Monthly
Discussion
The Likelihood
of Microsoft's Break-up
The
S-shaped curve of natural growth usually represents the evolution of an
organism's size (a cumulative number). The organism's rate of growth is represented by the bell-shaped curve obtained
from the S-curve via successive subtractions (taking the so-called mathematical
derivative). The bell-shaped curve depicts the life cycle of the growth
process, see Exhibit 3 below.
Many management theorists divide the life cycle into
segments. They generally consider four periods according to the phase of
growth: start-up, rapid growth, maturation, and declining growth. In my book Conquering Uncertainty I also divide the
growth cycle into four segments but in a somewhat different way which allows me
to associate each segment with one of the four seasons. My winter
"season" describes the critical-growth periods encountered during the
beginning and the end of the life cycle. These periods are characterized by low
growth, are turbulent (chaotic fluctuations), and breeds surprises and
fundamental change. Death comes naturally only in winter.
Winter is the beginning and the end. Products
experience two winters in their lifetime. The first one while they are
struggling for a foothold in the marketplace, and the second one while they are
exiting and the follow-up product is fighting for the succession. By
definition, the end of the first winter signals that the growth process has
survived “infant mortality” and its future career is more or less guaranteed.
The season's metaphor is not used for poetic
reasons. The advantage over the more traditional life-cycle segmentation is
that our familiarity with images and mechanisms associated with nature’s four
seasons can shed light and guide us through decision-making processes about
business issues and other social endeavors. For example, summers are
conservative and see little change. The low creativity during summers is only
partially due to the heat in the weather. New undertakings are mainly
disfavored because the living is easy and there is no reason to look for
change. In contrast, animals (for example, foxes and sparrows) are known to
become entrepreneurial in the winter. There is wisdom encoded in nature’s
seasonal patterns and behaviors of species. One can study and transfer them to
whatever situation depicts a succession of season-like stages.
What naturally happens is what should happen. In
each season, the typical behavior observed is also the correct one, and has a
better chance for success. Paths of least resistance ensure efficient survival.
If what is done is not survival conducive, the organism does not survive and
the behavior is no longer observable. Also natural patterns yield reliable
projections because there laws behind them, such as, survival of the fittest.
Exhibit 3. Segmentation of a business cycle into four seasons. The
bell-shaped curve on the bottom is calculated from the S-curve on the top.
Coming now to Microsoft we can study
its growth pattern assuming it is a "species" filling a well-defined
niche in the market. We can fit an S-shaped curve to it cumulative revenue
(corrected for inflation) and then deduce an overall life cycle for Microsoft's
growth process. Exhibit 4 shows the results.
Microsoft finds itself presently in a
late spring season. Even at the most pessimistic case (see lower intermittent
line in the drawing) the earliest turning point (beginning of a fall season) is
around 2005. In other words, the evolution of Microsoft is naturally endowed with still more growth in the years to come.
Exhibit 4. The solid line is not a
fit to the data. It has been calculated from an S-curve fit on the cumulative
data. The intermittent lines indicated the 90% confidence level (what is likely
to happen 9 times out of 10). The assignment of seasons is done according to
the approach described in Conquering
Uncertainty.*
Late spring is the least likely time for a company
to break up. The typical break-up period is late fall. This does not mean that
a break up of Microsoft is to be excluded. But it says that stopping Microsoft's
growth at this point amounts to one of those "abnormal", rarely
observed, and difficult to achieve interventions. Let us not forget that the
Department of Justice launched an antitrust suit against IBM in 1968 to finally
drop it 14 years later. IBM was traversing a summer season during those years.
Whenever I am confronted with a choice
I prefer to take my chances with nature's way rather than man's way. I have
seen too many natural-growth process that proceeded to completion despite human
attempts to intervene. Occasionally there have been exceptions, and there can
be real accidents (e.g., Percy
Shelley drowned indeed accidentally!) But it is amazing how many seemingly
abrupt deaths have in fact been natural declines: Mozart, Hemmingway, Schubert,
coal production in the UK, the Three Mile Island nuclear disaster, and many
others (see Predictions).
According to the above reasoning, Microsoft has 9
chances out of 10 to continue growing inside the fork depicted by the
intermittent lines in Exhibit 4.