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I've seen a lot of similar comments regarding various companies over the last week or so. what exactly is a "tech company", and what makes it different from a n

I've seen a lot of similar comments regarding various companies over the last week or so. what exactly is a "tech company", and what makes it different from a normal company (eg, a bank) for whom tech is still an integral part of the product?

Cthulhu_ 7y ago
In this case, it's probably labeled a tech company because: - Founded by IT people (Garett Camp co-founded StumbleUpon) - HQ in San Fransisco - Uses technology to link drivers and consumers An USP compared to a traditional taxi company is their app, which added convenience to taxi services - don't have to call someone, don't have to worry about handling money, etc.
deleted 7y ago
[deleted]
rossdavidh 7y ago
From the point of view of "does it matter if they're profitable", a "tech company" has more of their costs up front (to develop the software), and their costs increase less with volume. So, once you've got the software made, "all you need to do" (still a big deal) is get customers, and you will become profitable (ignoring software maintenance that gets costlier as you scale up, etc). Costs may go up due to server capacity, etc. but not nearly as fast as revenue. But, if your cost structure isn't really like that, then if you're not profitable when you're small, that's a signal that you're not a good investment. A lot of companies with cost structures more like a conventional company, that weren't profitable, tried to claim that they were a tech company and therefore as they scale up they would become profitable. Some investors fell for this, or thought that someone else would when it was time to IPO. Whether this logic was ever valid is, IMHO, debatable. But in this case it's a moot point, because Uber (and Lyft, and Lyme, and WeWork, and etc.) don't have a cost structure that looks like a tech company. They may use software, but most of their costs do absolutely scale up as they get more customers. Uber would have been having layoffs this year regardless, I think, they are just doing it now because they have an external shock to blame it on.
alphast0rm 7y ago
Ben Thompson wrote an interesting article "What Is a Tech Company?" on Stratechery [1] recently where he discusses the trademark characteristics of tech companies and makes a convincing argument as to why Uber could be considered one: > Note the centrality of software in all of these characteristics: > - Software creates ecosystems. > - Software has zero marginal costs. > - Software improves over time. > - Software offers infinite leverage. > - Software enables zero transaction costs. > The question of whether companies are tech companies, then, depends on how much of their business is governed by software’s unique characteristics, and how much is limited by real world factors. ... > Uber, meanwhile, has long been mentioned in the same breath as Airbnb, and for good reason: it checks most of the same boxes: > - There is a software-created ecosystem of drivers and riders. > - Like Airbnb, Uber reports its revenue as if it has low marginal costs, but a holistic view of rides shows that the company pays drivers around 80 percent of total revenue; this isn’t a world of zero marginal costs. > - Uber’s platform improves over time. > - Uber is able to serve the entire world, giving it maximum leverage. > - Uber can transact with anyone with a self-serve model. > A major question about Uber concerns transaction costs: bringing and keeping drivers on the platform is very expensive. This doesn’t mean that Uber isn’t a tech company, but it does underscore the degree to which its model is dependent on factors that don’t have zero costs attached to them. He walks through a few other examples as well (e.g. Netflix, Airbnb, WeWork, Peloton), would definitely recommend reading the whole article. [1] https://stratechery.com/2019/what-is-a-tech-company/ https://stratechery.com/2019/what-is-a-tech-company/
- huevosabio 7y ago
  He also has an interesting follow-up [0] where he looks at it from the gross margin point-of-view. His main point is that when you look at it from the perspective of what the rider pays, their margins are much lower and implies that perhaps it should not be categorized as a tech company (in the zero marginal costs and massive gross margins). [0] https://stratechery.com/2019/neither-and-new-lessons-from-uber-and-vision-fund/ https://stratechery.com/2019/neither-and-new-lessons-from-ub...
asdff 7y ago
It's all semantics at this point. Every company can be a tech company depending on how you carve up your definitions. My head cannon is if the stock tracks along with the rest of the FANGs, it's a tech company.

Cthulhu_ 7y ago

In this case, it's probably labeled a tech company because: - Founded by IT people (Garett Camp co-founded StumbleUpon) - HQ in San Fransisco - Uses technology to link drivers and consumers An USP compared to a traditional taxi company is their app, which added convenience to taxi services - don't have to call someone, don't have to worry about handling money, etc.

deleted 7y ago

[deleted]

rossdavidh 7y ago

From the point of view of "does it matter if they're profitable", a "tech company" has more of their costs up front (to develop the software), and their costs increase less with volume. So, once you've got the software made, "all you need to do" (still a big deal) is get customers, and you will become profitable (ignoring software maintenance that gets costlier as you scale up, etc). Costs may go up due to server capacity, etc. but not nearly as fast as revenue. But, if your cost structure isn't really like that, then if you're not profitable when you're small, that's a signal that you're not a good investment. A lot of companies with cost structures more like a conventional company, that weren't profitable, tried to claim that they were a tech company and therefore as they scale up they would become profitable. Some investors fell for this, or thought that someone else would when it was time to IPO. Whether this logic was ever valid is, IMHO, debatable. But in this case it's a moot point, because Uber (and Lyft, and Lyme, and WeWork, and etc.) don't have a cost structure that looks like a tech company. They may use software, but most of their costs do absolutely scale up as they get more customers. Uber would have been having layoffs this year regardless, I think, they are just doing it now because they have an external shock to blame it on.

alphast0rm 7y ago

Ben Thompson wrote an interesting article "What Is a Tech Company?" on Stratechery [1] recently where he discusses the trademark characteristics of tech companies and makes a convincing argument as to why Uber could be considered one: > Note the centrality of software in all of these characteristics: > - Software creates ecosystems. > - Software has zero marginal costs. > - Software improves over time. > - Software offers infinite leverage. > - Software enables zero transaction costs. > The question of whether companies are tech companies, then, depends on how much of their business is governed by software’s unique characteristics, and how much is limited by real world factors. ... > Uber, meanwhile, has long been mentioned in the same breath as Airbnb, and for good reason: it checks most of the same boxes: > - There is a software-created ecosystem of drivers and riders. > - Like Airbnb, Uber reports its revenue as if it has low marginal costs, but a holistic view of rides shows that the company pays drivers around 80 percent of total revenue; this isn’t a world of zero marginal costs. > - Uber’s platform improves over time. > - Uber is able to serve the entire world, giving it maximum leverage. > - Uber can transact with anyone with a self-serve model. > A major question about Uber concerns transaction costs: bringing and keeping drivers on the platform is very expensive. This doesn’t mean that Uber isn’t a tech company, but it does underscore the degree to which its model is dependent on factors that don’t have zero costs attached to them. He walks through a few other examples as well (e.g. Netflix, Airbnb, WeWork, Peloton), would definitely recommend reading the whole article. [1] https://stratechery.com/2019/what-is-a-tech-company/ https://stratechery.com/2019/what-is-a-tech-company/

huevosabio 7y ago
He also has an interesting follow-up [0] where he looks at it from the gross margin point-of-view. His main point is that when you look at it from the perspective of what the rider pays, their margins are much lower and implies that perhaps it should not be categorized as a tech company (in the zero marginal costs and massive gross margins). [0] https://stratechery.com/2019/neither-and-new-lessons-from-uber-and-vision-fund/ https://stratechery.com/2019/neither-and-new-lessons-from-ub...

asdff 7y ago

It's all semantics at this point. Every company can be a tech company depending on how you carve up your definitions. My head cannon is if the stock tracks along with the rest of the FANGs, it's a tech company.