So what exactly is a tech company?

Silicon Valley & The Scent of Money

Alex Payne, formerly of Twitter and and more recently of Simple, a banking service! asks the all-important question: What is and is not a technology company:

It’s now accepted-going-on-cliché to say things like ‘software is eating the world’, which is an aggressive way of assuming that every company now has to be at least a bit of a technology company, and those that want to grow rapidly even more so. Many new companies targeting industries as diverse as eyeglasses and baby food are, at the outset, leveraging technology for everything they do: supply chain management, marketing, recruiting, internal communication, product development, and so on. This makes these businesses look like technology companies, if you squint. But, of course, they aren’t. They’re eyeglasses and baby food companies.

Now that every growing business requires significant competence in technology to succeed, the distinction is even blurrier. Is a company that has staff members with ‘programmer’ or ‘engineer’ in their titles a technology company? Are they a technology company if they were funded by venture capitalists who have previously funded businesses that we think of as technology companies? Are they a technology company if their founder was using a laptop when she came up with the idea for the business?

‘Tech company’ and ‘tech startup’ are over-applied labels that have outlived their usefulness. Calling practically all growing contemporary businesses ‘technology companies’ is about as useful as calling the enterprises of the industrial era ‘factory companies’; it accurately describes an aspect of what they are (or were), but it doesn’t really capture the totality of their operation. It certainly doesn’t tell you anything substantive about how they’ll behave in the market over the long term, which is probably the most useful reason to label a business at all.

I think he is right in asking this question. I am old fashioned like that and believe there is a huge difference in technology and tech-enabled companies. Facebook is both. Twitter, too is both. Arista Networks is a technology company and so is Nimbula.

However, the very idea that Groupon or Birchbox are technology companies confounds me. Just as never made sense to me as a technology company. Or even Exodus, a data center real estate company posing as a technology company.

Just like anyone else, I like buying stuff from all these new e-commerce companies and will continue to favor them over their offline counterparts, but to value them differently from a retail business doesn’t make much sense. Sure, investors should give them a premium for being more efficient than their lumbering offline counterparts, but to label and value them as technology companies — give me a break!

Groupon’s year-to-date stock performance.




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