14 ms·

What Is a Tech Company?

245 points by yarapavan 7y ago

arcticbull 7y ago
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.
- s_Hogg 7y ago
  The "E" in EBITDA stands for earnings - what particular distinction did you see between EBITDA and the earnings you're talking about? Completely off-topic, I read somewhere recently that EBITDA could also stand for "Earnings Before I Tricked the Dumb Auditor".
  - H8crilA 7y ago
    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).
    - arcticbull 7y ago
      Correct I meant revenue
  - TeMPOraL 7y ago
    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.
  - juped 7y ago
    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.
- arcticbull 7y ago
  Sorry for the typo I mean revenue :)
rememberlenny 7y ago
"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.
- s_Hogg 7y ago
  > 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?
  - maehwasu 7y ago
    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.
ahupp 7y ago
I think the key of the essay is this definition: * 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.
- trimbo 7y ago
  I'm not sure how to reconcile the fact that Intel, nVidia, TSMC, AMD don't seem to fit these criteria but are undoubtedly "tech companies".
  - hamilyon2 7y ago
    Definition of tech company is flawed. Especially it does not fit tomorrow's companies.
  - TeMPOraL 7y ago
    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.
    - varjag 7y ago
      Tech there seems to be a stand in for 'software assisted middleman service'
paxys 7y ago
I don't get the "improves over time" requirement. Every company has the potential to improve over time. Improving isn't necessarily a "tech" quality.
- ricefield 7y ago
  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
  - TeMPOraL 7y ago
    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.
  - paggle 7y ago
    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).
  - paxys 7y ago
    > 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.
AmericanOP 7y ago
There are companies that are doing well and there are companies that are doing well
paggle 7y ago
A kind of meaningless dance, like “is rap music” or “is X art.” A few companies like Microsoft, NVIDIA, Salesforce, and AWS sell technology, and a much greater number build technology to sell something else like advertising or taxi rides. Arguing about the definitional line is just masturbation.
deleted 7y ago
[deleted]
harimau777 7y ago
My definition of a tech company, with respect to software engineering, is one with some combination of: 1. Software is the core product and/or not considered a cost center. 2. Technical decisions are made by technical people. What these both come down to is that a tech company is one where software engineers are treated as full professionals rather than simply as labor.
- jpindar 7y ago
  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.)
wiseleo 7y ago
We used to have a term software company. That was unambiguous. At what point did the nebulous "tech company" take over?
- nightfly 7y ago
  When places like Uber and Airbnb became "cool".
- flukus 7y ago
  Software companies sold software, now most seem to lease it at best, but generally just allow people to use it through a browser front end.
  - wiseleo 7y ago
    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.
- pbreit 7y ago
  Because tech extends beyond software.
- Cthulhu_ 7y ago
  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.
  - joefourier 7y ago
    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.
cdirkx 7y ago
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".
- PavlovsCat 7y ago
  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. -- Hannah Arendt, "Origins of Totalitarianism"
  - cdirkx 7y ago
    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_.
einpoklum 7y ago
Answer: Not WeWork.
sweeneyrod 7y ago
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.
baxtr 7y ago
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.
- afarrell 7y ago
  > Disrespect for revenue-driven decisions I think thats the one that hurt you the most. https://www.kalzumeus.com/2011/10/28/dont-call-yourself-a-programmer/ https://www.kalzumeus.com/2011/10/28/dont-call-yourself-a-pr... 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.
  - mannykannot 7y ago
    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.
- ChuckNorris89 7y ago
  Indeed, this matches my experience exactly. 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.
- Silhouette 7y ago
jacques_chester 7y ago
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.
- sah2ed 7y ago
  > 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]. 0: https://en.wikipedia.org/wiki/United_Aircraft_and_Transport_Corporation https://en.wikipedia.org/wiki/United_Aircraft_and_Transport_... 1: https://en.wikipedia.org/wiki/United_Technologies https://en.wikipedia.org/wiki/United_Technologies 2: https://en.wikipedia.org/wiki/United_Airlines https://en.wikipedia.org/wiki/United_Airlines 3: https://www.pipistrel-aircraft.com https://www.pipistrel-aircraft.com
stumblers 7y ago
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.
mbesto 7y ago
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.
cptaj 7y ago
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. If you're making NEW tech, you're a tech company.
- sjs7007 7y ago
  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.
- basch 7y ago
  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.
bitwize 7y ago
> 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".
- esmi 7y ago
  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.
Aperocky 7y ago
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.
smelterdemon 7y ago
A tech company is a company that is: (1) Marketed to investors as a tech company (2) Valued by investors based on the premise that they are or will become oligopolists in their market
6gvONxR4sf7o 7y ago
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.
- NickNaraghi 7y ago
  > 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"?
  - 6gvONxR4sf7o 7y ago
    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."
sharadov 7y ago
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.
mrnobody_67 7y ago
By that definition, Allbirds, Away Luggage, and any number of others aren't tech companies that deserve 20-40x revenue run rate multiples either...
40acres 7y ago
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.

