(https://stratechery.com/2019/what-is-a-tech-company/)
“Software’s are used by all companies, but it completely transforms Tech Company and should reshape consideration of their long term upside – and down”
This article is written down by Ben Thompson. He is an American business, technology, and media analyst, who is based in Taiwan. He is the author of Stratechery, a subscription-based newsletter/podcast featuring commentary on tech and media news.
Company which creates, builds or provide the service of that particular software is the one that is a tech company.
The Author stated a question in front which was “what is a tech company?” Later on, he started with examples of two companies WeWork and Peloton – one company who rents the empty building and converts them into office space and the other sells home fitness equipment and streaming classes.
So he asked, is this a tech company?
He states that it is fair to ask “what isn’t a tech company?” and this will be the endpoint of Software Eating the World. To classify a company as tech if it uses software is an unhelpful idea.
50 years ago the answer to this question was only one company which was IBM. They built the hardware, the software, the coding also the operating system on their own so it was called the only Tech company in those days.
Almost all companies in every industry were using IBM software for their daily running of the business. Which increased the efficiency of activities and making the new king of activities possible. Increased efficiency and business opportunities didn’t make other businesses a tech company. Companies were only differentiated on basis of if they use computers or not. So during that time, IBM built his ecosystem around the technology.
Venture Capital and Zero Marginal Costs
Then, later on, it highlighted on some critical factors which make a tech company unique which are the zero marginal cost nature of software and venture capital which was used to provide money to companies to effectively use it for infinite returns.
Internet and Renewable source of energy are examples of zero marginal cost.
Microsoft is a software company which provides unique software for PC’s and so they had zero marginal cost for the software. So they focused on building different versions of it.
Zero Transaction Costs
Companies which directly launch their software’s on the internet and give free trials to use it. And after the trial period gets over a person can purchase it by paying some monthly or yearly charges. So there is zero marginal cost as well as there is zero transaction cost as the company did not call any customer to buy the software or did not invest for marketing purpose.
E.g. – Office 365, Netflix, Hotstar, other OTT platforms
“These are the characteristics of the centrality of software.”
- The software creates ecosystems.
- The software has zero marginal costs.
- The software improves over time.
- The software offers infinite leverage.
- The software enables zero transaction costs.
Now different companies are been substituted in these characteristics to know whether a company is a tech company or not. examples like Netflix, Uber, Air BnB which were all tech companies according to these characteristics.
Disruption
The term technology is old the author says. Disruptive technology is an innovation that changes the way that consumers, industries, or businesses operate. Disruptive technology wholly changes systems or habits because it has recognizably superior attributes.
In short, the disruptive technology replaces the whole can say software and it is much cheaper, simpler, smaller to use. The sustaining technology makes the existing firms better but the disruptive technology changes the competitive language.
Thanks for Reading!!!
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