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Guest Post: When Escape From A Previously Successful Model Is Impossible

Tyler Durden's picture





 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Three visualizations describe the breakdown of PSMs--previously successful models: S-Curves, Supernovas and Rising Wedges.

A successful model traps those within it; escape becomes impossible.

I recently highlighted one historical example of a PSM (Previously Successful Model) in Our Dust Bowl Economy (November 20, 2012): in the ample-rain era of the 1920s, farmers in the semi-arid southern Midwest had reaped huge profits by plowing up and planting fragile native grasslands. They poured their profits into homesteads, equipment and more land to enable further expansion.

When grain surpluses pushed prices down, their "model" had only one "solution": plant more land and harvest even more grain to compensate for lower prices. When prices fell from $1 per bushel to $.25/bushel, the model collapsed.

This previously successful model exacerbated the Dust Bowl and left the trapped farmers with no alternative but to either keep trying to make a failed model work or leave and abandon all their sunk capital in land, homes and farm equipment.

A more current example can be found in Microsoft (MSFT a.k.a. Mister Softee), whose previously successful model took a 42% marketshare in smartphones and reduced it to 2%. Here is an excerpt from Microsoft has failed (semiaccurate.com):

 

Microsoft has three product lines that underpin everything, Windows, Windows Server, and Windows Mobile. On those, the other moneymakers, Office and Exchange, run exclusively. The apps use protocols that are locked down with dubious methods, and will not run on any competition. The competition is likewise excluded from doing what Microsoft can, either directly like Novell, or by raising the cost to the point of it not being profitable. This is how the wagons are circled, with every iteration, the cost of competing go up, and value of alternatives go up too.

 

The problem is that if you are locked in with a choice of 100% Microsoft or 0% Microsoft, once someone goes, it isn't a baby step, they are gone. Once you start using Google Docs and the related suites, you have no need for Office. That means you, or likely your company, saves several hundred dollars a head. No need for Office means no need for Exchange. No need for Exchange means no need for Windows Server. No need for Office means no need for Windows. Once the snowball starts rolling, it picks up speed a frightening pace. And that is where we are. The barriers to exit are now even more potent barriers to entry.

 

Microsoft bought Nokia to both kill off one competitor and to buy their market share. Microsoft at the time had approximately 12% smartphone OS marketshare, Nokia a bit over 30%. With the collaboration, Nokia and Microsoft, together with all the other OS partners selling Windows Phone 7.x, sales are now hovering around 2% of smartphone market share.

 

Microsoft's mobile aspirations have failed so spectacularly that it is almost impossible to account for. Rather than fix the lock in that excludes the overwhelming majority of the market that does not have a Windows phone, Microsoft doubled down with the new iteration playing the same compatibility games they did before to lock out developers, competitors, and innovators.

 

The death spiral for Microsoft is in full effect, and management is expending a lot of effort to speed it up. Microsoft is unwilling to change, and that is very clear. Even if they wanted to, they are culturally far beyond the point of being able to. What was a slow bleed of marketshare is now gushing, and management is clueless, intransigent, and myopic. Game over, the thrashing will continue for a bit, but it won't change the outcome. Microsoft has failed.

I would generalize that the Microsoft model of buying competitors and stitching together quasi-monopolies has failed: first in mobile, next in tablets and eventually in operating systems and Office.

We see the immense power of previously successful models. Straying from the previously successful trajectory looks needlessly risky, even as the trajectory has rolled over and is heading for unpleasant impact.

Anyone who questions the previously successful model (PSM) is suppressed, fired or sent to Siberia as a "threat" to the enterprise's success. Anyone who realizes the Titanic will inevitably sink and abandons ship leaves behind all their sunk capital: they leave with the figurative clothes on their back.

I have often covered the S-Curve model of initial development, rapid growth, eventual stagnation and collapse. Here is an example showing how financialization has peaked and will collapse: Our "Let's Pretend" Economy: Let's Pretend Financialization Hasn't Killed the Economy (March 8, 2012).

Since most of the systems and fiefdoms that are trapped in previously successful models are bureaucracies, we can also profitably use the "Supernova" model of rapid expansion, brief equilibrium and sudden collapse: The Lifecycle of Bureaucracy (December 2, 2010):

I have often addressed the way that bureaucracies arise to solve a problem and quickly progress to becoming an even bigger and more intractable problem themselves, generally because they only know how to expand (the ratchet effect) and have no institutional ability to shrink or become more efficient:

Complexity: Bureaucratic (Death Spiral) and Self-Organizing (Sustainable) (February 17, 2011)

Failure: Don't Despair, It's The New Normal (May 4, 2011)

Global Crisis: the Convergence of Marx, Orwell and Kafka (July 25, 2012)

We can also visualize PSMs (Previously Successful Models) as a rising wedge, a pattern well-known to technical analysis. The previously successful model essentially charts an expansionary course that the organization is locked into. As the model fails to produce results, inefficiencies and costs rise, pushing the lower boundary of failure ever closer to the actual revenues.

