There Are No Tech Companies

Moneybox
A blog about business and economics.
March 20 2013 4:17 PM

"Tech" Is a Marketing Gimmick, Not a Category

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Newark Mayor Cory Booker speaks at the Tech:Crunch Disrupt SF 2012 Conference on Sept. 10, 2012 in San Francisco

Photo by C Flanigan/Getty Images

I wrote last May that there's no such thing as a tech company and David Yanofsky makes a similar argument today for Quartz, giving us the helpful quip "comparing Yelp to Zynga is as appropriate to comparing Zagat to Hasbro." The point is that in the modern day any company worth its salt is using digital technology to do things. There's no discrete tech sector.

But even though there's no discrete tech sector, the idea of a tech sector still does matter. It matters most of all because if you're a tech company then you get to be funded with venture capital and can partially compensate your skilled employees with stock options. If you just want to start a restaurant you're going to have to finance your company with bank loans and pay your employees with money. And that makes a big difference in a number of ways. Most of all, if you're financed with loans and compensating employees with money you need revenue right away. A bank lends money with the expectation of being paid back. A venture capital firm doesn't necessarily expect to get its money back on the median investment. The idea is to place a range of bets and make an outrageous fortune on a handful of them. Or even better, the idea is to get a lot of management fees whether or not the investments work out.

All this means that the "tech company" is a real enough idea as a sociological phenomenon. Would-be entrepreneurs who are capable of marketing themselves as launching a "tech company" have incentives to do it. And venture capital fund managers also have a strong incentive to keep the concept going.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.