American History 1988
Chapter 378 - 367 Transformation

Chapter 378: Chapter 367 Transformation

According to past patterns, Bit Company’s quarterly revenue usually ranged between 800 million to 1 billion US Dollars, with a net profit margin of around 23% either way.

After all, as a Dow Jones Index constituent and one of the few giants in the industry, Bit’s financial data has always been sound.

But as good as it was, as Bit became more entrenched in the industry over time, its growth began to slow.

This is a situation that any multinational corporation is bound to face once it develops to a certain extent.

The industry coined the term "Novigrod Theorem" to interpret the growth pattern of business development.

It roughly means that once a company’s market share exceeds 50%, it can no longer double its market share.

Almost anyone can understand this simple truth, but it reveals the roots of many multinational companies’ rise and fall.

Like people, a company also has its adolescent growth phase, stable middle age, and declining old age.

When a company is newly established, it is full of vitality with leading technology, yet it has a small market share.

At that point, the world is almost infinitely large to it, and as long as it focuses on its work, it can continuously conquer the market.

Then it will grow exponentially, without having to worry about room for growth.

Bit Company also once experienced such good times; between 1990 and 1994, its office application software market was able to ensure an annual growth rate of 40%.

But after Bit captured more than 60% of the office software market share, its growth was constrained by the entire industry’s development and began to slow.

Even if Bit continued to deepen its efforts in the office domain or introduced new products, it would be difficult to further consume the remaining market.

Because the companies that survive fierce competition must have their own unique strengths.

Their market share may not match Bit’s, but these unique strengths guarantee they retain a minimal market presence.

However, for Bit Company, it had to constantly find new points of growth to exceed Wall Street’s expectations.

Otherwise, as business develops to its upper limit, Bit’s growth would also enter a bottleneck.

At that point, forget about growth; its main task would be to maintain its base and defeat one challenger after another.

But few companies can remain evergreens in the industry; most peak and then gradually decline.

Technology is always changing, and disruptive innovations allow newcomers to challenge previous giants.

This is an objective law of societal advancement; who can guarantee everlasting invincibility?

Wall Street understands this principle, so when a company enters a bottleneck, they expect it to find new growth areas.

If that doesn’t happen, sorry, capital will abandon you without hesitation.

What follows is Wall Street lowering your stock rating, with the stock market subsequently plummeting, entering a long, continual decline.

More troubling is that unlike traditional industries, a tech company can mature too quickly and might saturate within just a few years.

Although Bit Company has not yet reached a bottleneck, it is foreseeable that in a few years it must face the same issue many other titan companies have encountered—expansion or transformation.

Expansion means horizontal development based on existing business, such as Bit extending from office software to providing information technology solutions for enterprises, which is a form of "expansion".

Microsoft expanded from the operating system Windows to the application software Office, which is also a type of "expansion".

However, when expansion also tends toward saturation, they have no choice but to consider another way to break through the bottleneck—transformation.

For a company that dominates a global sector, failing to foresee market saturation early on is very dangerous.

Dean encountered this situation very early, and he established the Consumer Business Division two years in advance.

At that time, Bit Company’s growth rate was still at its peak, and the Novigrod Theorem had not yet become a limitation.

Even now, Wall Street is optimistic about Bit’s development, because Bit’s expanded information technology solution business was also successful.

In this market, Bit even managed to compete with IBM.

So although Bit’s growth has slowed down, it is still some distance from the upper limit, and they don’t have to worry about business growth.

Wall Street’s rating for Bit’s stock is still "Buy", but during this seemingly calm period,

Bit’s latest quarterly financial report was released, and its revenue was no longer the "800 million to 1 billion US Dollars" that Wall Street had estimated.

The number was 1.38 billion US Dollars! For a moment, many Wall Street analysts thought they had gotten the wrong report.

Because in the first two quarters of this year, Bit’s financial reports had been steady, usually fluctuating by no more than 10%.

Moreover, according to the global office software market conditions, there hadn’t been any significant events.

So where did this quarter-over-quarter increase of 38%~47% for Bit come from? Don’t underestimate this growth of nearly 50%.

With Bit Company’s scale, as an industry giant, a 10% growth rate would be a cause for champagne.

Not to mention an exaggerated 40%—look, just one quarter provided an additional 380 million US Dollars; now, how much is that for 4 quarters?

Shareholders, investors, market analysts all began to scrutinize Bit’s financial reports.

Then they noticed the extra column in the previous charts—the Consumer Business Division with a revenue of 420 million US Dollars.