Once the revenues fall below this threshold of viability, the organization breaks down, as there is no organizational capacity to radically reduce costs and headcount while significantly increasing efficiency and return on investment.

This model of breakdown describes all the major systems of local and Federal Government: the Pentagon, Medicare, Medicaid, Social Security, the higher-education/student loan cartel, the mortgage/housing cartel, sickcare, and so on.


My new book Why Things Are Falling Apart and What We Can Do About It is now available in print and Kindle editions--10% to 20% discounts.

 


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Thu, 11/29/2012 - 14:53 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

DoChen is TRAPPED in a Microsoft dead end (I have to use Access database)!  Do not let this happen to you!

Thu, 11/29/2012 - 14:57 | Link to Comment ACP
ACP's picture

The life cycle of bureaucracy looks like bone density as old people get older. Ah, the parallels in life...

Thu, 11/29/2012 - 15:30 | Link to Comment Ancona
Ancona's picture

You are not trapped. Get Open Office, it is a very compatible and free software. Microsoft is simply too big for it's britches. Maybe Congress should read the Sherman Anti-Trust Act so they can find out what is in it.

Thu, 11/29/2012 - 17:30 | Link to Comment three chord sloth
three chord sloth's picture

Open Office (and its offshoot Libre Office) are great, but as great as they are, sometimes one still MUST use M$. For instance, if you need compatibility with Quickbooks, you must have M$ Office... Quickbooks doesn't play well with anybody else. And since roughly 90% of accountants use Quickbooks, if you wish to have your quarterly taxes done by an outside accountant, you'll probably be forced to use Quickbooks yourself... and therefore use M$ Office as well.

Thu, 11/29/2012 - 20:52 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Mismanagement destroys everything over time. This article hints, but does not directly state this fact.

Thu, 11/29/2012 - 15:30 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Run to the light DoChen.

<Open source light that is.>

Thu, 11/29/2012 - 15:57 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Thanks guys!  I will look into the open source database that works with OpenOffice:

http://en.wikipedia.org/wiki/OpenOffice_Base

But, that means yet another learning curve, ugh, getting too old for that...

Thu, 11/29/2012 - 16:52 | Link to Comment lemonobrien
lemonobrien's picture

mysql

Thu, 11/29/2012 - 16:55 | Link to Comment Things that go bump
Things that go bump's picture

They aren't really very different and mostly use the same keystrokes to perform tasks.  

Thu, 11/29/2012 - 17:48 | Link to Comment css1971
css1971's picture

Learn to program.

Best of all, it's the one trick you only ever have to learn how to do once on a computer because all computers, operating systems, databases are basically the same and operate in the same way. It's like learning to ride a bike, once you've done it you don't need to learn how to do it again.

Anyone who works with computer & finds themselves doing repetitive tasks on them should learn to program. Honestly some of the insanity I've seen with spreadsheets could be done in a tiny fraction of the time in a programming language if the writer only knew how to write a for loop.

Python is a good start. It's easy to learn and to write, free and you can use it on anything; windows, mac, linux

http://wiki.python.org/moin/BeginnersGuide/NonProgrammers

Thu, 11/29/2012 - 16:08 | Link to Comment DCFusor
DCFusor's picture

I warned you about that one, Bearing.  It's a lot of work to change over to a "real SQL" DB, but not impossible - just a real pain to do.  Then you have your choice of free DB's and your stuff works on them all if you stick to the standards, rather than MS's "embrace, extend, extinguish" model.

Here I run linux, and use Virtual box to run an ancient copy of Xp or 7 for those few tools I use that still require windows and Wine isn't good enough for.  Over the years, that's gotten down to just two programs - CAD for PCB design and an IDE for microprocessor programming/debugging.  MSFT can go suck on it.  I don't let those virtual machines on the network at all - no updates, no viruses, and so on, and they'll never get another penny from me.

Thu, 11/29/2012 - 16:30 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Yes, you did.  

But, I am getting lazy...  Linux?  MySQL?  Ugh, hard...

