Silicon Valley winners aren't tech companies

morgueFile user ppdigital
COMMENTARY When Yahoo (YHOO) named PayPal President Scott Thompson as its next CEO, the questions about his qualifications immediately began to fly: no content or media experience, even though some analysts point to a strong track record in previous positions.

If exact industry experience were a requirement for chief executive success, Lou Gerstner would have taken IBM right down the tubes. But the whole debate over Thompson's credentials has raised the question of whether Silicon Valley companies are really high-tech firms or companies in other industries that happen to make heavy use of technology.

A hit by any other name

Tien Tzuo, CEO of subscription billing and payment company Zuora, on whose board Thompson sits, thinks highly of Yahoo's new chief executive and isn't shy about saying why he thinks the match is good:

The real problem with Yahoo is not that ad revenues are flat. That's just a symptom. The real problem is that Yahoo has completely forgotten about what it means to be a tech company.Who are the powerhouses in Silicon Valley? Google. Facebook. Apple. Salesforce. What do they all have in common? They are all tech companies at the core. Tech rules in Silicon Valley, no matter what Madison Avenue would like you to believe, or how they would like companies such as Yahoo to behave. These companies have succeeded by setting the innovation agenda in their own markets. Yahoo knows this because it used to be one of them.

You can respect Tzuo's experience and insight while still disagreeing. The thing is, none of these companies are high tech.

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Don't mistake the tool for the use

To call a company "high tech" is to say that its primary business is creating technology. But that's simply not the case in any of these success stories. Most of Google's (GOOG) success comes from providing information and running ads alongside. That's called publishing. Does it use high tech extensively? Oh, absolutely.

Facebook is a big high-tech user as well, but its primary mission is to put people in touch with each other. It just happens to use the Internet and computer technology as the mechanisms. Would anyone suggest that General Motors and the appliance division of General Electric are the same because they both employ mechanical engineers and factories? Of course not. The people buying cars and refrigerators are looking for completely different results. You can't market and sell the same way. Both industries need innovation, but they have to express it differently.

Apple makes computers, phones, and radios, but its real business is providing trouble-free gizmos to consumers. Steve Jobs started Pixar, for heaven's sake. He ended up knowing content and entertainment backwards and forwards and brought that when he returned to Apple. Neither the iPod, iPhone, or iPad would have gone far without content -- whether software, music or video.

Salesforce delivers all its services through technology, but those services are about automating vital business processes. It doesn't make sales because the technology is interesting or innovative. It makes sales because its systems deliver services that help businesses make more money.

High-tech mindsets can mean failure

So what companies are high tech? Microsoft (MSFT) has been for years. But to succeed in mobile, CEO Steve Ballmer knows that he has to get people thinking differently. You don't appeal to consumers with speeds and feeds. You get their attention when you solve their problems (especially the ones they didn't realize they had).

There are some purely high tech companies. HP (HPQ), Oracle (ORCL), and Dell are three examples. But even they must keep an eye on what the customers actually need to do with computers and software. What problems are the people trying to solve?

PayPal succeeded by understanding that it was enabling people to send and receive money. Technology made the process fast and efficient, but that's all. Thompson clearly learned that and he understands that innovation must happen. But the focus will remain on the consumers. That's what will make him succeed at Yahoo -- if, indeed, that is possible. But to consider Yahoo a tech company "at the core" would be to have it focus on itself and its tools, not on the customers who are ultimately the ones who can make or break that business.