Critical mass means that your business has reached a point where it has enough users and/or developers that your business kicks into a virtuous feedback loop where more users bring in more developers and more offerings from developers bring in more users.
A winner-takes-all market is when only one or two or maybe three providers dominate 90% of the market.
Technology, software, operating systems, eco-systems — smartphones, tablets, computers — are markets that meet all the above criteria.
A binary outcome means that there are only two possible outcomes from polar opposite sides, such as dead/alive, yes/no, success/failure and so on.
Microsoft’s new Windows 8, the Surface tablets, and the Nokia smartphones sure better take off and take off fast with consumers because it sure hasn’t taken off fast with developers as there are few apps available out there for the new Tablets and smartphones. I’ve been surprised that I’ve not seen other analysts point out just how similar the set up for Microsoft’s Surface tablet and the once-hyped and soon-failed RIMM Playbook tablet. Same price points. Same lack of email app. Same rushed out feel as Softee won’t have the Windows 8 version of the Surface tablet out until after Christmas season. What’s the difference between the Windows 8 version and the Windows RT version that comes out tomorrow? One’s really Windows 8 and the other is a lower end knock off. Sound like a winning strategy?
Windows 8 for PCs is such a big risk for Microsoft and its customer base of both business and consumers which still make up 90% of the market need to respond favorably to the new feel of the new OS quickly or the virtuous cycle of critical mass of developers and customers for Softee will quickly turn as vicious as it did for RIMM after the Playbook and other failed roll outs. Zune, Kin, and miniscule market share for Windows smartphones has burnt many a developer bridge.
I went back and looked at what happened to RIMM the stock when RIMM rolled out the Playbook tablet to see if there were any lessons we could take from that for a Softee trade here. RIMM’s stock action immediately after the roll out will shock you. You can click on the link below to play out this scenario from my new game Stock Market Events That Mattered (Or Did They?):
All this brings me back to that binary outcome set up. I think MSFT is set up to either rally 30% or drop 30% over the next three-to-six months. I’m going to buy some MSFT calls with $28-$29 strike prices expiring out six months or less. And I’m going to buy some MSFT puts with $27-$28 strike prices expiring out six months or less. That way if the stock does move big in either direction, we’lll likely make some big gains on the options that work and we’ll lose much less on the options that don’t work. The big risk would be if MSFT stays rangebound here between $27 and $30 and the none of the options end up paying off big.