245 points by yarapavan 7y ago

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.

s_Hogg 7y ago
The "E" in EBITDA stands for earnings - what particular distinction did you see between EBITDA and the earnings you're talking about? Completely off-topic, I read somewhere recently that EBITDA could also stand for "Earnings Before I Tricked the Dumb Auditor".
- H8crilA 7y ago
  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).
  - arcticbull 7y ago
    Correct I meant revenue
- TeMPOraL 7y ago
  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.
- juped 7y ago
  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.
arcticbull 7y ago
Sorry for the typo I mean revenue :)

rememberlenny 7y ago

"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.

s_Hogg 7y ago
> 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?
- maehwasu 7y ago
  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.

ahupp 7y ago

I think the key of the essay is this definition: * 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.

trimbo 7y ago
I'm not sure how to reconcile the fact that Intel, nVidia, TSMC, AMD don't seem to fit these criteria but are undoubtedly "tech companies".
- hamilyon2 7y ago
  Definition of tech company is flawed. Especially it does not fit tomorrow's companies.
- TeMPOraL 7y ago
  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.
  - varjag 7y ago
    Tech there seems to be a stand in for 'software assisted middleman service'

paxys 7y ago

I don't get the "improves over time" requirement. Every company has the potential to improve over time. Improving isn't necessarily a "tech" quality.

ricefield 7y ago
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
- TeMPOraL 7y ago
  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.
- paggle 7y ago
  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).
- paxys 7y ago
  > 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.

AmericanOP 7y ago

There are companies that are doing well and there are companies that are doing well

paggle 7y ago

A kind of meaningless dance, like “is rap music” or “is X art.” A few companies like Microsoft, NVIDIA, Salesforce, and AWS sell technology, and a much greater number build technology to sell something else like advertising or taxi rides. Arguing about the definitional line is just masturbation.

deleted 7y ago

[deleted]

harimau777 7y ago

My definition of a tech company, with respect to software engineering, is one with some combination of: 1. Software is the core product and/or not considered a cost center. 2. Technical decisions are made by technical people. What these both come down to is that a tech company is one where software engineers are treated as full professionals rather than simply as labor.

jpindar 7y ago
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.)

wiseleo 7y ago

We used to have a term software company. That was unambiguous. At what point did the nebulous "tech company" take over?

nightfly 7y ago
When places like Uber and Airbnb became "cool".
flukus 7y ago
Software companies sold software, now most seem to lease it at best, but generally just allow people to use it through a browser front end.
- wiseleo 7y ago
  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.
pbreit 7y ago
Because tech extends beyond software.
Cthulhu_ 7y ago
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.
- joefourier 7y ago
  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.

cdirkx 7y ago

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".

PavlovsCat 7y ago
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. -- Hannah Arendt, "Origins of Totalitarianism"
- cdirkx 7y ago
  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_.

einpoklum 7y ago

Answer: Not WeWork.

sweeneyrod 7y ago

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.

baxtr 7y ago

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.

afarrell 7y ago
> Disrespect for revenue-driven decisions I think thats the one that hurt you the most. https://www.kalzumeus.com/2011/10/28/dont-call-yourself-a-programmer/ https://www.kalzumeus.com/2011/10/28/dont-call-yourself-a-pr... 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.
- mannykannot 7y ago
  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.
ChuckNorris89 7y ago
Indeed, this matches my experience exactly. 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.
Silhouette 7y ago

jacques_chester 7y ago

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.

sah2ed 7y ago
> 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]. 0: https://en.wikipedia.org/wiki/United_Aircraft_and_Transport_Corporation https://en.wikipedia.org/wiki/United_Aircraft_and_Transport_... 1: https://en.wikipedia.org/wiki/United_Technologies https://en.wikipedia.org/wiki/United_Technologies 2: https://en.wikipedia.org/wiki/United_Airlines https://en.wikipedia.org/wiki/United_Airlines 3: https://www.pipistrel-aircraft.com https://www.pipistrel-aircraft.com

stumblers 7y ago

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.

mbesto 7y ago

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.

cptaj 7y ago

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. If you're making NEW tech, you're a tech company.

sjs7007 7y ago
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.
basch 7y ago
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.

bitwize 7y ago

> 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".

esmi 7y ago
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.

Aperocky 7y ago

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.

smelterdemon 7y ago

A tech company is a company that is: (1) Marketed to investors as a tech company (2) Valued by investors based on the premise that they are or will become oligopolists in their market

6gvONxR4sf7o 7y ago

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.

NickNaraghi 7y ago
> 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"?
- 6gvONxR4sf7o 7y ago
  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."

sharadov 7y ago

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.

mrnobody_67 7y ago

By that definition, Allbirds, Away Luggage, and any number of others aren't tech companies that deserve 20-40x revenue run rate multiples either...

40acres 7y ago

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.