What even is a “Tech Company”?
If you’re in the field of engineering, be it software, hardware, machinery, industry or whatever, you’ve certainly came across companies identifying theirselves as a “tech company”. When people hear “tech company” they mostly think of Steve Jobs, Steve Wozniak, Bill Gates, Paul Allen, Larry Ellison and many other successful businessmen of the early ages in Silicon Valley. They probably think about software engineers, computers, hardware and all the modern technology associated with Silicon Valley.
But what even is a “tech company” or technology company as Wikipedia describes it and defines it? What actually makes a technology company and how can you identify such a company?
“A technology company (or tech company) is an electronics-based technology company, including, for example, business relating to digital electronics, software, and internet-related services, such as e-commerce services.”
— Wikipedia article “Technology Company”
Let’s be honest: that article is not just extremely short, but also extremely vague. “Any business relating to internet-related services” is pretty much every business in the 21st century. Going by this definition, the local bakery around the corner would be defined as a “tech company”, because they have a website and are listed in Google and Facebook.
Luckily, we don’t just have Wikipedia to identify what the nature of a companies business is. There’s ISO 18245 in the financial services industry that defines the type of business a merchant is engaged in. It contains a full list of all available “merchant categories”. Searching through the list clearly shows you that the term “technology” does not appear. Software and hardware vendors mostly fall into the the merchant categories of “Computer” and “Software” or “Telecommunications”.
Someone operating an e-commerce store or online shop for clothing, wouldn’t fall into the software or computer category, but in the “Men’s and Women’s Clothing” category. The merchant category for Uber is “Travel”, “Transportation” or “Dining” in case of Uber Eats. While some would identify a business like Uber as a tech company, it actually is in the business of transportation and dining as much as any New York taxi driver or café is.
But why would you care?
A type of business, category or industry a company operates in defines the way the company works, what processes and regulations it must follow and what employees are doing on a daily basis. As a customer, a supplier or as an employee you would want to know what you can expect and whats associated with it. If you’re a software engineer for example, working for a software company is different than working for a retail company focused on e-commerce. E-commerce retail companies usually don’t ship their software to customers, apart from their online shopping websites and apps. The experience of working for an e-commerce company is very different than working for a software company.
The financials and operations of a retail or a transportation company look entirely different than those of a computer hardware or software manufacturer. Computers and software aren’t the core business of an e-commerce company, they are an important neccessity but not the main product or service. While a software or hardware manufacturer’s main product is their software or their hardware.
Why do they call themseleves “tech” then?
While its an individual decision of a retail or transportation company to identify itself as a “tech company”, there’s of course a trend behind it. Especially software businesses are some of the most profitable types of businesses out there, getting very close to the profitability of the finance industry.
The salaries of software and hardware manufacturers are also relatively high as they need to employ well educated and experienced engineers. All this led to a high popularity of the software and computer industry that reaches well beyond experienced engineers. Especially the high salaries have attracted a lot of people that did not start in the software industry and do not have an engineering background.
That popularity has led a number of businesses to identify as a “tech company”. Be it to impress their shareholders, attract potential employees or post a more modern image of theirselves in front of their customers. This leads to quite some confusion when every business identifies itself as a tech company, merely because they have a website or a computer somewhere.
What actually is a technology company?
Most software or hardware companies are identified as a “Tech Company” by outsiders or the media. The term “Big Tech” or “Tech Giants” often describes companies like Apple, Microsoft, Amazon, Google or Facebook. Apple, Microsoft, Amazon and Google all build software or hardware that you can license, buy or rent.
Google’s search engine and Facebook’s platforms however aren’t in the software category as these are advertising and publishing services. While Google’s Android is an operating system and thus a pure software product. Through the Google Cloud Platform it also provides infrastructure services and allows you to rent compute, networking services or storage.
The same goes for Amazon with Amazon Web Services, their Kindle and Fire devices. Regarding Amazon’s e-commerce business, that counts as a retail business. The company however is so large that, as many large companies, it spreads across several types of businesses and industries.
Amazon is, without a doubt, a tech company building software and computer hardware and they also include a giant retail business. Just because Amazon is a technology company, does not mean everyone running an e-commerce site is also a technology company.
What a technology company looks like
Fore the sake of simplicity, I’ll focus on the software part and leave the hardware a little aside. Software companies are very precisely defined in Wikipedia and are easy to identify.
A software company is a company whose primary products are various forms of software, software technology, distribution, and software product development. They make up the software industry.
A software company designs and builds software which it then ships to its customers. That cane be standard software or custom-built. Customers can download and license a software product or rent it in combination with infrastructure. The latter is defined as Software-as-a-Service were the software vendor also operates the software on behalf of the customer and the customer pays usage fees often in the form of monthly subscription cost.
The key challenge of a software business is high research & development cost, a high risk factor in development which is comparable to the development risk factors in pharmaceutical development, high cost for qualified and experienced engineers as well as products that are constantly updated and constantly shipped to customers. That makes their operations, their nature of business and their organizational structures entirely different to retail, transportation or other industries.
If a company does not employ engineers, does not have a high share of engineers in their management and does not have high research & development cost in its books, it is highly likely not a tech company.
Are car manufacturers tech companies then?
If you’ve read the above carefully, then you might have realized that the above almost entirely applies to car manufacturers like VW, BMW, Mercedes Benz, Ford, Tesla or Toyota. And there’s a solid reason to ask if BMW is more of a tech company than Netflix. Netflix is essentially a media production and publishing or broadcasting company. Netflix does not openly license or rent its software to others. Software is not Netflix’ main business and software is not the main business of most e-commerce companies.
BMW on the other hand produces an enormous amount of software and hardware powered by microprocessors and tons of chipsets. A modern car is essentially a computer on wheels. The MIT states that “Many Cars Have a Hundred Million Lines of Code”. That software runs on dozens of microprocessors in various computers inside the car. Ranging from the Engine Control Unit (ECU) to the In-Car Entertainment (ICE).
The only difference between a fully electric BMW and an iPhone is that the iPhone is lacking the wheels to drive and has fewer microprocessors. The same goes for any vehicle or aircraft manufacturer. Airbus and Boeing have the same challenges on a massively larger scale.
Final thoughts on what a “Tech Company” is.
It certainly seems to be en vogue to be a technology company and calling yourself a “tech company” while you’re actually shipping male underwear. However, technology companies actually ship technology.
When a company claims to be a “tech company” you can simply ask “what technology does it ship to its customers?”. If it’s not software or hardware with circuits and tons of microprocessors, it’s highly likely that it’s not really a technology company.