Blog Post

When Is a Tech Company Dead?

Last week, I had the chance to interview Andy Bechtolsheim, co-founder of Sun Microsystems and many other game-changing companies. Whether it was time spent with him, or the news that Oracle was shutting down, I’ve been dwelling on a morbid thought: the death of a technology company.

Not a day goes by when I don’t say or hear the following:

  • Yahoo is dead.
  • Microsoft is so dead.
  • Nokia is dead.

Upon hearing me say this time and again, my friend Pip Coburn, a veteran technology investor and author of The Change Function, asked me, “What do you mean by a company being ‘dead?'” We had a long conversation, which he summed up in a newsletter to his clients.

Silicon Valley is all about the New New Thing that certainly no one aspires to gracefully age! A couple weeks ago at lunch my friend Om discussed that this company and that company were “dead.” I finally said “Hey, Om, how are you using this West Coast version of a company being ‘dead’ because the companies you just mentioned are large, still growing a touch and seem quite stable? On the East Coast we reserve “dead” for companies like Eastman Kodak or Circuit City. Do tell…”

My response to him was pretty simple — on the West Coast (or at least in Silicon Valley), we tend to live in the future. The present isn’t as interesting to most of us who live here, mostly because that would mean accepting the status quo. Instead, guys like Mark Zuckerberg and Jack Dorsey want to rearrange the world to fit the future they want to live in.

Because of this obsession with the future, we tend to get excited about companies long before they’ve proven their ideas, developed business models or generated revenues (never mind profits). The intellectual energy of a startup or a founder is what gets him/her millions of dollars for virtually nothing.

I told Pip:

We can tell when a company will no longer be involved in generating the next round of real energy in the tech/internet world, and when they hit that point, they never come back to be an energy creator and so they are “dead” in West Coast minds.

So when I (or someone around here) proclaim that Microsoft or Yahoo is dead, it doesn’t necessarily mean that the company is without revenues or without a business. Both Yahoo and Microsoft are making a ton of money and will do so for the foreseeable future. Microsoft makes so much money that it even gives dividends to its shareholders.

The idea of aging gracefully makes a lot of sense in general, but in the realm of technology it doesn’t make much sense. What about Oracle and IBM as examples of large undead companies, you might ask? I would argue that Oracle and IBM are outliers.

IBM, despite its size, has managed to reinvent and reboot itself many times — from a typewriter maker to mainframe computers to desktops to a services-driven company. IBM has used its massive R&D spending to become young again and again. The IBM of today is very different from the IBM I first started covering as a young reporter. Oracle is an exception mostly because of its leader, Larry Ellison, who is a businessperson at heart, and who knows technology and perfected a buy-and-grow strategy for his company.

What these two examples show is that even an older company can thrive if it:

  • Successfully reboots and redefines itself for the future, so it can attract the talent to get it to the future.
  • Is run by a technologically-savvy founder.

A technology company hits the “dead” phase when it’s unable to stop the bleeding of talent or attract the new talent it so desperately needs in order to create energy. The problem isn’t unique to large companies; even small startups hit that “dead” phase and lose their intellectual energy.

While bureaucracy and over-dependency on certain ideas is a problem for large companies, small companies often die because of a few primary reasons: lack of money, lack of leadership or lack of market. They are all intertwined.

If there’s no market, the money (revenues or venture capital) dries up, which means talent escapes to find new opportunities. Lack of leadership means lack of ability to make money and attract or retain talent. Lack of money — well, that means you don’t have the oxygen to stay alive.

Or as Pip said, “To paraphrase the immortal words of Billy Crystal in The Princess Bride, West Coast dead means still barely alive!”

[wufoo form=”z7m8z1″ username=”gigaom”]

8 Responses to “When Is a Tech Company Dead?”

  1. Please don’t lump us in the Northwest with you, especially those of us in Redmond. :) The company I work for put out something called Kinect a few months ago, and it’s the fastest selling consumer device of all time. That’s pretty solid for a dead company.

    I have a lingering issue with the tech press/pundits/bloggers/whatever. They suffer so much from shiny object syndrome that there’s virtually no skepticism, which does journalism a disservice (or whatever it’s supposed to be these days). They also tend to write a great deal about the “dead” companies, which seems pretty odd to me if they aren’t exciting.

    It’s just unfortunate that shiny object syndrome gets so much in the way of reporting on actual, sustainable businesses that are or will leave some lasting effect on the world. You can’t say the same about 98% of the crap the tech press reports on.

  2. Wow, talk about oversimplified. People thought Apple was dead in the 90’s, and it almost was. Microsoft is “dead,” but they released perhaps the most innovative product of 2010 with the Kindle. Nokia went from being a paper company to the world’s leading phone manufacturer.

    How boring would business, and life, be if there were no second acts? Looking forward is one of the things I love about the tech world, but let’s not pretend that we know how things will turn out.

    • Good point. How about adding multiple states and think this as a nice transition.

      Cool -> Alive -> Near Dead -> Second Life

      Near Dead -> Dead for Good (zillions of them)

      Near Dead -> Second Life -> Cool (Apple)

      Microsoft, Nokia etc are not cool, but they are Alive and well for most part.

  3. I don’t disagree, but I guess I have trouble with how the silicon valley vocabulary correlates with real words. Dead != Dead ~= No Energy, is a little cryptic. Especially if the co in question still has truckloads of talent in house working in lots of markets, and reliably takes in serious money.

    It pains me a little to say this as I’m (admittedly) a bit of an MSFT hater on geek-grounds, but I just don’t see them as ‘dead’. Maybe I’m just being too short-sighted.

  4. Taking a cue from Intel’s Andy Grove, a tech company is dead when it’s at it’s supposed peak and unable to see how a new type of competitor will damage its core business despite starting from a seemingly unrelated sector. e.g. Google > Microsoft and perhaps Facebook > Google.

    Sometimes the incumbent wins by strategy (fair or otherwise) e.g. Microsoft > Netscape, but often they are too entrenched to change. And while the incumbent will remain relevant for some time to come they will no longer drive the future of tech.

    • madhavshivpuri

      I don’t think that Microsoft is dead. It also does not have its head in the sand. They are experimenting like any true competition should. However when they succeed they get the market share and when they don’t its back to the drawing board, but a company is not dead till it gives up. I believe that Microsoft is still big in the enterprise products business irrespective of whether the cool crowd think so or not. Get annuity for Windows, Office etc from 90% of the enterprises is not the same as free search. Its a different business model.

  5. OM, there is also a “trend” aspect to it. Just like in fashion. I mean today, you got to be somehow social or cloudy with a tablet… If you’re not, you’re dead. Also, companies are de-facto “dead” no matter what they do when a new kid on the block enters the game – today FB, Twitter, Zynga, Groupon, etc… Like you said, Oracle and IBM keep thriving. Especially IBM. They do it like crazy. Look at the Watson computer for instance… If applied to search, well, even Google could be in trouble, BIG TIME. But no ones seem to care.