Don’t believe the hype: These 5 ingredients make “tech” companies
As a long-time tech journalist, I’ve noticed an interesting trend over the years. Companies who aren’t really tech companies will call themselves that anyway.
This is because “tech” is a lot like “new,” “free,” or “sale.” These words get people’s attention. So a lot of companies say they’re “tech” for the free publicity.
One such company is WeWork, a real-estate company that leases short and long-term office space stocked with free beer, cool lighting, and a community-for-hire for remote workers like myself.
In one of the most criticized filings I have ever seen, WeWork used the word “tech” 123 times in their paperwork, while disclosing billions in losses, gaudy conflicts of interest, and ridiculous phrases like this: “We dedicate this to the energy of we — greater than any one of us, but inside all of us.”
Understandably, most bankers and investors and analysts are calling the filing a “masterpiece of obfuscation,” which is something WeWork needs to justify its $47 billion dollar valuation on $2 billion in negative annual income.
Meanwhile, its largest competitor, IWG, generated nearly twice as much revenue last year ($3.4 billion versus $1.8 billion) and turned a profit of $600 million to WeWork’s negative $2 billion. Nevertheless, this healthier and bigger company, which refers to itself as a real estate company, is only valued at $3.7 billion.
And that’s the real reason companies call themselves “tech.” Like the emperor’s new clothes or Tulip mania before it, hype hysteria and the large sums of money associated with it is alive and well.
So what makes a real tech company then? Harvard says you need at least one but preferably several of the following five ingredients, of which WeWork has none:
- Low variable costs (i.e. cheap to grow such as selling more software without incurring anymore development or physical costs)
- Low capital investments (such as not having to buy lots of equipment or real-estate)
- Customer intelligence (think Google knowing what, when, and how you like to browse and shop online)
- The network effect (which I wrote about before and makes something more valuable as more people join the network, i.e. cell phones and Facebook)
- Expanding ecosystems (such as Amazon’s ability to cheaply sell personal assistants called Alexas that add value to users while helping Amazon sell more stuff)
Fun fact: De facto tech companies such as Amazon, Tesla, and Apple meet three of the five criteria.
The more you know.