Your BCG Matrix

Post #28

Author

Puneet Khushalani
June 05, 2024

The BCG, or Growth-Share, Matrix is a simple framework that helps companies decide how to prioritize their product lines. Products are one of four categories: Stars, Cash Cows, Question Marks, or Dogs. 

Let’s take Microsoft. The company retains a roughly half-trillion dollar balance sheet, with its properties, plants, and equipment accounting for $121B or about 25% of its assets. 

Not all of those assets are created equal, however. This is where the growth-share matrix comes in handy. Microsoft managers can use this framework to understand which of their products they should continue to invest in, and which they should divest. 

Microsoft 10Q - Ended April 30, 2024

Azure, Microsoft’s Cloud Computing division, posted a $4B year-over-year gain, or +24%

  • Compared to Amazon Web Services and Google Cloud, Microsoft Azure has 44% market share (source). 

Windows, Microsoft’s legacy operating system, posted a $600M gain, or +11%

  • Compared to Apple’s desktop OS, Chrome OS, and Linux, Windows has 74% market share (source).

Gaming, which includes both XBOX and Activision Blizzard, posted a $1.8B gain, or +51% 

  • Xbox holds 30% of global market share vs. Playstation’s 70% (source). 

  • Activision Blizzard, prior to acquisition, held 35% of the market (compared to EA at 32% and Take-Two at 23%*). 

Devices, which includes Microsoft Surface and HoloLens, posted a $215M loss, or -17%. 

  • Windows devices hold 0.02% of market share compared to giants Apple (iOS) and Google (Android) (source). 

*Statista report comparing revenues of Activision Blizzard, EA, Take-Two, and Ubisoft

Based on the analysis above, it becomes very clear that Microsoft should continue investing in Azure. The firm should also maintain its Windows dominance to feed investments in Cloud and AI. Further, its devices division is dragging it down and likely will be cut in the face of economic downturn. 

What’s less clear, naturally, is its Gaming question mark. Xbox is currently losing in the console wars, but the company did just make a $75B acquisition in Activision Blizzard. Microsoft making a big bet on the video game publisher likely means they see Gaming as a growth driver. Time will tell if Gaming is Microsoft’s next Star.

The whole point of the BCG matrix is to quickly divest from dogs, turn promising question marks into stars, and cull ones that won’t help the company sustain growth.

You too can use the BCG growth-share matrix in your personal and professional life.

We can alter the axes, with Market Share becoming Spend Share and Market Growth becoming Potential Growth. 

Owned Investments. A well-diversified stock portfolio can return 20% a year. In a similar vein, real estate typically appreciates at 3-5% a year, with the potential for cash flow as well. 

Any wealthy person will tell you that asset ownership is how true wealth is built, so your Star should be figuring out ways to acquire owned investments: stocks, bonds, real assets, and businesses. 

Responsibilities. Your day job is important, and likely brings in most of your cash-flow currently. However, if it’s taking too much of your time, you’ll have fewer resources to invest into your Stars. Find a way to milk this Cash Cow, without spending too much time in the barn. 

Exercise is similar. It’s a necessity, but should not be taking more than 2 hours of your day. There is a point of diminishing returns with exercise, ensure you’re not hitting up against it. 

Side Hustles. Experimenting with different income streams is an important way to diversify your life. Diversification will protect you against risks like layoffs or market downturns. 

Not all your experiments will work, that’s to be expected. Quickly kill off the Question Marks that don’t show promise and grow the positive ones into Stars. 

Binges. Anything that takes from you and doesn’t return much in the long-term should be minimized. This doesn’t mean relaxing in front of the TV after a long day or going to a social event and having a few drinks. Those are beneficial for your overall life. 

This means excessive binging of short-term pleasures. Binging TV every night, going out to the local bar multiple times a week, these are the activities that will hurt long term. These are the dogs.

(Ironically, a pet will take from you, but bring you a ton of psychological return. Get a pet.)

The left side of the matrix is relatively straightforward, milk your cash cows and invest in owned assets. Your job is to optimize with the right side. Experiment with side hustles and quickly cull the ones that don’t serve you.

Live Intentionally,

PK