Money and mania fueled a mad scramble for firms to claim the coveted t-word this decade.
It was 1998 and internet mania was in full swing. Fueled by the fear of missing out on the next big e-thing, freewheeling venture capitalists and speculators poured money into companies that appeared only tangentially internet-related. Entrepreneurs responded in kind, many going so far as to add “.com” or some techy sounding prefix like “e-“ or “net-“ to their company’s name in the hopes of attracting attention from internet-obsessed investors.
Some went even further. In 1998, CEO Alan Meckler of the niche magazine publishing company MecklerMedia renamed the firm “Internet.com Corp.” It worked. When the company went public in June 1999, shares were trading at $14. By December 1999, at the height of the dot-com bubble, shares of Internet.com had spiked to $72.25. All sorts of dot-com companies, no matter how tenuous their connection to the internet, continued to surge in value in the eyes of Wall Street—until the bubble burst in early March 2000.
Curiously, the past decade has seen a similar mania, but this time it’s tech companies all the way down. No matter the actual business of the company at hand, it’s probably calling itself a tech company and reaping the rewards of that sweet, sweet VC cash.
“We’re not just a technology company, We are, right now, the most important technology company on earth.”
Patrick Brown, CEO of Impossible Foods
An aesthetically pleasing vitamin subscription service? Tech company. A way to order takeout with your coworkers that goes by the same name? Also a tech company. The same goes for multiple different on-demand dog-walking services, fast-casual salad chain Sweetgreen, meal-kit service Blue Apron, at least one controversial luggage startup, many pharmacies, nearly a dozen food delivery services, and more.
“We’re not just a technology company,” Patrick Brown, CEO of Impossible Foods—which makes and sells fake meat—told Inc in a recent profile. “We are, right now, the most important technology company on earth.”
True, there’s real innovation (and technically, technology) in what Impossible Foods and rival Beyond Meat are doing. But the companies have also eagerly adopted the lingo of the software and internet industries. Beyond, which also makes and sells plant-based meat alternatives, said in a prospectus this year that its business is based on the development of “three core plant-based product platforms: … beef, pork and poultry.” It noted that its continued success primarily depends on protecting its “intellectual property and proprietary technologies.”
There’s a method to the madness, says Raghavendra Rau, a finance professor at the University of Cambridge who studies the impact of corporate name changes. A study Rau co-authored found that stock prices of companies that added “.com” to their names between 1998 and 1999 surged shortly after the change was announced, even for those that had little or no involvement with the internet. This tendency towards irrational overvaluation is rooted in human nature, he says.
“In these new industries with the potential for enormous returns, nobody knows exactly what these companies are, and everybody has this fear of missing out,” Rau explained. But people are also lazy. “You want a quick and dirty story to tell you whether this [company has value]. You don’t want to look at cash flow … [or] all that underlying stuff, that’s too complicated.”
Buzzword-y categories and oversimplifications are much easier to digest. And so long as investors continue to make use of them, companies will too, Rau says. A study he co-authored in 2003 found that companies tend to change their names to take advantage of the hot investment trend at the time. It also found that the strategy was surprisingly successful, leading to a sizable increase in value that isn’t necessarily based on an increase in performance.
Look no further than the great cryptocurrency craze of 2017. Over the course of one year, bitcoin’s value increased by more than 1,000 percent, while the worth of cryptocurrencies like Ripple and Stellar increased over 10,000 percent. It was the boom that launched a thousand buzzwords, ushering the concept of a decentralized digital currency—and all the associated hype—into mainstream consciousness.
The cryptocurrency represents amazing technological advances. Bitcoin has a way to go before it’s a a true replacement for, or even adjunct to, the global financial system.
Companies took note. Mentions of the blockchain and cryptocurrency on corporate earnings calls in 2017 were double that of the year prior, according to an analysis by Fortune, and the terms soon began worming their way into corporate nomenclature. E-cigarette developer Vapetek rebranded as Nodechain; a fledgling fitness apparel company called Croe became The Crypto Company; and packaged food producer SkyPeople Fruit Juice became Future FinTech Group. In December 2017, struggling beverage maker Long Island Iced Tea famously saw a nearly 300 percent spike in the value of its shares after changing its name to Long Blockchain . Much like crypto-mania, the boom was short-lived. Long Blockchain was delisted from the Nasdaq exchange just a few months later when it’s market cap fell below the exchange’s threshold.
For the last decade, tech has been the industry to beat. In 2011, prominent venture capitalist Marc Andreessen famously declared that “software is eating the world.” In an essay for the Wall Street Journal, he pointed to the rise of tech giants like Amazon, Facebook, and Twitter, and other digitally focused companies such as Netflix, Spotify, and Pandora, as evidence that the 2010s would be the era of software-enabled domination.
The frenzy that followed led companies of all sorts to adopt the tech label and to cash in on the wealth of available capital. It’s part of the reason that WeWork, which ex-CEO Adam Neumann described as a “physical social network,” was for a time valued 10 times as high as a profitable rival, IWG. That company is treated by investors as a traditional real estate and office services firm even though its business model is similar to WeWork’s. Tech mania helps explain why other startups can commandeer sky-high valuations even when they resemble more traditional industries.
There may be an end in sight, however. A 2004 study Rau co-authored found that companies that stripped the “.com” from their names shortly after the dot-com bubble burst experienced a sizable bump in their stock prices. He says he thinks the growing backlash against companies like Facebook and Google could eventually cause the same to happen with the “tech company” label.
“My guess is it will probably happen, because [companies] don’t want to be associated with something that nobody wants,” Rau said.
That said, many of the industry’s giants technically aren’t even “tech” companies anymore. That’s according to the Global Industry Classification Standard, a means of categorizing public companies by sector and industry that forms the basis for some S&P and MSCI indexes. In September 2018, the GICS moved companies like Facebook, Google parent Alphabet, Netflix, Twitter, and others from the “information technology,” or tech, sector to a new category called “communication services,” leaving Apple and Amazon as the last two of the so-called FAANG stocks in the tech index.
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