The Importance of 'Tech Company' Status

The Importance of "Tech Company" Status

This article relates to Big Vape

In Big Vape, Jamie Ducharme describes an existential crisis at the heart of Juul; while its founders (and many of its employees) saw the business as a tech start-up, to the Food and Drug Administration (and much of the public) it looked like a manufacturer of tobacco products. This distinction is not a mere matter of brand identity — having "tech company" status offers huge advantages to businesses. Many companies covet this privileged label, and there are good reasons why.

In the first place, it comes with a certain prestige. Calling yourself a tech start-up signifies modernity, newness and, importantly, profitability. Inferring connection to Silicon Valley is like dangling bait to investors, even if the association is a vague one. In 2011, for example, sandwich chain The Melt managed to secure $10 million in funding from Sequoia Capital, in part because of its focus on tech. Its founder, Jonathan Kaplan, claimed he had developed "a set of technology that allows us to make the perfect grilled cheese."

A sandwich shop claiming to be a tech start-up might seem ludicrous, but the borders of the tech industry are porous and ill-defined. For some, the right definition is the most obvious one: a tech company is a company that sells technological products. Apple, Sony and Microsoft are tech companies. The Melt and Sweetgreen (a salad bar that tried a similar trick) are not.

Others think that this definition is too narrow and that tech companies should be defined by the centrality and originality of tech in their business. According to Jamie Hinton, the CEO of technology consultancy Razor, "If the contribution of technology to your business and your customers becomes an integral part of your operations, then it's time to ask yourself if you're a company in X industry, or if you're a tech company that also happens to be in X industry." His thoughts are echoed by Greg Bettinelli of Upfront Ventures, who says simply, "Ask the question: Could this company exist without technology? If the answer is no, it has to be a tech company." Under this definition, The Melt and Sweetgreen would have a better claim: both companies use specialized algorithms designed in-house, and could argue that without this technology they could no longer operate.

How a business is categorized matters. Part of the allure of the "tech" label is that such companies can sometimes sidestep regulations that might otherwise apply to the goods or services they offer. It has been in the interest of Uber, for example, to present itself as being in tech over transportation; this is what has given it an edge over traditional taxi businesses, as it has for a time not had to comply with costly national transport regulations. Likewise, for Juul, the label of tech company has meant that it was not regulated at the outset in the way that other tobacco-related industries are.

For this reason, companies will battle to hold on to their techy credentials. Freedom from regulation is great for business. However, when tech companies cause harm, the proviso of "tech" can protect them from being held liable. But as technology is becoming more and more embedded in our lives, legislators are slowly catching up.

For the firms with the most visibility, this has become a topic of consternation. While at present, calling yourself a tech company is still a promising way to gain attention for your business, it's unclear whether larger organizations will continue to be able to make this claim so easily. Already, the European Court of Justice has ruled that Uber is a transportation service like any other, regardless of its protestations. Facebook has also faced serious scrutiny in recent years over whether it can still justifiably claim to be a tech company, or if it should be classed as a media company instead. These debates are important, because reclassifying Facebook as a media company, for example, would place severe limitations on what it could allow to be distributed on its platform. The removal of hate speech, false advertising and fake news would become an obligation rather than a courtesy.

Uber vehicle in traffic, photo by Victor Avdeev

Filed under Society and Politics

This "beyond the book article" relates to Big Vape. It originally ran in July 2021 and has been updated for the June 2022 paperback edition. Go to magazine.

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