Good article.
12 Things Everyone Should Understand About Tech
A couple of good excerpts:
9. Most big tech companies make money in just one of three ways.
It’s important to understand how tech companies make money if you want to understand why tech works the way that it does.
- Advertising: Google and Facebook make nearly all of their money from selling information about you to advertisers. Almost every product they create is designed to extract as much information from you as possible, so that it can be used to create a more detailed profile of your behaviors and preferences, and the search results and social feeds made by advertising companies are strongly incentivized to push you toward sites or apps that show you more ads from these platforms. It’s a business model built around surveillance, which is particularly striking since it’s the one that most consumer internet businesses rely upon.
- Big Business: Some of the larger (generally more boring) tech companies like Microsoft and Oracle and Salesforce exist to get money from other big companies that need business software but will pay a premium if it’s easy to manage and easy to lock down the ways that employees use it. Very little of this technology is a delight to use, especially because the customers for it are obsessed with controlling and monitoring their workers, but these are some of the most profitable companies in tech.
- Individuals: Companies like Apple and Amazon want you to pay them directly for their products, or for the products that others sell in their store. (Although Amazon’s Web Services exist to serve that Big Business market, above.) This is one of the most straightforward business models—you know exactly what you’re getting when you buy an iPhone or a Kindle, or when you subscribe to Spotify, and because it doesn’t rely on advertising or cede purchasing control to your employer, companies with this model tend to be the ones where individual people have the most power.
That’s it. Pretty much every company in tech is trying to do one of those three things, and you can understand why they make their choices by seeing how it connects to these three business models.
10. The economic model of big companies skews all of tech.
Today’s biggest tech companies follow a simple formula:
- Make an interesting or useful product that transforms a big market
- Get lots of money from venture capital investors
- Try to quickly grow a huge audience of users even if that means losing a lot of money for a while
- Figure out how to turn that huge audience into a business worth enough to give investors an enormous return
- Start ferociously fighting (or buying off) other competitive companies in the market
This model looks very different than how we think of traditional growth companies, which start off as small businesses and primarily grow through attracting customers who directly pay for goods or services. Companies that follow this new model can grow much larger, much more quickly, than older companies that had to rely on revenue growth from paying customers. But these new companies also have much lower accountability to the markets they’re entering because they’re serving their investors’ short-term interests ahead of their users’ or community’s long-term interests.
The pervasiveness of this kind of business plan can make competition almost impossible for companies without venture capital investment. Regular companies that grow based on earning money from customers can’t afford to lose that much money for that long a time. It’s not a level playing field, which often means that companies are stuck being either little indie efforts or giant monstrous behemoths, with very little in between. The end result looks a lot like the movie industry, where there are tiny indie arthouse films and big superhero blockbusters, and not very much else. [This is amplifying the winner-take-all dynamics of technology.]
And the biggest cost for these big new tech companies? Hiring coders. They pump the vast majority of their investment money into hiring and retaining the programmers who’ll build their new tech platforms. Precious little of these enormous piles of money is put into things that will serve a community or build equity for anyone other than the founders or investors in the company. There is no aspiration that making a hugely valuable company should also imply creating lots of jobs for lots of different kinds of people. [Note: I would add to this last point that the aspiration should be to distribute value more widely across the community, not necessarily create more jobs.]
510 thoughts on “What You Need to Know About Tech”
Comments are closed.