The definition of a technology company might seem obvious, but when you stop to think about it, it becomes increasingly complex and challenging to pin down.
As industries embrace more digitalization and automation, they are fueling an ongoing debate about the distinction between a technology company and a technology-enabled company. The lines are becoming blurred, especially as some companies that start in one position gradually evolve into technology innovators as they develop proprietary solutions and technologies.
The Tech Company Debate
On the face of it, a technology company makes money by selling technology or the use of technology.
Examples of pure-play technology companies include Cisco, Microsoft, Apple, and Google. These all generate revenues from selling hardware, software, or the use of their technology platforms. Companies in traditional industries such as finance, healthcare, or manufacturing that use technology for process optimization, data analytics, or customer relationship management are typically considered to be tech-enabled.
However, the emergence of online services like Airbnb, Uber, Lyft, and so on has made the definition more complex. Airbnb provides accommodation through its platform but does not own a single property, Uber provides transport services without owning any cars. Technology is at the core of what they do. Are they tech companies or tech-enabled companies?
Tesla has blurred the lines between a car company and a technology company even further. It’s stock valuation of around $809.03 billion places it much closer to technology companies like Amazon at $1.6 trillion and Facebook owner Meta at $909.96 billion than automakers Ford, General Motors, and Honda, which all carry valuations of around $49 billion.
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In banking, there is a whole raft of systems and services that are technology-driven, and there is a shift towards integrating more software and artificial intelligence (AI) systems.
“Most of us started off working for a financial services firm, and then we realized at some point we were working in a kind of technology business, and now we’ve heard that it’s actually going to be an AI business,” said Richard Jones, Head of Investment Risk Analysis – UK and Senior Expert Risk Manager at AXA Investment Managers, at the recent Fintech Connect conference in London.
“And by the way, that’s all built on data, so we better hope we’ve got a good data management business that we’re working for because that’s going to be really critical.”
As more companies place technology stacks at the heart of their service businesses, incorporating software platforms, blockchains, Internet of Things (IoT) devices, mobile apps, and AI into their offerings to customers, the question of what a technology company is becomes more complicated.
This also means that the number of tech roles in non-tech businesses is set to expand – for example, blockchain strategy leaders at telco firms or digital asset heads at traditional banks.
READ MORE: What Top Telco Leaders Predict For 2024
Co-working office space provider WeWork famously fired up the debate by filing a $47 billion initial public offering (IPO) in 2019 despite reporting losses of $1.6 billion on revenues of $1.8 billion – valuing it in line with a tech company rather than a commercial real estate firm.
Its failed stock exchange listing in 2019 and subsequent bankruptcy in 2023 indicated that the critics were correct in arguing it is not a true tech company.
So why could a company like Airbnb be considered a tech firm while WeWork would not?
Tech Companies vs Tech-Enabled Companies
If a tech company is defined as developing tech products and services for sale as its core business, a tech-enabled company is defined as not doing the building but using those technologies to facilitate or enhance its operations.
A tech company focuses on the development and application of new technologies, whereas a tech-enabled company primarily operates within a specific industry but strategically deploys tech solutions to improve its business processes and customer experience. For a tech-enabled company, its core business is the source of its value, and the technology is a means to achieve its broader business objectives.
While a tech company sells its tech, a tech-enabled company uses tech as a tool. This is why Tesla, which is vertically integrated and develops and produces its own batteries, car parts, electric cars, and software, can be characterized as a tech company, while WeWork, which purchases long-term leases from commercial landlords and rents out short-term leases to tenants through its online platform, may be considered tech-enabled.
Some of the characteristics of a tech company include:
- Low capital costs
- Asset light
- Ability to expand at a low cost
- Network effects that improve the customer experience
- User data collection enables personalization
A technology company continuously evolves and is driven by a culture of experimentation, risk-taking, and a willingness to challenge the status quo. A tech-enabled company may introduce innovation in its operational processes, but innovation in and of itself is not the primary goal and occurs within the boundaries of its business model.
Companies like Meta and LinkedIn have scalable virtual models that can expand their markets and revenues exponentially while requiring limited expansion to their balance sheet assets. This is in contrast to companies like Ford or Walmart, which have to invest in tangible assets such as land, factories, warehouses, and so on to expand their businesses.
Tech-enabled companies may have higher capital costs and require more assets on their balance sheets than true tech companies. For instance, WeWork’s costs include rent, utilities, office furnishings, maintenance, building insurance, and security. Its rental properties are capital assets on its balance sheet.
Tech companies create ecosystems with partners that allow them to launch new products and services. For instance, Amazon sells third-party apps and music through its Echo device using its own payment services. Uber has expanded from providing taxi services to restaurant delivery, grocery delivery, train tickets, and flight bookings through the proprietary software platform that powers its apps. Yet, some observers argue that Uber is a tech-enabled operations company rather than a tech company, as it does not sell its technology.
So, although there are some differences between tech and tech-enabled companies, the distinction is not completely black and white. Between non-technical companies and technology companies, there is a spectrum of tech-motivated and tech-enabled companies.
Image source: LinkedIn
Tech-motivated companies may be non-tech companies that recognize the need to leverage technology to streamline their operations and increase efficiency, creating a competitive advantage.
Tech-enabled companies have emerged in the digital era with technology at the core of their businesses, disrupting existing industries by creating new approaches and building highly efficient operations. Some of these companies, such as WeWork or prescription eyeglasses retailer Warby Parker, are clearly tech-enabled, while others, such as Uber blur the lines between tech-enabled and tech companies. Tech companies are differentiated by the fact that their core product or service is the hardware or software technology they create.
Amazon, which started as an online bookseller, might be considered a tech-enabled company that made the transition to a tech company by not only using tech to sell the products in its warehouses but by launching its Amazon Web Services cloud computing platform as well as hardware devices including the Kindle, Echo and Dot.
The distinction between a technology company and a tech-enabled company is becoming more complex as industries navigate an increasingly digital environment. Companies may evolve over time, starting as tech-enabled and gradually becoming tech innovators as they develop proprietary solutions and products. The debate over the nuances that distinguish a tech company and a tech-enabled company is likely to escalate as new technologies, such as AI and blockchain, achieve wider adoption.