When is a “technology” company not a technology company?

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.


About dmill96

old fat (but now getting trim and fit) guy, who used to create software in Silicon Valley (almost before it was called that), who used to go backpacking and bicycling and cross-country skiing and now geodashes, drives AWD in Wyoming, takes pictures, and writes long blog posts and does xizquvjyk.
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5 Responses to When is a “technology” company not a technology company?

  1. amrelitech says:

    I think we define “technology companies” as any company that exists in the digital sphere or is somehow involved in electronics.

    • dmill96 says:

      Understood and I agree that’s largely how it is defined, but the exception I was taking is perhaps old vs new. I first became involved in “tech” (as an industry) in 1966 and most companies (almost all funded by venture capital) were actually developing some new technology, not just applying existing technology to a new (and most social media isn’t even “new”) purpose. Technology companies that actually invent something that never existed are run differently and by different types of people. Some new way to display ads is a company run by marketing people and its purpose is solely to make money. Most tech companies were run (or of) real geeks who loved inventing new toys and the money was secondary. This difference in mindset of the people involved is the distinction I’m making. Today writing computer programs, esp. scripts, is no more “tech” than driving a car or sending an email.

      • amrelitech says:

        So then how do you propose we define those companies which in your opinion is not purely “tech”?There is a link between them in the minds of the general public, how should they be classified?

  2. douq says:

    Thanks for the interesting question, but for the companies sometimes labeled as tech there may not be a single answer. For instance, many would label Groupon as tech, but they’re really doing something similar to yellow pages (in terms of how they sell to merchants) and then they’re just using the net to do coupon, which you could do many other ways. Some would label Twitter as tech, but they (and other discussion forums) are simply using digital communications to put up message boards which are as old as the hill; of course, they’re more global than a conventional hardcopy board but again that’s using the technology, invented by others, to have global reach (so, for instance, Cisco with routers, various producers of optical components and fiber for communications, BBN did the tech). Even this blog is as old as the hills, before TV and radio, printed essays and circulars lead the discussion, now WordPress is just using web servers (and underlying server hardware and software), PHP, the Net to distribute the material. The majority of the latest “Web 2.0” “technology” is really just utilizing what already existed to perform tasks that had already be done without those technologies. So it’s clearer what tech is that what it isn’t.

  3. dmill96 says:

    Here’s a perfect example. TechCrunch in its usual euphoria for even the most trivial development hails the brilliant accomplishment that Instagram will now geotag its photos and put them on a map. Oh, the brilliance of it, something done over a decade ago now comes to a “high tech” company. Of course the whole idea of Instagram was already done over three decades ago, but who’s counting. The kiddies think Instagram is inventing radical new stuff, how amazing! http://techcrunch.com/2012/08/16/instagram-3-0-bets-big-on-geolocation-with-photo-maps-letting-you-showcase-the-story-behind-your-photos/ Yet another non-tech company that is just looking to rev up its business model and head to IPO heaven with TechCrunch cheering all the way.

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