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Business From the Magazine

Too Bad You’re Not a Tech Company

(Illustration: Emmanuel Polanco for Techonomy)

In January of 2000, America Online merged with Time Warner in a deal that valued the combined company at $350 billion. AOL, the tech company that dominated the dial-up era, used a stock that was worth twice that of Time Warner, the legacy media company, though it had less than half the cash.

Soon after the merger, the dot-com bubble burst, the broader economy went into recession, and AOL-Time Warner was just a media company, and an old-school one at that. New broadband providers already offered better technology. The company took a write-off of nearly $99 billion in 2002 and its stock eventually fell all the way to $20 billion.

Today, AOL-Time Warner is the poster child for what can go wrong in a merger. But it also shows what can happen when a tech company loses that designation and all its privileges.

As the current crop of internet giants and unicorns relentlessly push often-uncomfortable boundaries, they position themselves as technology platforms free to operate outside the norms and constraints of legacy competitors. But at the same time, companies in every industry are embracing transformative technologies, speed to market, and new business models as keys to their survival.

What is a tech company?

It all raises a question: “What is a technology company?” Strictly speaking, it should mean a business that principally sells technology or technology services. Unambiguous tech companies include IBM, Oracle, Cisco, and Intel, for instance. By this definition, of the big five internet-era giants — Amazon, Apple, Facebook, Google, and Microsoft — only Apple and Microsoft are actually tech companies.

But to be a tech company brings with it a cultural cache, a license from Wall Street to spend freely, and enjoy an outsized valuation on the presumption of near-endless growth, and permission from society to break established rules.

Tech is at the very core of many insurgents in industries including taxis, news distribution, grocery, or payroll services, just to name a few. Easy-to-use mobile applications confer a competitive advantage on prominent successes including Uber, Lyft and Airbnb. They, too, call themselves technology “platforms.” But isn’t tech equally critical to companies like FedEx, Comcast, and Marriott, considered respectively to be in logistics, media, and hospitality? Such “non-tech” companies get little special consideration from Wall Street, lack generous valuations that make capital cheap, and may feel like dinosaurs to recruits and customers.

Traditional industry distinctions, too, are becoming blurred as companies take on multiple revenue streams and enter new markets. Amazon is no longer just a humble bookseller but rather a retailer, media company, services colossus, grocer, and even a healthcare company.

The mythology of the tech company puts a premium on speed. To be one signifies an innovation mindset. It suggests risk-taking, the potential for industry domination, and a reliance on software created by engineers. These champions of “agile development” turn their backs on old-fashioned waterfall workflows and five-year planning cycles.

But today, so does everybody else. There is no well-run business that is not racing to keep up with the pace of change, recruiting tech talent, and retooling business models.

You are what you do

So, what happens when we peel away the “tech company” label? What happens when companies are defined by what they do, not by how they do it, and are scrutinized by parties who do not adore them?

Late last year, the European Union’s highest court began to suggest an answer. It ruled that Uber was nothing more than a transportation business. “The service provided by Uber is more than an intermediation service,” the judges said. “The ride-booking company must be classified as ‘a service in the field of transport.’” It must, therefore, employ licensed taxi drivers and meet strict safety regulations.

What kind of company Facebook is has become a subject of intense dispute. In 2014 Mark Zuckerberg called it “a perfect personalized newspaper,” in other words, a media company. That would suggest it has a responsibility for its content. The remark was a notable deviation from Facebook’s usual positioning that it is a mere platform, which its executives see as inoculating it from the regulatory restraints that come with being a media company. Now Facebook is being told to take responsibility for content as part of the full-blown backlash buffeting it in the aftermath of the 2016 U.S. presidential election, when Russians and other manipulators used the social network to distribute “fake news” aiming to alter the election’s outcome.

In October 2017, Facebook Chief Operating Officer Sheryl Sandberg took one giant step back: “At our heart, we’re a tech company,” she told Axios. “We hire engineers. We don’t hire reporters. No one is a journalist. We don’t cover the news.”

This “neutral platform” defense landed with a thud. Zuckerberg himself then pivoted. As 2018 began, he vowed to “fix” the company, making his personal challenge for the year “protecting our community from abuse and hate, defending against interference by nation states, [and] making sure that time spent on Facebook is time well-spent.” But he framed the challenge as a technical one, saying the company would now emphasize content from a user’s friends over news articles and marketing material.

Zuckerberg’s pivots ignored the engine that drives its revenue: advertising. Much as Facebook may want to avoid being grouped with media companies, it enjoys enormous profit using media’s business model — a choice that has exposed the platform to widespread abuse. And since the backlash following the Facebook data breach, the company’s schizophrenia on the subject of what exactly it is has been on public display.

Eroding trust

Clearly, it’s convenient to be considered a tech company. But even the general public appears to have stopped buying the mythology. This year’s Edelman Trust Barometer, announced in early 2018, showed that people worldwide think social platforms and search engines are part of “the media,” right beside traditional journalists and news organizations. What’s more, trust in traditional journalism was up, while trust in platforms was down — dramatically. Nearly half of those surveyed said they did not trust the platforms, even as 65 percent said they rely on them for news. In a separate study, conducted by Quartz last summer, nearly 80 percent of respondents from around the world said they did not trust Facebook with their personal data. Some regulators now see that decline in trust, combined with the real dangers of electoral manipulation, as an opening to scrutinize big tech’s business practices.

The threat of regulation for the net giants is real. They have reached their lofty, quasi-monopoly positions thanks in part to legal exemptions, tax breaks, and minimal accountability for what takes place on their platforms. Regulation has been lax because that was seen to encourage innovation.

Now, as the companies try to protect their dominance and continue to grow, they are increasingly seen as a barrier to innovation. They are snapping up adjacent companies and leaving much of the rest of the economy little choice but to utilize their services as critical infrastructure. As a result, in 2018 no less than Bill Gates, who knows something about the threat of regulation, warned the net giants that they could bring government intervention on themselves. And pure tech company IBM, viewing regulation as a way to even the playing field, is advocating for legislation to regulate digital ads and to keep liability protections out of new trade agreements — proposals aimed directly at the social platforms.

Perhaps the “tech” designation is losing some of its superpower. That would be welcome news for numerous “non-tech” direct competitors who must play by a different set of rules, especially in the media and retail.

Is being a “tech company” keyed to a company’s culture? Its industry? Its business model? The meaning of such distinctions is diminishing. Today every company relies on technology, even as the global growth of new tech-enabled models is creating vast new challenges for society. It is time to retire the idea that high-growth, tech-driven companies are in a special class. The rules and responsibilities of society should apply to everyone.

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