Thu, 11/29/2012 - 23:05 | Link to Comment Pseudo Anonym
Pseudo Anonym's picture

this particular contraption

run linux, and use Virtual box to run an ancient copy of Xp or 7...

didnt work for me.  i prefer to use http://winehq.org/ solution on linux.  much cleaner, more efficient.

Thu, 11/29/2012 - 16:46 | Link to Comment Cthonic
Cthonic's picture

Sorry DoChen, Access (capitalized) and database shouldn't be used in the same sentence.

Thu, 11/29/2012 - 18:09 | Link to Comment Al Huxley
Al Huxley's picture

Why would you HAVE to use an Access DB?

Thu, 11/29/2012 - 14:55 | Link to Comment mrktwtch2
mrktwtch2's picture

great another doom and gloomer..dont we have that phoniex capital guy on this site to tell us the sky is falling..lol

Thu, 11/29/2012 - 18:00 | Link to Comment Supernova Born
Supernova Born's picture

If you want to rage on realists there is a great site that fronts as a firearms site but is nothing but a RINO pit of heavy-handed mods ensuring group think.

"Doom and gloomers" is what they call anyone who speaks rationally about the economy or the R party. No up or down vote arrows either. That allows a few with a specific agenda to shout down dissidents who seemingly have no "support".

You can't even legally buy the namesake of the site in the state it is based.

Thu, 11/29/2012 - 14:58 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Sudden collapse or slow burn in hell?

<Either way we are all afflicted with the fiscal consumption.>

Thu, 11/29/2012 - 14:59 | Link to Comment q99x2
q99x2's picture

At least CNBC is using the loss in GDP (due to fiscal cliff) down to depression levels as a reason to ramp the markets another 1000.

Thu, 11/29/2012 - 14:59 | Link to Comment aymankkhlifat
aymankkhlifat's picture

  chart & idea 

Thu, 11/29/2012 - 15:18 | Link to Comment SheepDog-One
SheepDog-One's picture

So its gonna pop sometime, meanwhile day after day new market highs reached and new concrete floor poured.

Like Lagarde or someone just said, 'We all know what we'd have to do, but then we wouldnt know how to save our phony baloney jobs'.

So billions must suffer under a few worthless suits.

Thu, 11/29/2012 - 15:18 | Link to Comment AnAnonymous
AnAnonymous's picture

'Americans' are trapped in 'americanism'.

Go figure.

Thu, 11/29/2012 - 15:20 | Link to Comment SheepDog-One
SheepDog-One's picture

It's just pathetic, a whole nation dependant on free smart phones and food cards....we're no more advanced than Bronze Age people in fact probably worse.

Thu, 11/29/2012 - 15:48 | Link to Comment edifice
edifice's picture

Certainly worse-off. At least in those days, there was land available to bug out to. Everything's owned, now.

Thu, 11/29/2012 - 15:36 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Yes, so now the Chinese are adopting it.  This should turn out well.

Thu, 11/29/2012 - 16:52 | Link to Comment akak
akak's picture

Hypocritizenistic anti-American blameplacing is as AnAnnoyingUs does.

Thu, 11/29/2012 - 17:19 | Link to Comment New_Meat
New_Meat's picture

Made me guffaw ;-)

- Ned

Thu, 11/29/2012 - 15:20 | Link to Comment csmith
csmith's picture

Nothing more than a rehash of Clayton Christensen's "Innovator's Dillemma".

Thu, 11/29/2012 - 15:22 | Link to Comment Dr. Engali
Dr. Engali's picture

We are seeing this play out at an even faster pace with Apple right now.  The innovation that shook the mobile phone world up is gone and now it's just another run of the mill phone system.

Thu, 11/29/2012 - 15:28 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Apple's capitulation was the iPhone5. Actually the iPhone 4s to be more accurate.

<Caught in the incremental-upgrade-to-boost-stock price/earnings-cycle.>

[Disclosure....I own the iPhone5]

Thu, 11/29/2012 - 15:32 | Link to Comment Dr. Engali
Dr. Engali's picture

The wife and I stopped at the 4s and are now considering other options.

Thu, 11/29/2012 - 15:37 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

My tired old eyes are begging for a bigger screen. Maybe with the next upgrade cycle? :)

<We got an extra half inch this time.>

Thu, 11/29/2012 - 15:53 | Link to Comment Dr. Engali
Dr. Engali's picture

I hear you. It's getting hard on these 49 year old eyes reading the Hedge on this tiny phone.

