactly the same ("I wanna uber there" == "I want a taxi company to drive me there").
But from an expenditure standpoint, a Taxi Company is not spending money on cloud services and programmer salaries.
Perhaps it is better to talk about divisions of these large companies instead of trying to classify the whole.
By your definition of cutting checks NASA can also be called a transportation company.
Everyone seems to be equating tech to mean circuits, runs on electricity, or computer code. Thats not what technology means. Tech is getting throw around because its hard to categorize some companies.
Technology is "the application of scientific knowledge for practical purposes, especially in industry."
People tend to confuse tech and tools. The lever is a tool. Using a lever to create leverage, is technology. (You can argue that the lever is technology too, in that its applied knowledge of smelting, but that misses the point.)
Uber is the application of engineering talent to automate taxi dispatch. Netflix is the application of engineering talent to distribute video. But that doesnt make them tech companies, because they dont SELL or LICENSE that tech to others. Their product itself isnt tech for others to use. They have in housed software, and they use their software development prowess as a competitive advantage. "Tech companies" should be reserved for the Microsoft, Google, Apple, Salesforce, SAPs of the world that SELL/LICENSE software that acts as a Business Middleware and Development Platforms. But more importantly, they need to be MORE than just a company that takes business requirements and digitizes them (UltiPro for example, who applies existing Microsoft/Google tech/tools, but isnt creating their own database tech or frameworks. You can be a software assembly company, that solves business problems, without being a tech company,) they need to be inventive, creating new applied knowledge. (In that case, Uber actually does tangentially count, because they are a software middleware to connect drivers and riders, and they are engineering new tech not just reassembling off the shelf components.)
For nearly everything else, we can just call a spade a spade and call a company what it actually is. A bank. A car company. Taxi dispatch. Video hosting and production. Semiconductors. Fabrication. Manufacturing.
Lumping every company that has good engineering talent into a pile may be good for investors to help categorize investments, but for everyone else it just turns conversation into nonsense.
You had me until your fourth paragraph. If your argument is that Uber, Netflix are not tech vendors because they sell a service; they do not sell/license software, then you are correct.
Oftentimes the label tech company is used as shorthand for Internet company — a company that leverages the near-zero distribution cost of the Internet to deliver a product (e.g. Google Search, Facebook) or a service (e.g urban mobility via Uber, home delivery via Amazon).
In this sense, it would not be correct to say Uber or Netflix are not tech companies.
My argument is that if we use tech to mean what it means (the application of knowledge) that MANY MANY MANY different types of companies fall under one useless blanket. Dow, Dupont, Ford, Goldman Sachs, Chase etc. Instead we should call them what they are, chemical companies and banks. Every bank is now an "internet company."
Discounting Uber as just an app would be silly too. The scale they have to deal with is probably one of the world's biggest and they do contribute back too open source aka making new tech.
What the essay suggests to me is that folks are fighting for the "tech" label because of the correlation with particular economics and accounting dynamics. Essentially mistaking the map for the territory.
My view is that you're in the business that customers are paying you for. You may have been founded by tech-heavy leadership and have a heavy reliance on software, but that doesn't define what people actually pay you for. No more than a company founded by bankers is a bank.
> No more than a company founded by bankers is a bank.
Exactly. In fact, the most useful explanation I’ve found is to consider the label “tech company” as mostly a legal term, similar to how a bank is a legal label for a specific type of company (with the small difference that banks must be licensed by the government to conduct the activity of banking).
To intuitively understand the term tech company, consider the level just below it: the tech-enabled company. The distinction between a tech company and a tech-enabled company is exactly the same as the (legal) distinction between ownership and possession.
Tech companies generally build (i.e own) the primary means of production (i.e. tools, methods, raw materials etc used to conduct business). Exclusive ownership of a valuable means of production is generally a source of competitive advantage in most industries, until a new entrant with better economics emerges to disrupt the status quo.
Tech-enabled companies on the other hand, generally buy or borrow (i.e. possess) the primary means of production.
IOW, all companies can be placed on the tech-company spectrum depending on whether they build, buy or borrow the primary technology necessary to conduct business.
An example of a tech company: Boeing; an example of a tech-enabled company: United Airlines. UA cannot design or manufacture its own aircraft since it does not own the underlying tech (IPR, manufacturing methods etc) behind the aircraft it operates, instead it merely purchases from tech vendors like Boeing (and Airbus).
If UA decides that battery tech will be viable in the near future and wants to switch its entire fleet to all-electric aircrafts for instance, they must seek the legal permission of their tech vendors to modify their existing designs, since retrofitting will require recertification to ensure the aircrafts can still be operated safely. If they go ahead with such modifications without first seeking permission, they risk being sued by the owner of the underlying technology.
