Most analysts usually talk about the business side of things when discussing tech companies and hardly glance at the tech. They indeed have fascinating insights about the tech companies, and I always genuinely enjoyed knowing them. I use them in my models when thinking about technology. But, as an engineer, I always thought that these investigations are missing how part of technology. It’s not that they don’t want to talk about it, but I assume most of them are not sufficiently informed.
This missing piece in tech analysis always kept me awake, and I had jotted down some opinions to share it someday and what’s the best time than now.
So what is a tech company?
It’s clear from the business that a tech company has zero marginal cost, zero transactional costs, and has limitless upside, of course, with a hefty upfront fee.
Ben Thompson is his popular article What is a tech company demonstrates that very accurately;
Software creates ecosystems.
Software has zero marginal costs.
Software improves over time.
Software offers infinite leverage.
Software enables zero transaction costs.
I agree with most of it, and how can we materialize a piece of code into something that can embody these characteristics.
In very well known computer science book “Structure and Interpretation of Computer Programs,” computational processes are described as;
“… abstract beings that inhabit computers. As they evolve, processes manipulate other abstract things called data. The evolution of a process is directed by a pattern of rules called a program. People create programs to direct processes.”
Drawing analogies from this very standard reference, the software is nothing but data and rules. It’s not your website, mobile app, etc. To understand it better, let’s apply the inversion model; you’re not a tech company if you have a website or a mobile app.
Let’s dig into it.
Channel agnostic systems
Most of the software, in essence, is some UI (channel) in the form of a website, mobile app, wearable, or an AR/VR layered over a very well-defined data models and relations that are highly specific to the business.
If you think about it, the real technology here is the relations and models you build with data that is highly specific to the business. These models and relationships are often agnostic to the channel. Of course, to begin with, you need to pick one channel, but that’s not the end.
The fact is, these channels are always changing; since the inception of cloud computing, which made the internet more powerful and useful, we transitioned from using PCs to mobile to wearables and heading towards AR/VR. A tech company develops data and designs relations and models to be accessible over any channel with minimal changes.
Once you design your tech in that way accessible over any channel with minimal changes, you can spend all your time and resources in making it available to more people on diverse channels. The faster, the better, moving more quickly gives you the first-mover of the value advantage, and in the process, sometimes you get to set the industry standards and ride on the trends.
Integrations come in to play to enable this speed and growth. With minimal changes, you can confidently promise a consistent behavior, which encourages a lot of small players to rely upon you. It allows everyone to participate positively and partner with you. Remember, partnerships are better than the competition; it’s easy too.
Modeling and forecasting
As the system gets used a lot, you observe various behaviors and processes tagged to a specific collection of users. This database of users with particular behavior unveils new opportunities to explore.
Exploration is non-deterministic; in most cases, it’s not cheap, and sometimes it’s irreversible. Technology makes it less expensive and comfortable.
The software allows you to model or represent some aspect of the real world with existing data and forecast different versions of it to get different vantage points, which makes exploration cheaper and more fun; the only limitation is your ability to imagine.
It’s a very well known fact that the repeated exhibition of core competencies is a result of the processification of decision making. In an ever-evolving business, teams grow, responsibility shrinks, and the ownership fades away, and it dilutes this knowledge of the process.
Throughout history, we’ve seen events that adequately proved that process knowledge deteriorates over time and every business that relied on people to master these processes faded.
But in a tech company, along with systemizing decision making, the information we use is represented in a digital form. Ultimately, this allows us to automate the process itself as long as the shape of the input is uniform. The best part of this automation? It will enable us to fail fast, cheaply, and improve.
Once this is in place, you are ready to work on strategies that can leverage network-effects and have innovative business models to accomplish increasing returns and that’s what makes you a tech company.
That being said, this always starts with a business goal, a vision larger than life, and then we all work backward to accomplish it. You don’t look for problems that your marvelous technology can solve, your technology is a solution to the problems that already exist to which people want a solution and cannot resolve it on their own.