Do You Work for a Real Tech Company? Part 2: Tech Differentiation
Six years ago, when I published my first blog, Do You Work for a Real Tech Company?, I argued:
A tech company considers technology to be an essential input for key strategic decisions and provides makers a seat at the table.
and further elaborated:
If a company believes technology is key to driving the company forward, then technologists need a seat at the strategic table. The contrapositive is also true: if technologists are not included in key strategic discussions, then tech is not a factor in making important decisions. As such, it is not a tech company.
This concept resonated with many, but it also sparked a critical follow-up question: Should technologists have a seat at the strategic table at my company?
Before we address that question, we need to first assess whether your company is or should be a tech company. One of the metrics I’ve found helpful in evaluating this is whether the company’s offerings are tech differentiated.
Understanding Tech Differentiation
Tech differentiation occurs when a company’s product offerings are meaningfully better than their competition due to its technological competitive advantages. This can oftentimes come and go, as we will discuss later, but first, let’s look at a few case studies:
Social Media
In the mid-2000s, Myspace was the dominant social media website. However, after they got acquired by News Corp, it was clear that News Corp had no idea how to build a technology product. They put professional managers in place and buried makers in a sea of red tape and paperwork. They also were unable to attract top-tier tech talent to build features faster and scale their foundation to a larger user base. As they scaled up to tens of millions of users, the site kept breaking because they lacked the right talent capable of scaling the infrastructure.
On the other hand, Facebook hired the best engineers from the get go, and seamlessly scaled infrastructure such that product engineers could focus on quickly building better features that captured users’ attention. In the battle of two social media products, tech became a clear differentiator, both in feature offerings — Facebook could build and iterate more quickly — and in infrastructure scalability, propelling Facebook to become the largest social media site in the world.
Ride share
Unknown to many, Uber was actually the third entrant into the ride share market (after Sidecar and Lyft). That said, the market was still nascent, with smartphones just being introduced. Uber invested heavily in hiring the best engineers in the 2010s, allowing it to be the first company to support tens of million users concurrently in real time, providing a much smoother ride hailing experience than any of its competition.
The Second Order Effects on Talent Management
In Rules of the Game: From Martial Arts to People Management, I discussed the phenomenon of second order effects, where each decision or action can lead to derived behavioral changes:
Behaviors may also be multiple derivatives from the original rule. In other words, some actions people take are not obviously directly related to the rules that are set. Instead, they are patterns that emerged as natural extensions due to the rules in place.
Similarly, once the leaders of the company have internalized that tech differentiation is necessary to succeed, one of the second order effects is the approach to hiring and retaining talent. For example, Elon Musk, when building SpaceX, famously noted that the only way to succeed was to attract the best technical talent in the world. With that approach, SpaceX became the first company to launch reusable rockets.
On the flip side, sometimes a company decides that technological edge is no longer a part of its strategy. Take Boeing, for example. In Suicide Mission: What Boeing Did to All the Guys Who Remember How to Build a Plane, Maureen Tkacik shares:
[Former Boeing CEO, Jim McNerney,] repeatedly invoked a slur for longtime engineers and skilled machinists in the obligatory vanity “leadership” book he co-wrote. Those who cared too much about the integrity of the planes and not enough about the stock price were “phenomenally talented assholes,” and he encouraged his deputies to ostracize them into leaving the company. He initially refused to let nearly any of these talented assholes work on the 787 Dreamliner, instead outsourcing the vast majority of the development and engineering design of the brand-new, revolutionary wide-body jet to suppliers, many of which lacked engineering departments. The plan would save money while busting unions, a win-win, he promised investors. Instead, McNerney’s plan burned some $50 billion in excess of its budget and went three and a half years behind schedule.
A similar story is confirmed in Walter Isaacson’s biography for Elon Musk. In the early days of SpaceX, Musk approached Boeing for a joint-collaboration. However, in one of the conversations, Boeing’s then-CEO told Musk, “we don’t need disruptors, just solid enough engineers who can be reliable and stay here for a long time.”
It’s no wonder that Boeing lost its technical edge in the pursuit of short-term stock price, causing multiple serious accidents, resulting in multiple planes grounded indefinitely. More recently, NASA astronauts were stranded at a space station due to Boeing’s Starliner malfunctioning, to put it lightly.
