Afterpay is not a tech company, even though it dominates the ASX All Technology Index – it’s a lender; Amazon is a retailer; Facebook, Instagram and TikTok are media businesses; Uber is a taxi company.
One of the greatest tricks ever pulled in the business world has been the classification of these outfits as technology firms. Sure, they use technology, often in new ways, but they don’t invent it.
Technology companies tend to be given a special place in society: They are regulated less and valued more highly by the stockmarket.
And by the way, the pandemic has been the best thing that ever happened to them: The so-called FAANG+ index of the share prices of Facebook, Apple, Amazon, Netflix, Google and Microsoft has more than doubled since the low point of last year, and 32 per cent higher than before the pandemic began.
And on Wednesday, Microsoft, Apple and Google’s parent, Alphabet, announced combined quarterly profits of $77 billion – double its profits of the same quarter last year.
Because of their vast wealth, combined with the profound impact they’re having on society, often malign, they have become almost impossible to control.
Not in China. The Communist Party government has taken to strangling its technology companies before they get too powerful.
Last year the government cancelled the float of Ant Financial and then dismantled the company.
Jack Ma, the founder of Ant as well as founder and CEO the giant e-commerce platform, Alibaba, recently disappeared for weeks, and Alibaba was fined billions of dollars and its web browser deleted from app stores.
Other tech companies, like ByteDance (the owner of TikTok), Tencent, DiDi (China’s Uber) and Baidu, are undergoing various forms of bullying, re-education and rectification including being fined large sums of money and hauled before regulators.
And lately the crackdown has extended to private education firms, which the Chinese government has simply converted to not-for-profits, effectively nationalising them. Their investors have lost billions of dollars.
Meanwhile, real technology companies in China that are at the forefront of the effort to catch up with (or steal) America’s intellectual property are not only being left alone, they are being given money. Most prominent among them is Huawei, still banned in most western countries.
In the west, meanwhile, companies that posture as tech businesses but just use the internet to do non-tech business, like online retailers, fintechs that are just online banks and video peddlers such as TikTok, YouTube and Facebook, remain largely unregulated and are given those outsize valuations on the sharemarket.
It’s really because they are zero marginal cost disruptors, which just means that an additional unit of user-generated output sent over the internet costs nothing to produce and distribute.
For example, a TikTok video of someone dancing in their bedroom that gets a million views has zero cost of production and distribution, whereas a TV channel doing something similar employs cameraman, maybe a soundo, an editor and a technician who spend time on each unit and it’s sent over a broadcast spectrum that costs a fortune.
Likewise posting something on Facebook versus a reporter writing a story that is printed on paper and delivered by a newsagent.
The disruption is profound and obvious, but as tech companies, they are regulated differently to those they are doing the disrupting and investors throw cash at them, even when they lose money (especially when they lose money).
And worse still, many of them use their zero marginal cost to price the service at zero, and the business model involves getting information about customers and then selling it.
“Tech company” has become a euphemism for personal data pirate.
Meanwhile real technology firms, with people actually inventing things, are often having to make do with the proverbial smell of an oily rag and strict safety controls.
Here are a few of them in Australia that I’ve spoken over the past few months:
- Amaero International is developing a method of 3D printing that meets aerospace standards, and other applications that need higher levels of reliability
- Eden Innovations has invented a piece of hardware that allows LNG to be mixed with diesel in generators and truck engines, lowering the carbon footprint
- PPK Group is working out how to make boron nitride nanotubes (BNNT) at lower temperatures than usual. The stuff sells for close to $1 million per kilogram because of its incredible strength
- Micro-X is developing small, portable X-ray machines that can wheeled to patients bedsides, and can also be used to detect bombs in bags at airports
- 1414 degrees has a system for storing energy by heating silicon to its melting point – 1414 degrees
- Electro Optic Systems has invented a space communications and ground combat communication system
- Alpha HPA is developing a method of extracting 99.95 per cent pure alumina for lithium batteries from tailings waste
- Delorean Corporation is using anaerobic digestion to turn organic waste into methane for sale
- Pharmaxis is trialling a drug that removes scars, both internally where they cause cancer, and on the skin
- FBR has invented a robot bricklayer which has led to robotic technology that can be used more widely
- Calix, based in Bacchus Marsh, Victoria, has developed a new kiln technology that makes cement with very low carbon dioxide emissions
- Atomo Diagnostics has a simple blood test that patients can use at home
- Rhythm Biosciences is working on a blood test for colorectal cancer to replace the faecal tests that nobody wants to do, and leads to so many late diagnoses.
These are just a few businesses whose CEOs I’ve spoken to over the past few months – there are many more that I haven’t got to yet, and you’ve never heard of.
They are genuine innovators, embarking on the long, risky grind of developing new technology, not simply doing something old over the internet.
And let’s face it, the internet itself is old now.
Can we move on, and not get excited about companies that just use it to sell us something or worse still give us something for nothing?
Alan Kohler writes twice a week for The New Daily. He is also editor in chief of Eureka Report and finance presenter on ABC News