OTOH, if Boeing were to make the same realization regarding battery-powered flight, of course they would not need to seek any third party’s permission to make the switch.
Let’s say UA or indeed any airline wants to take its destiny into its own hands, what prevents them? Surely they could kick start their R&D efforts buying an electric aircraft maker like Pipistrel [3]? UA used to be a vertically integrated company known as UATC [0] but the USG found such an arrangement too powerful and anti-competitive, which led to the split into current day Boeing, UTC [1] and of course UA [2].
I keep seeing this discussion and people arguing over that some definition is too limiting and that industry X is obviously also technology. But they are missing the point: yes hardware, manufacturing and media companies are also using tech or making tech, but in the context of the stock exchange and evaluating a companies potential this doesnt matter.
In that context a "tech company" specifically refers to a company that is able to take advantage of new business models or ways of operation enabled by tech that allows them to scale and make large returns on investment. Thats it. Thats why they are attractive to investors, which in turn is why every company tries to convince people that they are also "tech".
But anyone can take advantage of tech these days. If someone builds a CRUD website to make hotel reservations, is it a tech company? What if someone installs Shopify to sell goods, is it a tech company?
If you are scaling up, profitable (or speculated to be very profitable in the future), and eventually get big enough to do an IPO, then yeah why not? Booking.com a CRUD website making hotel reservations, and called a tech company.
What is missing however in the picture of "someone building a site" is the other points mentioned in the essay: network effects, building a platform and forming an ecosystem around you. Everyone can do it, but not everyone succeeds. This is why there is such a big rush within tech startups to be the first in a space.
Then I would call them money concentration machines, with "tech" just being a new-ish fig leaf for something that's not new at all:
> [Hobbes'] Leviathan was not concerned with idle speculation about new political principles or the old search for reason as it governs the community of men; it was strictly a "reckoning of the consequences" that follow from the rise of a new class in society whose existence is essentially tied up with property as a dynamic, new property-producing device. The so-called accumulation of capital which gave birth to the bourgeoisie changed the very conception of property and wealth: they were no longer considered to be the results of accumulation and acquisition but their beginnings; wealth became a never-ending process of getting wealthier. The classification of the bourgeoisie as an owning class is only superficially correct, for a characteristic of this class has been that everybody could belong to it who conceived of life as a process of perpetually becoming wealthier, and considered money as something sacrosanct which under no circumstances should be a mere commodity for consumption.
Yes? The wish for companies to make money is indeed not new, however, the ways tech companies achieve this are. Technology has enabled extremely low marginal and transactional costs as the essay explains. Build once, sell an infinite number of times at nearly zero cost was not really a possibility before, thus in that sense companies that take advantage of this really are _new_.
When companies no longer did exclusively software; Amazon and Microsoft to name a few stepped into the hardware space some time ago. Of course, with Microsoft we're talking what, 30 years ago already?
It's a bit more nebulous with e.g. Uber though; they don't really sell software, they sell a service and act as a middle man via software instead.
Do Amazon and Microsoft make a majority of their revenue from selling hardware? Tesla sells t-shirts and hoodies but that doesn't mean they're a clothing company.
Every person who no longer can meaningfully describe what they're doing, or doesn't want to, because it's not something to be proud of, probably helped with this transition. But it can't be technology as such, for example we never called car manufacturers "tech companies" AFAIK.
Software companies employed predominantly software engineers and ancillary staff to support them. Many sold mandatory recurring billing "support" packages, which really is no different from SaaS, just framed as a separate invoice line item.
I call my startup a software company because that is what it is. Tech is abbreviation from "high tech", which was the hardware and biotech equivalent.
Tesla is absolutely not a software company, it's a tech company. Software is a very concrete term which doesn't describe the category of companies we reasonably want to talk about.
We don't call toy companies "Plastic Companies", even though plastics dominate the manufacturing process and wooden toy makers were disrupted by the introduction of plastic.
Ditto with cars. Telsa is not a tech company. It's a car manufacturer.
How are they a Tech company? Is every car company with in-house developed self driving a tech company? Does that mean eventually most car companies will be tech companies and the term car company will fall out of use?
Apple is a computer company. (Phones are specialized computers unless you're actually talking about landline things.)
Intel is a chip company.
Microsoft is a software company... except there's Microsoft hardware out there, isn't there?
Do you think there might be a use for an over-arching term to talk about all of those companies at the same time, while leaving out, say, Unilever and Coca-Cola?
What do you think is the difference between those two groups of companies? How does Unilever make products if not through researching and applying technology?
Tesla sells cars.