Nothing Lasts Forever: Tech Differentiation’s Dynamism
Tech differentiation is not static. Today’s differentiation can become tomorrow’s commodity. When your company is no longer tech-differentiated, you can either win on non-tech aspects of the business (e.g. operations, distribution), or invest to re-differentiate in tech.
Airbnb
Airbnb pioneered a new industry where strangers shared their rooms and air mattresses to guests. In addition to the idea being novel, the key tech differentiation here was the ability to validate hosts, listings, and guests at scale, while handling the logistics of the stays. Over time, as other companies, such as Bookings.com and Vrbo, also offered vacation rentals at scale, Airbnb instead relied heavily on its host and guest community branding to maintain its lead.
From a user experience perspective, there is little differentiation between Airbnb and Vrbo’s vacation rental offerings. Investment in new product features had not moved the needle much at Airbnb, as evidenced by the fact that for a few years there has been little correlation between their biannual product launches and corresponding business metrics. Building an online marketplace with background checks and physical goods has turned into a commodity.
Airbnb wisely pivoted to an operating model that relied primarily on consumer branding and product marketing, as their tech was no longer differentiated. Their business has continued to thrive behind their strategy of focusing on building up the host and guest community¹.
Uber
Similarly, Lyft removed Uber’s tech differentiation by scaling up its infrastructure to minimize outages and dropped rides. As of 2024, most users no longer notice any difference on the rides between the two services. While Uber still enjoys the network effects and synergies of combining its rideshare and food delivery businesses, its business model no longer relies on tech differentiation.
Uber’s former CEO, Travis Kalanick, saw the commoditization of rideshare coming, so he preemptively invested in the Advanced Technologies Group (ATG), Uber’s R&D arm for self-driving vehicles. Unfortunately, due to lawsuits and other bad external factors, their new CEO, Dara Khosrowshahi, ended up selling ATG to Aurora in 2020.
Instead, Dara focused on optimizing logistics such as investing in cloud kitchens and leveraging their network effects across rideshare and food delivery. Since 2023, Uber has been profitable –something that was never achieved since its founding –largely on the backs of Dara’s focus on operational efficiency.
Maintaining Tech Differentiation
The only way to maintain tech differentiation is to continuously invest in technological advancements in spite of your lead, which is counterintuitive for many business leaders. For example, Google has continuously improved its ranking algorithm over the years, such as including user preferences, despite having already taken over 80%+ of the search market decades ago. Meta, when launching Threads in 2023, was able to scale its infra up to 100 million users in just 5 days, a feat few companies could have accomplished.
Another way to maintain tech differentiation is to commoditize your competitor’s core offering. In the red hot Generative AI space, OpenAI and Anthropic are widely perceived to have strong leads in their Large Language Models (LLMs). Meta’s CEO, Mark Zuckerberg, recognizing how behind Meta was, decided to open source Meta’s Gen AI efforts, inviting top researchers around the world to contribute to its llama models. The results were fairly immediate: llama 2 was substantially behind GPT-3.5, but llama 3.1 is fairly close to GPT-4o, yet is offered to all for free. Time will tell if Zuck’s investment in continued tech differentiation and the commoditization of his competitor’s core offerings will work or not.
Reevaluating the Role of Technologists
If you’re assessing whether technologists should have a seat at the strategic table in your current company, consider whether your company’s products are technologically differentiated. Is it difficult for competitors to replicate what you’ve built? How much effort is your company investing into maintaining or creating tech differentiation? If the answer is yes to both, then it definitely has the potential to operate as a tech company. If you feel that technologists still do not have a seat at the table, talk to your leaders to find out what the gaps are and why.
If the answer is no, then figure out what it is that you really want. Is it more maker empowerment? Are you just tired of being told what to do and unable to exert your creativity? Or do you believe the company is not operating in a way that is best for the business? Ultimately, the vast majority of companies in the world do not operate as true tech companies, and they do just fine. It may just be time for you to reassess your goals or reconsider your role at the company.
[1] Incidentally, Airbnb purchased Gameplanner.ai in 2023, a clear attempt to recreate tech differentiation by incorporating generative AI into its offerings, as they anticipate Gen AI to potentially disrupt the travel industry.
If you enjoyed this article, check out the previous articles in this series:
For more musings on tech culture, organization building, and management, follow me on Twitter @kenk616.
