For decades a pet peeve of mine is the tendency of the press to label any startup that is within a country mile of using computers (or now the Internet) in its business as a “technology company.” This gross mislabeling is even more common today as most of the social media (or Web 2.0) doesn’t even come close to being “technology.” This rant from Bloomberg falls for this misconception:
Facebook now joins a growing list of recent technology IPOs, including Groupon and Zynga, that have disappointed investors in ways that sent their stock prices reeling.
What is about Groupon they think is a technology company? Groupon has an army of people trying to sell local business promotions, just like the old Yellow Pages model, and then a web site to sell unsuspecting users “bargains”. Where is the technology? Zynga makes games and just lives in the Facebook programming model. And Facebook itself, just shuffling around some data to compose pages on-the-fly, built on existing database and active server technology – where is the technology? Using technology is not the same as creating technology.
Somebody builds a store somewhere to sell stuff. Is the store a “construction” company because it was constructed? Is it a “transportation” company because it distributes stuff? Is it a “financial” company because it handles money and credit? No, the store is a business to sell stuff that uses (NOT creates) some technology to accomplish its mission.
So quickly now – tell me what “technology” Facebook, Groupon or Zygna invented. OTOH, tell me what technology they just bought from someone else and adapted to sell what they’re selling.
See my point (if not, you really need try to learn what technology is). Is someone who uses Photoshop or Instagram inventing image processing technology? (Come on, if you think you are, tell me what a convolution is). Is someone who uses MSWord inventing typography technology? (Come on, if you think you are, tell exactly what tracking is and what blues are). Is someone who drives a car, or someone who fixes a car, inventing automotive technology? (Come on, quickly tell me what intercooling is).
Technology is responsible for most of the economic growth since we crawled out of the slime. (Sorry capitalist – capital is not the driver, just an enabler) And since WWII it has been a major driver in creating new equity wealth via new companies. So naturally everyone wants to bask in its glow, but, sorry, most “technology” companies are not technology companies. They just use existing pieces and put them together, no different than a store made out of bricks and mortar, wiring and plumbing, paint and glass is not inventing new materials or construction infrastructure.
There are real technology companies who actually do R&D (emphasis on ‘R’) and invent new things that change the world and create the environment for other new companies to exploit. There are semi-technology companies, like Apple, that contract out invention to others (you really think it was Apple who invented the Retina display or just adapted it from someone else). Only a few companies actually develop new technology and even many of those are merely incrementally changing existing technology or doing integration.
A technology company is very difficult to get right. So is a marketing company. The skills needed to be a great technology company are different than the skills needed to be a great marketing company. I don’t care how much code Zuckerberg hacked, Facebook is a marketing company and Zuckerberg hasn’t invented anything.
Does this distinction matter? I think it does, because if you’re an investor and you think Facebook is a technology company then you need to evaluate how it runs itself, who’s in charge, what kind of people do they have, etc. OTOH, if you realize it’s a marketing company then you need to do that same analysis but from a different perspective. So all the criticism of Facebook centers on the scummy IPO tricks they did and now missing their numbers, but neither is a surprise to me, because the conventional wisdom has incorrectly labeled Facebook a technology company and looks at it through that perspective, but then expects financial results a marketing company would produce. That dissonant view is the source of frustration by the financial types but if they would get it straight what Facebook is (just like they really know they’re not finance and are really just a Ponzi scheme) they might understand what is going on.