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Much as in life, simplicity matters in the technology world. You have to realize that tech companies usually take large gambles on new technology. If the company is a start-up, their big gamble will determine whether they go on to become the next IBM or just another failed business statistic.

Knowing the right questions to ask about a tech company’s product is essential to understanding if it will be the next iPod or Betamax. To determine whether a tech company will succeed, you first have to know the answer to these six questions:

1. Do you understand the technology? If you don’t understand the technology, how are you supposed to know whether it’s good? Like Warren Buffet said, you need to invest only in that which you understand. Research and dig deep if you have to. But in the end, you should have a solid grasp on what the technology is, how it works, and what benefits it provides.

2. Is the new technology easy to make? This is important because it tells you whether the time has come for the technology at hand. If the technology is using some experimental atomic-sized manufacturing process, it’s likely the manufacturer won’t have a good yield. When that happens, costs rise and margins are squeezed. As an investor, low margins should be a red flag because if a price war happens (which is common in the technology world), the company with the lowest margins loses. So make sure that the company can easily produce the technology before you investigate further.

3. Is the new technology scaleable? If the technology can be ramped up for many years in the future, then the manufacturer saves money on development. A good example is Intel’s (INTC) NetBurst architecture used in older Pentium 4 CPUs. This architecture lasted more than six years.

4. Is the new technology cheap? If not, can the manufacturing cost come down quickly? If the technology isn’t cheap, not many people will be able to buy the first generation. Granted, most leading-edge products are just like that. So what you need to know is how quickly a manufacturer can lower the cost of making the product. LCD panels are a good example of a technology that wasn’t initially cheap, but is (relatively) today. Note that mass adoptions usually occur when the new technology is priced similarly to the old technology.

5. Does the new technology have a distinct advantage over competitors? Making money from a company that is releasing another product into a saturated market is difficult. But if the company has some unique positioning or new feature, you then stand a chance to profit. For instance, Nintendo (NTDOY.PK) had stiff competition in the video game console wars. But their latest system – Wii - drastically changed the way video games are played, making them unique among the competition. Now they are outselling their competitors by a nearly 2-to-1 margin.

6. Is the new technology easy to adopt? Just because a technology is superior doesn’t mean that other companies want to use it. If adopting the new technology incurs lost productivity, a high initial cost, and needs a large learning curve, you can be sure that most companies will stick to what they know and love. Sony (SNE) is a perfect example. They have a superior gaming system in PlayStation 3, but programming is expensive and programmers suffer lost productivity as they learn how to program the new chip. So what are video game producers doing? They’re dropping support for the system.

In the tech world, there are hundreds of products that have succeeded and failed. The success or failure of these products has often gone on to determine the company’s future and share price in a significant way. But the most profitable companies made sure to build a technology that was easy to make, scaleable, had a distinct advantage over its competitors, and a manufacturing cost that went down significantly over time.

If you make sure to invest in a company that does all of these things, you’ll increase your chances of making money from tech companies.

Click the Technology Sector Investing title link above to read more about this profitable industry.

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