Thu, 11/29/2012 - 15:44 | Link to Comment edifice
edifice's picture

That's what I did... Stopped at the 4. I also have stopped buying Macs, the last one being a 2009 MacBook Pro. Just won't do it, anymore; I don't like where the platform is going. It's too dumbed down.

Thu, 11/29/2012 - 15:51 | Link to Comment azzhatter
azzhatter's picture

Me too. Bought my last Apple product.

Thu, 11/29/2012 - 16:34 | Link to Comment lasvegaspersona
lasvegaspersona's picture

I have owned well over 50 mac products since the 80s. I have used them in a recording dtudio with ProTools (3 units) and to run a medical office (6 units) and a few iPhones along the way.... I am tired of change for change sake and the 'my way or the highway attitude I get from Apple. The Apple store is packed with iPhone and gimmick shoppers and a serious desktop issue is almost impossible to resolve for a business owner. The most recent OS upgrade eliminated my ability to navigate a Safari page with the scrol bar...gotta us up and down arrows....yep their way or the highway and never for any good reason that I can tell.

Thu, 11/29/2012 - 17:35 | Link to Comment Marco
Marco's picture

Oh I dunno, they have found a way of hitching a ride on the petrodollar system with their patent suits ... as long as the US market remains the consumer of last resort for the world and their foreign competitors get killed by Texas juries and the US trade commission they can keep raking it in AFAICS.

If the dollar crashes and burns their patents will crash along with it though.

Thu, 11/29/2012 - 15:24 | Link to Comment Piranhanoia
Piranhanoia's picture

ZHPress;  January 15, 2013;   Microsoft announces layoff of 1, 842 technical and administrative staff due to faiulre of Window9.  

Anonymous; January 16, 2013;   Anonymous announces upcoming software release, email, group communications and eventually most of the communication between MS clients throughout the world. Only companies acting against the will of the people are to be disassembled. 

January 17;   today, the internet was deemed too dangerous 

Thu, 11/29/2012 - 15:34 | Link to Comment Yen Cross
Yen Cross's picture

 Get er done/ I'm running to the Marina in Port Douglas/ Asia is a buy/sellU.S> dollars.  Bernanke put in Asia!

Thu, 11/29/2012 - 15:36 | Link to Comment Glass Seagull
Glass Seagull's picture

Humans demand differentiation.  This is why we have race, customs, languages, religions, etc.  The integration (read:  "Apple domination and resultant scorched earth policy") in smart phone land flies in the face of human evolution (as we demand differentiation), and is a temporary deviation from the norm.  How will Apple fight human nature and ensure this deviation persists?  They will turn an Iphone into something you have to have, as opposed to something you want to have.  When your Iphone is your driver's license, payment method, car key, house key, etc., you will have to have it.  No longer a want.  This is how they'll  fight 200K years of evolution.

Thu, 11/29/2012 - 15:47 | Link to Comment Floodmaster
Floodmaster's picture

Microsoft has sold 40 million Windows 8 licenses in the month , outpacing Windows 7. All that bashing from the non-users, bla bla bla... Windows 8 rocks !

Thu, 11/29/2012 - 16:28 | Link to Comment SomethingWicked
SomethingWicked's picture

I hope that was sarcasm - have you used Windows 8?  It's a controlling bitch of an OS.  Want multiple RDP windows visible at the same time?  DENIED.  Want to get rid of the metro interface? DENIED.  They are doing to Windows what they did to Windows mobile. . . more specifically they are trying to turn Windows INTO WinMo.   After running Windows 8 customer preview for three months I dumped all MSFT and advised anyone who would listen to do likewise.

I've been certified in managing Windows since NT back in. . . '96.  The current server OS is ok (2012), but the client OS is a total pass for business and home users.  I will not subject myself to the calls from my parents, wife, ex-wife, and various aunts and uncles asking for help with that mess.  I've told them all - stay windows 7.  I've told my boss - stay windows 7 or unleash the OSX/Linux beasts; anything but Metro!

I'm trying this from an OSX box after me and a co-worker talked my boss into getting one.  I may not agree with where apple is headed, but Microsoft is even further down the crapper.

Perhaps Plan 9 offers us hope.

/rant

Thu, 11/29/2012 - 16:58 | Link to Comment Floodmaster
Floodmaster's picture

I am using window 8 since the release preview and i am loving it. I pay for software and i don't care. OSX, Linux new painted kernel, ARM, crappy mobile apps, if i want to go retro I can just plug my old Amiga.

