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Across categories brands say they’re in technology

Judge what they deliver, not what they claim 

When is a technology brand not a technology brand? This should be a pretty simple question to answer (clue: the brand does not do technology), but it’s not quite that simple. Like the crowd of rebellious slaves on an ancient Roman hillside shouting,

“I am Spartacus,” many brands across multiple sectors are yelling, “we are tech” in a bid to reap the rewards that go with the classification. Some brands are clamoring to get into tech from the manufacturing sector, some are online retailers or property services, some are old fashioned financial services or information businesses that hope to transform themselves through recategorization.

So why become a tech brand? There are both hard and soft answers to that question. The hard answers start with valuation and the simple observation that while the average Nasdaq 100 stock has a P/E multiple of 25.2, the average Dow Industrial company has a P/E of 16.55. So from a CEO’s point of view it is pretty easy to see which sector you would like to be in. The soft reasons are related to the cleanliness of image that surrounds technology companies. By surrounding themselves with the aura of innovation, a brand can look sharper and more purposeful - making its products more attractive, benefitting recruitment and encouraging investors.

Identifying the real tech brands

A 2014 study by PwC and Bloomberg showed that seven of the top 10 companies by value are technology firms, as are four of the top 10 fastest risers. Eight of the top 20 companies listed in the most recent Forbes report on the world’s most valuable brands are technology firms, although interestingly it lists GE as “diversified” while the

PwC / Bloomberg report categorizes it as “technology.” And perhaps most importantly, in the BrandZTM Top 100 Most Valuable Global Brands 2015, five of the Top 10 fastest risers are technology brands: Facebook, Apple, Intel, Tencent and Baidu.

Given the rewards, the desire to be seen as a technology company is quite understandable. But we should be able to tell the real technology companies from those masquerading as such. Well, it turns out that the clue mentioned in the first paragraph here doesn’t actually help much. Any company
in any sector today uses technology in a very profound way. I once heard the Vice President of IT at Morgan Stanley pronounce that his firm was a technology company that happened to focus on financial services. Which raises the question: is a bank a bank because it has branches and people you can talk to, while an online bank becomes a technology company – or are all banks technology companies? And could we really countenance eBay being classified as an auction firm when it is so palpably clear that it is a deep technology company?

But in this ever-widening morass of brands claiming to be tech, there are clear divides between say an IBM or HP, whose very core is technology and the applied technology through a digital service of LinkedIn or Netflix. At the same time, the old labels of software and hardware as sub-divisions of technology no longer hold true; Apple, a supposed hardware company, is differentiated by its software, while one-time software specialists Oracle and Microsoft have bridged the divide into hardware. 

Three new categories add clarity

To provide meaning to the over-generalized category of technology we need to break out three new categories that will enable cross- category analysis and restore some purpose to the brand valuations. The right structure for this is the division of technology between infrastructure, devices and data services, as follows: 

  •  The infrastructure companies are clearly delineated and sometimes dismissively referred to as “old tech.” These are the IBMs and HPs, the Dells and Oracles. They make the systems that make the world spin, and much like the men who sold the shovels to the gold miners, they tend to make the money too.
  • The device players arise from multiple origins; out of consumer electronics companies like Samsung and LG, from
    PC companies like Apple and Lenovo, and from left field with the likes of Amazon. All bring a unique interpretation to this sector and the competition that they engender has been massively beneficial to the consumer.
  • The data services span a far greater divide, from the enterprise players such as Equifax and LinkedIn to the consumer plays of Facebook, WhatsApp and Pinterest. All these companies are monetizing the need to consume data whether it is a corporate credit report,
    a message or a birthday reminder. The fact that these companies are marketing from the consumer youth markets all the way to the biggest enterprises, and with very different business models, does not stop them from actually being in the same category.

Meaningful peer groups

While we can apply categorization across all technology companies, it is interesting to note that very few, such as Dell, are attempting to be in two categories (devices and infrastructure), while others like IBM have gotten out of one category (devices) to focus exclusively on another (infrastructure). Most intriguingly, there are just three companies attempting the triple- play of being in all three categories simultaneously; Google, Apple and Amazon have stakes in each market and each is clearly determined to be the one cross-category giant in future years.

By looking at the technology market through these three different lenses we may be able to make sense of the brands crowding in and be able to evaluate them against a relevant peer group so that we can meaningfully compare growth, profitability and brand momentum.

So when we look at the mire that is the technology market today, the answer is not to try and discern the tech brands from the non- tech but to understand that practically anyone can be Spartacus these days. Instead we need to place finer definitions on what we mean by technology and judge companies through what they deliver and not what they claim.