Apple sells computer hardware and software.
Intel sells computer parts.
Microsoft sells computer software, hardware, and services.
Coca-Cola sells soda.
Unilever sells a little bit of nearly everything.
Numbers 2-4 are clearly tech companies, while Tesla, Coca-Cola, and Unilever clearly are not, no matter how much technology they use in delivering their cars, soda, and household goods.
If you don't see the different between software and detergent, I'm not sure I can help you. :)
Nearly everything sold involves technology. Tech companies sell the technology more directly, while non-tech companies sell the results of technological processes. Generally speaking, yes, this means that tech companies are mostly computer companies. Even companies that provide SAAS could theoretically also sell that software directly (and often do, to large enough enterprise customers), so they're still software companies.
If it weren't for companies muddying the waters while trying to raise large quantities of money, I don't think the distinction would be in any doubt whatsoever.
I still don’t get why you think software is so special. Writing a CRUD website is a technology business but PhDs doing research-level work to engineer a new type of surfactant to make a better detergent is not a technology business?
He means specifically that the product improves over time. For non-tech companies, the product you buy (a lamp, a car, a mattress) doesn't improve over time. Once you buy it, there's zero expectation that the company continues to improve it. You have to buy a new version of the product to get and improvements the company produces
> For non-tech companies, the product you buy (a lamp, a car, a mattress) doesn't improve over time
This is also true for a lot of software companies (boxed software, games, paid upgrades etc.) Not to mention that a lot of companies selling hardware should also qualify as tech.
My big problem is that the author is concluding that tech = software = subscription-based SaaS.
I don't think of video game publishers and studios as tech companies. They're media companies. Is a film studio a tech company? Video game studios create products that requires actors, a score and runs credits.
Pixar, Disney and many VFX studios like ILM are as much tech companies as they are studios. Most of their bleeding edge tech they used to make visuals quickly trickled down to mainstream PC, VR and digital camera user space.
> He means specifically that the product improves over time. For non-tech companies, the product you buy (a lamp, a car, a mattress) doesn't improve over time. Once you buy it, there's zero expectation that the company continues to improve it. You have to buy a new version of the product to get and improvements the company produces
Software installed locally that doesn't run "in the cloud" would qualify as not tech according to that definition.
For the most part Windows 98 just got bug fixes, in the same way a car might get part recalls, until Win 2000/ME came out with new features.
As others said, that's mostly a description of a business model (rent vs. buy a product), not of whether the company is "tech" or not. It's true that this is correlated with being a tech company, because the insanity of subscription models didn't conquer the world of physical products just yet - but you can imagine non-tech cases. Cellphones on a contract "magically" improve their hardware every 2-3 years through being replaced[0]; I can imagine there exist long-term contracts for car fleets where the leasor replaces the leased inventory over time, etc.
--
[0] - and replacement is fair; software also improves by replacement. Your old executable gets deleted and replaced by a new executable.
Well back in the shrink wrap days you didn’t get improvements without buying a new version. And today you’re renting your software, and for any rental product you do expect that if you continue to rent it, it will eventually be improved/replaced (or you’ll just stop renting it).
Excluding manufactured goods from tech just kind of broke my brain for a minute there. I guess "tech" and "technology" are different words now and I just have to accept that.
Apparently they are different words now, at least in this context, and bear no relationship to each other besides etymology.
Language evolves, I guess. I dislike this change, since it excludes all the radar systems, jet fighters, lasers and other high technology systems that I've worked on, but there's nothing I can do about it. Oh well.
This is an fun interesting article worth perusing, but I disagree with the analysis. It narrows the question of being a tech company to basically being a SaaS company. Granted, that's a lot of the companies famously IPOing out of the silicon valley venture capital community right now, but it's very limiting and I'd argue it's wrong.
Lets make a hypothetical counterexample according to their guidelines:
- Software creates ecosystems.
- Software has zero marginal costs.
- Software improves over time.
- Software offers infinite leverage.
- Software enables zero transaction costs.
Imagine that out of nowhere, we get a company making a JARVIS-like AI assistants like in iron man, complete with google glass-like HUD. Suppose, due to design/manufacturing restrictions or something, it can't update over time. You have to buy a new pair of the glasses to get the improvements. There are no third party apps, just what comes shipped with the product. If it was as useful as envisioned all over science fiction, it'll take the world by storm anyways.
Now imagine it's just catching on with consumers and is about to IPO. Is this AI driven high-tech company a tech company? According to OP, this company may as well be selling sunglasses:
- No apps or ecosystems by construction.
- Every unit is a physical object, marginal costs are about like expensive sunglasses.
- It doesn't improve over time by construction.