My God! Many people rubbed their eyes, making sure they weren’t seeing things.

Consumer Business Department? Some people haven’t even heard of this department.

Because of the early-stage cash-burning behaviors and Bit’s intentional low profile, the presence of the Consumer Business Department was minimal in the eyes of the outside world.

Apart from shareholders knowing of its existence but never turning a profit, nobody paid attention to it.

However, now things were different. This suddenly emerged department had actually boosted Bit’s quarterly revenue by nearly half.

For Wall Street, this was undoubtedly a major earthquake. As a result, on the day the financial report was released, Bit’s stock began to soar.

The response of the capital market is so sensitive that on the same day, Bit’s market value increased by 15%.

Experienced analysts all knew that this was not the end. The growth would last at least for about a week.

Because the analysis report on Bit’s revenue surge had not been disclosed yet, that was the weathervane for Wall Street’s stock market.

However, the investors and shareholders did not have to wait long. Known as the "Internet Queen," Mary Kmil, released the latest assessment report on Bit.

Even before Bit went public, she accurately predicted that the company would succeed.

Latterly, an "Annual Internet Report" at the beginning of the year made her famous.

In that report, Mary Kmil plainly stated that Netscape would start a new era and that the internet economy would be the driving force of society for decades to come.

Many on the East Coast scoffed at this, until Netscape went public and the report finally caused a sensation.

Morgan Stanley, where she worked, received requests from nearly a hundred investment institutions for the report in almost a single day.

Mary Kmil is now a star on Wall Street, and countless investors study every report she issues.

The "Detailed Analysis of Bit’s Consumer Business Department" was no exception, partly because of the collaboration between Morgan Stanley and Bit.

Mary Mikkel was allowed to conduct on-site interviews at the Consumer Business Department, so she had lots of first-hand information.

In this report, Mary Kmil not only interviewed the head of the Consumer Business Department but also conducted an in-depth investigation of the department.

Then she discovered the "Toktok Game Center," a secret weapon that skyrocketed Bit’s quarterly financial report.

"Before I officially came into contact with them, I had never heard of flash games, nor knew their original purpose was to create animations.

But it’s these seemingly childish cartoon images that are hugely popular on the Internet and have created unimaginable wealth for Bit.

Even the head of the Consumer Business Department, Thomas himself admits that the popularity of flash games exceeded their initial expectations.

Why flash games are so popular is a topic we will analyze separately later.

For Wall Street, or the industry as a whole, it’s Bit’s strategic transformation that merits our study.

Yes, the Consumer Business Department is the best proof of Bit’s transformation.

Thomas told me that when they first established the Consumer Business Department, nearly half of the board members opposed it.

Most people believed that Bit’s core business was in office software, which is a completely different field from the consumer market.

The differences are in the user base, marketing direction, product development philosophy, and payment methods.

No company would make such a significant change in its line of business.

It’s like Apple Inc. suddenly announcing they’re going to make chips, an area they’re not skilled in.

But the fact proved that Bit had completed its transformation, becoming a comprehensive internet company.

It is a new concept, and it is currently the only IT company that has achieved significant success in the traditional software market and has also obtained huge benefits from the internet wave."

Mary Kmil changed the positioning of Bit, no longer considering it purely a software company.

It has the "traditional" aspect as well as the "rule-breaking" side of an internet company.

Undoubtedly, Bit has broken through its upper limit, and web games seem to be a whole new blue ocean.

As a Wall Street star, Mary Kmil’s analysis reports can even influence the stock market.

Her analysis of Bit’s Consumer Business Department unlocked the secret behind the latter’s revenue surge last quarter.

Although many people still do not understand what flash games are, that does not prevent them from starting to buy Bit’s stocks.

Bullishness is one aspect, and another reason is Bit’s dividends.

The Consumer Business Department had revenues of over 400 million US Dollars in the first quarter, and the outlook for the next quarter is even more optimistic.

With Bit’s good reputation, buying their stocks now would likely lead to actual dividends later.

Thus, by mid-October, following a continuous two-week rise, Bit’s market value was closing in on 30 billion US Dollars.

It was indisputably the world’s second-largest software giant, just behind Microsoft.

Also, because of Bit’s quarterly financial report, flash games suddenly became the hot topic for many companies’ research.

Everyone wanted a slice of the pie, including many traditional IT companies.

Of course, before things progressed further, another event drew the public’s attention.

In October, the annual Forbes 400 was published.

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