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The evolution of the technology company: from IBM and Microsoft, to Salesforce and Atlassian

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The Translation Bureau is a compilation team of 36氪, focusing on science and technology, business, workplace, life and other fields, focusing on foreign new technologies, new ideas and new trends.Editor’s Note: Nowadays, technology has become one of the foundations of the social and economic system, and it is rarely insulated from new technologies.Along with this, a new question has emerged: Is there a technology company in such an era?What kind of company is a technology company?Recently, the famous analyst Ben Thompson wrote an answer to this question.In his opinion, to understand how to define a company is not a technology company, you need to look for context from history.He started from IBM and Microsoft to Salesforce and Atlassian, and reinvented the technology company’s evolutionary roadmap.The original was published in the Stratechery blog entitled “What Is a Tech Company?”.The article is compiled by the 36氪 Translation Bureau and I hope to bring you inspiration.Related reading: Famous analysts: Airbnb, Uber, WeWork, etc. Are technology companies?Recently, WeWork and Peloton (Netflix in the fitness field) have released prospectuses. At first glance, they don’t have much in common: one rents vacant buildings and transforms them into office space, while the other sells home fitness.Equipment and video fitness classes.However, their prospectus raises the same question: Are they a technology company?Of course, we can ask: “What kind of company is not a technology company?” There is no doubt that this is the end of software to engulf the world.Still, I think it would be useless to classify a technology company as a technology company just because it was used just a few decades ago.IBM and technology-centric ecosystems 50 years ago, “What is a technology company” was an easy question to answer: IBM is a technology company, and everyone else is an IBM customer.This may be a bit exaggerated, but it can also be said: IBM manufactures hardware (at the time System/360), develops software, includes operating systems and applications, and provides services, including training, ongoing maintenance, and custom line-of-business software.All walks of life benefit from IBM’s technology, including financial services, large manufacturers, retailers, and so on, and of course the military.Automated and centralized work done in the past, such as accounting, resource management, and record keeping, has greatly improved efficiency and made new types of work possible.However, efficiency gains and new business opportunities have not made JPMorgan Chase, General Electric or Sears a technology company.Technology is just a part of their whole.However, IBM is different: every part of the company is technology–in fact, IBM is a complete ecosystem, including hardware, software, and services, all of which are tied to the subscription payment model.The pattern is strikingly similar to today’s dominant Software as a Service (SaaS) model.In short, being a technology company means becoming IBM, which means creating and integrating an ecosystem built around technology.Venture Capital and Zero Marginal Costs IBM has handed over the contract for PC operating systems to Microsoft, and the story of Microsoft’s dominance in the computer field over the next 15 years is well known.However, Microsoft’s completely different business model for its software best illustrates the background of this decision.The reason for the success of the IBM subscription service is that the mainframe manufacturer provides the entire technology stack, so there is reason to maintain direct and continuous contact with the customer.But in 1968, in order to evade the federal government’s antitrust lawsuit, IBM split its hardware, software and services.This created a new market for software, and to some extent, the software was sold on a specific basis; at the time, the software did not even have copyright protection.In 1980, the US Congress added “computer applications” to the list of US copyright laws. Since then, the software licensing model has emerged.Companies can now maintain legal ownership of their software and grant countless software licenses to individuals or companies.As a result, Microsoft can charge for every copy of Windows or Visual Basic without having to sell or maintain the underlying hardware it runs.This highlights another key factor that makes technology companies unique: the zero-margin cost of software.To be sure, this is not a new concept: Silicon Valley is named because silicon-based chips have similar characteristics: developing and manufacturing chips requires a lot of up-front costs, but once a large number of chips are manufactured, the marginal cost isWill be infinitely thin.It is this economic reality that has spawned venture capital, that is, providing funds before viable products, and if the product and its affiliates are successful, they have the opportunity to receive unlimited returns.In fact, this is why software companies have been concentrated in Silicon Valley.Bell Shock’s William Shockley, one of the inventors of the transistor, came from Palo Alto, Calif., when he started his own semiconductor company, he wanted to take care of his sick mother.His eight researchers, the so-called “eight traitors,” fled his arbitrariness and established Fairchild Semiconductor, whose employees later founded 65 new companies, including Intel.It was Intel that set an example for Silicon Valley venture capital. Arthur Rock invested $10,000 and persuaded his acquaintances to invest another $2.5 million for Intel to start; three years later, Intel was $8.225 million.Price IPO.The current time cycle is of course longer, but the idea behind it is the same: raising money to start a company based on zero marginal cost, if you succeed, you can bring great returns to shareholders.In other words, venture capitalists ensure that software can follow the path of silicon development, rather than Silicon Valley itself attracting