Do Corporations Have S Curves?

by Robert Foster

The major focus on the topic of technology S curves has been on the life cycle of new, disruptive technologies, in which new technology products or services start out slowly, then accelerate when more rapid adoption takes place, and finally starts to flatten out toward the end of their life cycle.

The same thing happens with technology-based companies, whose main products are moving up that S curve. As Professor Clayton Christensen has clearly presented, new disruptive technologies normally do not originate in the companies who are the market leaders selling the older technology products, but are generally created by new, smaller startups.

Little has been written about what happens to companies when they reach the top of their “corporate” S curve, the shape of which is very similar to product S curves. After evaluating many technology companies who have lost market share to companies who have developed newer disruptive technologies, it appears that the company S curve reaches a peak and then actually starts to turn downwards quite rapidly.

The history of many technology companies follow this path. Historic examples include Polaroid, Kodak, MySpace, AOL, and Data General. More currently, RIM, Nokia, Motorola, HTC, and Yahoo are experiencing similar curves.

It’s often not just the product technology that is being disrupted, but new disruptive business models, inadequate top management leadership, and other factors are now contributing to their decline.

Look at the 3G smartphone market. Just a few years ago Nokia was the market leader in the 2G market and the largest cell phone manufacturer in the world. And Symbian and RIM’s operating systems together held the majority market position. Then Google introduced Android and Apple introduced their iPhone with their very successful App store. At the same time cell phone manufacturers were taking advantage of newer, faster processors to introduce customers to the increased capabilities and functions of 3G phones, which rapidly overtook 2G phones in the western world.

Three different things impacted the early stage 3G market. First, many handset manufacturers opted to use the free Android operating system. Second was the increasing importance of downloadable applications which Apple pioneered. And third, the top executives of the two leaders…RIM and Nokia… were slow to react to increasing competition.

First, the Android OS quickly gained market share as the many manufacturers of mobile phones adopted this free OS rather than pay a royalty. Adopted by most of the large manufacturers of 3G phones (Samsung, HTC) this operating system now accounts for 75 percent of the 3G phone market today.

Nokia experienced a number of critical problems which caused its market share, revenue, profits, and market capitalization to fall precipitously. They bought the rest of the Symbian organization that it didn’t already own and then, after a new CEO arrived from Microsoft, they dropped Symbian and adopted Microsoft’s yet unreleased mobile operating system. This added a year delay in launching a competitive 3G high-end handset. Their high-end handsets were also vastly overpriced at above $1,000. In the 3G market, Nokia is over the top of the S curve. Their complex management organization was too slow to react to rapidly changing market conditions.

At the same time Apple successfully developed a platform for thousands of independent software developers to develop downloadable cell phone applications. The “app store” was a totally new business model concept that enabled Apple to quickly increase its 3Q2012 world wide market share to today's 15%. Although this ranks them as the #2 best selling smartphone behind Samsung’s 31% share, Apple’s 40% gross profit margin is over double Samsung’s 16% profit margin, which makes the iPhone to most profitable smartphone in the world.

At the same time, RIM failed to launch a truly 3G handset and operating system that could compete with Apple and Android phones. Their drop in revenue, share price and market share rivals that of Nokia. They have not introduced these new competitive phones and many believe it is way too late…, the train has left the station and RIM isn’t on it. Their dual co-presidents top management, lack of new 3G phones and slow reaction to the reality of their declining market share put them into the death spiral they are in today.

The combination of intense 3G competition, rapid change in technology, new business models, and slow to react management has put these former industry leaders on a clear downward path, which they may not be able survive.

The same thing happens with technology-based companies, whose main products are moving up that S curve. As Professor Clayton Christensen has clearly presented, new disruptive technologies normally do not originate in the companies who are the market leaders selling the older technology products, but are generally created by new, smaller startups.

Little has been written about what happens to companies when they reach the top of their “corporate” S curve, the shape of which is very similar to product S curves. After evaluating many technology companies who have lost market share to companies who have developed newer disruptive technologies, it appears that the company S curve reaches a peak and then actually starts to turn downwards quite rapidly.

The history of many technology companies follow this path. Historic examples include Polaroid, Kodak, MySpace, AOL, and Data General. More currently, RIM, Nokia, Motorola, HTC, and Yahoo are experiencing similar curves.

It’s often not just the product technology that is being disrupted, but new disruptive business models, inadequate top management leadership, and other factors are now contributing to their decline.

Look at the 3G smartphone market. Just a few years ago Nokia was the market leader in the 2G market and the largest cell phone manufacturer in the world. And Symbian and RIM’s operating systems together held the majority market position. Then Google introduced Android and Apple introduced their iPhone with their very successful App store. At the same time cell phone manufacturers were taking advantage of newer, faster processors to introduce customers to the increased capabilities and functions of 3G phones, which rapidly overtook 2G phones in the western world.

Three different things impacted the early stage 3G market. First, many handset manufacturers opted to use the free Android operating system. Second was the increasing importance of downloadable applications which Apple pioneered. And third, the top executives of the two leaders…RIM and Nokia… were slow to react to increasing competition.

First, the Android OS quickly gained market share as the many manufacturers of mobile phones adopted this free OS rather than pay a royalty. Adopted by most of the large manufacturers of 3G phones (Samsung, HTC) this operating system now accounts for 75 percent of the 3G phone market today.

Nokia experienced a number of critical problems which caused its market share, revenue, profits, and market capitalization to fall precipitously. They bought the rest of the Symbian organization that it didn’t already own and then, after a new CEO arrived from Microsoft, they dropped Symbian and adopted Microsoft’s yet unreleased mobile operating system. This added a year delay in launching a competitive 3G high-end handset. Their high-end handsets were also vastly overpriced at above $1,000. In the 3G market, Nokia is over the top of the S curve. Their complex management organization was too slow to react to rapidly changing market conditions.

At the same time Apple successfully developed a platform for thousands of independent software developers to develop downloadable cell phone applications. The “app store” was a totally new business model concept that enabled Apple to quickly increase its 3Q2012 world wide market share to today's 15%. Although this ranks them as the #2 best selling smartphone behind Samsung’s 31% share, Apple’s 40% gross profit margin is over double Samsung’s 16% profit margin, which makes the iPhone to most profitable smartphone in the world.

At the same time, RIM failed to launch a truly 3G handset and operating system that could compete with Apple and Android phones. Their drop in revenue, share price and market share rivals that of Nokia. They have not introduced these new competitive phones and many believe it is way too late…, the train has left the station and RIM isn’t on it. Their dual co-presidents top management, lack of new 3G phones and slow reaction to the reality of their declining market share put them into the death spiral they are in today.

The combination of intense 3G competition, rapid change in technology, new business models, and slow to react management has put these former industry leaders on a clear downward path, which they may not be able survive.