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.



* Modis, Theodore. 1998. Conquering Uncertainty. New York: McGraw-Hill (BusinessWeek Books).