Recently, I’ve read a few articles around the topic of “what is a tech company”, and I think this is more than just a debate around semantics. Ben Thompson writes in length about this here, and Ben Evans previously introduced his mental framework around questions in this piece on Netflix; “are the important questions tech questions or TV questions?”.
Historically, tech investing has given outsized returns to a lot of skilled/lucky investors. Tech introduced a significantly better way to do a lot of things, and given that most competitors were non-tech companies, just being a tech company was a strong differentiator and a reason to capture part of the value that was created.
Gradually, more and more companies have become tech companies. What was previously a differentiator is now a commodity and table-stakes. From an investment perspective, this means that the question gradually moves from “can this company create and capture value in this market by introducing tech” to “what does this company have to do to create and capture value in this market”.
Tech, in more and more cases, is no longer the differentiator. As this shift is happening, we are starting to see investors evaluating companies differently. As I wrote in my previous newsletter; the question is not whether it’s a tech company, but rather if the company can scale and earn like a tech company?
You can create value by introducing tech, but it’s uncertain whether you can capture enough of it (if any). Network effects has been a very popular moat in the past 15 years, but now I’m seeing an increased focus on other moats too - for example USV’s thesis 3.0 on trusted brands and this from Point9 on branding SaaS-companies.
I predict many of today’s “tech” investors will start to look more and more like miniature Berkshire Hathaways going forward. By that I mean the focus will shift from product and tech to other, more generic fundamentals. There’ll still be the “cutting-edge technology investors”, investing in companies built on top of fresh and unique technological research, and I guess we need a new term to describe such companies as the “prefix” tech soon applies to all companies.