Thu, 11/29/2012 - 23:28 | Link to Comment Pseudo Anonym
Pseudo Anonym's picture

i hear ya,

unleash the OSX/Linux beasts

switched from windows to linux 11 years ago and never looked back.  if i need to run any app written for windows, i run it in wine ( http://winehq.org/ )

Thu, 11/29/2012 - 17:17 | Link to Comment blunderdog
blunderdog's picture

That's the first positive review I've seen for Windows 8.  Sadly, my current duties expose me to a LOT of dissatisfied customers.

Thu, 11/29/2012 - 21:54 | Link to Comment mendigo
mendigo's picture

Microsoft generally makes stuff that works and is reasonably priced
Other than IT people only pizza-faced geeks give a shit what os is running. People doing work do not spend much time at the os.
Any compnany that would rely on Google docs or open office to get work done has a problem. Great business model giving out free shit. Sadly goggle does a pretty bad job with software as in gmail interface and drive - nailed it with android it seems though.

Thu, 11/29/2012 - 15:47 | Link to Comment TahoeBilly2012
TahoeBilly2012's picture

CHS wtf? There is a big diff between MS and the US financial system...MS really is NOT trying to fail while your buddy Gordon Long claims the US Fin system IS planned to fail.

Are you with Long on that? And Zhedge has danced around this subject for a long time.

 

Are there or are there NOT powers that be which have arranged this collapse? Let's just say, in your best guess.

 

And yes Microsft sucks, no doubt a 12 year old could seemingly do better....

Thu, 11/29/2012 - 15:50 | Link to Comment Winston Churchill
Winston Churchill's picture

Yes.No.Maybe....

Thu, 11/29/2012 - 15:54 | Link to Comment rlouis
rlouis's picture

Timely piece: Not a chance I would ever buy Win 8.  Verizon people say they don't even have an MS phone -  is that for real?   Can't wait to step off the boat.

Thu, 11/29/2012 - 15:56 | Link to Comment kralizec
kralizec's picture

Red! Red! Red! Red!  Yes we can er, will!

Thu, 11/29/2012 - 15:56 | Link to Comment earleflorida
earleflorida's picture

excellent read and observation C H-S   

thankyou :- ))

Thu, 11/29/2012 - 16:13 | Link to Comment Floodmaster
Floodmaster's picture

Is it a freelancer 1$ article ? The graphics are unrelated to the subject ! How much is it for a decent article with graphics ?

Thu, 11/29/2012 - 16:24 | Link to Comment FredHayden
FredHayden's picture

"On those, the other moneymakers, Office and Exchange, run exclusively."

I guess the author is not familar with Mac Office.  Excel and Word have been running on Macs since the beginning.

Thu, 11/29/2012 - 16:26 | Link to Comment FredHayden
FredHayden's picture

.

Thu, 11/29/2012 - 16:26 | Link to Comment Aegelis
Aegelis's picture

Ooh, pretty charts with non-specific dates and lack of numbers.  Looks like the psychadelic-era finally produced some value after all. 

Thu, 11/29/2012 - 16:36 | Link to Comment falak pema
falak pema's picture

behind the picture, the dirty reality of decades of concoction to make the "skull n bones" the flag of true civilization again.

We are nearly there! 

Thu, 11/29/2012 - 16:49 | Link to Comment Carp Flounderson
Carp Flounderson's picture

what about escape from a previously unsuccessful model?  *cough austrian economics* cough.  lol@hyperinflation noobs.

Fri, 11/30/2012 - 06:37 | Link to Comment Supernova Born
Supernova Born's picture

Well, looks like a bunch of H1B's may have to look for a job in their home country and a bunch of underemployed American IT folks will remain underemployed.

Sad.

Thu, 11/29/2012 - 19:42 | Link to Comment illyia
illyia's picture

Nice job CHS. Pretty graphics. No one will understand the words in the real world but they will like the pictures.

 

Thu, 11/29/2012 - 23:00 | Link to Comment malek
malek's picture

While I am also watching with amazement the slow death of a former fantastic cellphone maker,
in all seriousness one has to point out that

1. Microsoft didn't buy Nokia (so far), they only paid $1 B to have only Windows installed on all new Nokia's smartphones.

2. Nokia smartphone sales would have crashed almost the same way without Microsoft being involved.

Fri, 11/30/2012 - 05:52 | Link to Comment Amagnonx
Amagnonx's picture

Open source, crowd funding, bitcoins, grow your own and trade locally - all tools for fighting the same enemy.

 

Here is one more - a mobile phone is for calling someone - if it can do that reliably, then its a perfectly good phone - if you dont believe that, then you should re-examine whether you actually have an independent mind.

Do NOT follow this link or you will be banned from the site!