- No more leverage than selling normal sunglasses.
- No lower transaction costs than a company selling sunglasses.
Yet clearly this is a tech company and will be evaluated accordingly for its IPO.
> Peloton is also iffy as far these five factors go, but then again, so is Apple: software-differentiated hardware is in many respects its own category.
Do you think your example fits into the author's definition of "software-differentiated hardware"?
So do wifi connected microwaves and refrigerators. But when you open the door to that, or more generally "technologically differentiated hardware," you're essentially talking about anybody. Fancy lightbulbs, for example. Or hook them up to wifi and now they're software differentiated, if 'technologically differentiated hardware' is a step too far.
I read it as the author saying "oh by the way these other companies that don't fit are their own (massive) category, not counterexamples to the criteria I've laid out."
Nicely put, but then why need your example even be a pair of fancy glasses? It could be an energy generating device, or a transportation method, or a cure-all pharmaceutical or something.
I think the answer is partly that you're right and that technology in the more general broad sense has particular tendency to keep improving in value; partly that the OP is right and your example has some unstated implications (these non-upgradeable devices might well be prone to competition and hence generate surprisingly low shareholder returns); and partly that there are some other factors beyond OP's, to do with how the goods are produced.
That would include many electronics manufacturers, since nowadays most electronics contain firmware and sometimes are controlled by apps. But they are apparently not considered tech companies.
(Note that I prefer the old meaning of the word "tech" when it was short for "technology". But it's not up to me.)
I think the label/type for a company gets figured about by asking: "what do customers come to you for?" There are different ways of asking it, and maybe different words to use, but that's the most direct, simple, and helpful question I've found.
The article makes some great points, but I think the use of software and technology for strategic advantage is different from the fundamental "purpose" of the company.
Specifically, the word tech means very little. What Ben is describing here -- and what WeWork was trying to present themselves as in their S-1 (by using the word tech 100+ times) is some type of software platform.
For instance -- Intel is a clearly a tech company, but specifically they are more of a manufacturing company than a software platform provider.
Any company where dev/tech have a substantial say.
I have worked for certain communication mega-corp, while the business is (somewhat) technical, the dev have almost no say at all. That is where I would draw the line and call that a 'traditional' company. I've since found job at a real tech company.
Isn't every company that uses technology extensively in their day-day work a tech company. I hired a contractor to upgrade the kitchen/bathroom. The guy was using Salesforce and other project management software and would keep me appraised of regular project updates and scheduling. For the kitchen design - their guy showed up with a laptop where he designed the kitchen using a 3D-design software. Not only that they got it finished in 5 weeks, granted I paid 5% more, but it was well-worth it.
I posit these days it’s a company that’s valued as a multiple of earnings instead of a multiple of EBITDA. Most companies these days are “tech companies” once they reach a certain size, to the point where the distinction isn’t particularly relevant.
He should have written revenue. It is how the IPOs are priced these days (YY times yearly revenues, with YY in the range of 15-25). It is a pretty useless way of valuing companies.
While we're here it is worth remembering that unlike most of today's "rising stars", most of the established tech giants were profitable at IPO time (Google, Facebook, Apple, Microsoft).
EBITDA is non-GAAP and needs to come with a disclaimer but it's pretty common and everyone's used to it. The point of it is to isolate the underlying operating profit without the complicating details of capital structure, tax regime, or capex.
Things like WeWork's "community-adjusted EBITDA" read like punchlines, though.
IANAAccountant, but if we have a term "Earnings Before ...", then presumably "Earnings" means whatever money there is left after you subtract all the "..." from it.
"In that respect, all successful companies, at least in a free market, are tech companies: they do something more efficiently than anyone else, on whatever product vector matters to their customers."
The simplification that doesn't do justice to the article is: Tech companies are those that are more efficient than their competitors.
> The simplification that doesn't do justice to the article is: Tech companies are those that are more efficient than their competitors.
That's a solid argument for abandoning the term altogether, in my view. If the term could apply to such a gigantic amount of different things, what is the worth of making that distinction?
This is why the author of the article wrote the article: it turns out that there’s a real and useful distinction that takes more than 30 words to suss out.
In contrast, there was a company that almost did the same business as we did. But, they were what people would have called a sales company, not a tech company. Decisions were based on sale opportunities, only. No one gave a shit about code quality, devs didn’t stay long and often were frustrated when they applied at our company.
Which one was more successful? Unfortunately they were... we were often slowed down by discussions about code quality, ways of working, ethics and disrespect for revenue driven decisions.
Maybe it was just an exception? But since then I have become skeptical when I hear about “tech” companies. I feel we nerds need to be value driven, too, and not die in beauty.