them.To sum up, a technology company invested by a venture capitalist has an attribute with zero marginal cost and no upper limit on return on investment.Microsoft and the subscription model Perhaps the most overlooked and underrated era in the history of technology is dominated by software companies such as Microsoft, Oracle and SAP, and hardware companies such as IBM, Sun, Hewlett-Packard and Dell.The business model of this era is based primarily on prepaid revenue from the installation of raw hardware or software, plus ongoing service revenue.This model is not unique to software: many mainframes have similar business models.However, the zero marginal cost characteristics of the software make it possible to completely reduce the upfront cost.In 2001, Microsoft began to promote this model.Instead of having to pay a large fee for the software to get licenses for several upgrades in the future, companies can pay a monthly fee.The benefit of this is not only the ability to capitalize on the original cost of capital, but also the added flexibility.If the company grows stronger, it will no longer need to negotiate again to determine the price. If the development is not smooth, the number of employees will be reduced, and the cost can be quickly cut.At the same time, Microsoft is also able to shift its prepaid software investment from a one-time payment to a long-term periodic payment. This payment is not only permanent in nature (because stopping the payment means stopping the software, for most Microsoft customers.That said, this is not a viable option), and it is more in line with Microsoft’s own development plan.This is not a new idea, IBM started using it a few decades ago.In addition, it is worth pointing out that from an accounting point of view, capital expenditures can be properly allocated during the period in which these expenditures are leveraged.However, what makes Microsoft unique is that as time goes by, the products that companies spend to buy are constantly improving.This is in direct contrast to the degradation of physical assets or the limitations of traditional software sales models.Now, this is the general expectation of software: no matter what you pay today, the future will be better, not worse, and technology companies are increasingly organizing this idea of ​​continuous improvement and continuous revenue generation.Salesforce and Cloud Computing Despite this, Microsoft products need to be pre-installed, and only companies that have experienced this pain can get most of the benefits from the above-mentioned enterprise agreements.Founded in 1999, Salesforce is designed to make it easy for all companies to access Salesforce directly from Salesforce’s own servers without having to go through a lengthy and painful installation process or dealing with vulnerabilities and budget issues during the installation process..The company called it “No Software.”Now, with Salesforce, you no longer need to copy and distribute software copies one by one, just run one software and anyone can access it from anywhere.This does increase the fixed cost—the cost of running the server and paying for the bandwidth—but these increased costs are backed up by more customers and revenue.This also increases the importance of scale for technology companies: not only does the cost of software development need to be shared among a large number of customers, but the ongoing cost of building and operating large centralized servers also needs to be shared.However, this has become another feature of technology companies: as the services of large expenditures are used by more and more customers, the scale can not only share the cost, but actually improve the quality of service.Atlassian and zero transaction costs However, Salesforce’s focus is still on selling products to large companies.But in the past decade, the rise of freemium and self-service has changed the market.For the technology industry, the early 21st century was a terrible period: the bubble burst, and it was almost impossible to raise funds in Silicon Valley, not to mention anywhere else in the world, including Sydney in Australia.So, in 2001, Atlassian founders Scott Farquhar and Mike Cannon-Brookes had no ambitious goals, just wanting to get $35,000 a year, and don’t wear them.Suit to work.At the time, they had developed the collaboration software Jira, but had no money to market and hire a sales team.So they put the software on the Internet, anyone can use it, but also attached a payment method that can unlock the full function.At the time, this was nothing new: as early as the 1980s, the “shareware” and “trial software” models already existed, especially in the gaming arena, which was very popular.And Atlassian, at exactly the right time (Agile as an outbreak of development method), appears in the right place (sales agile project management software), using essentially the same model to sell products to the enterprise.What makes this possible is the combination of zero marginal cost (which means that distribution software doesn’t require any cost) and zero transaction costs: thanks to the existence of the network and early payment processing tools, Atlassian can sell products to businesses without having to face them.contact.In fact, for the past year, Atlassian’s only sales people are those responsible for reducing customer churn: all sales are self-service.This model, combined with Salesforce’s cloud-based model (which Atlassian eventually migrated to), is the foundation of today’s SaaS company: customers can try out the software with just one email address, just a credit cardready for payment.This is also a feature of technology companies: anyone can try it for free anywhere, and easily buy products…. But with the popularity of technology, it is difficult to make too many changes in terms of the shape of the technology itself.So, is a technology-based company that is based on technology but moves into other areas and interacts with the real world?Ben Thompson also answered this question and analyzed Airbnb, Uber, and WeWork: Famous analysts: Airbnb, Uber, WeWork, etc. are technology companies?Translator: Scale..