S-Curves

At Garden Capital Management one of the most important indicators we use to identify long-term investment and societal trends is the S-Curve. It's pattern has been surprisingly accurate at determining almost every single technological advancement over the course of human history, especially during the past and current centuries. In this article, we will explain what an S-Curve is, it's importance and how we use this predictable phenomena to determine investment opportunities.

What is an S-Curve?

An S-Curve describes the rate of adoption a product, service or technology encounters over the course of time from when it is first introduced to the end of it's life cycle. Charted against an XY axis, it starts by a shallow slope which is often early adopters being the first to participate, followed by a steep ramp in adoption by a early majority, which is then followed by the late majority and laggards (think grandmother and her purchase of a smart phone). Eventually the technology in question penetrates the entire addressable market. The S-Curve has been plotted out by many technologies such as the smartphone and cloud computing as well as many household items such as the television, dishwasher, vacuum cleaner and microwave oven.
This trajectory plotted out is often in a familiar shape of an S (hence the "S" in S-Curve).

Why are S-Curves important?

S-Curves provides us important insight on upcoming societal patterns which in return can be matched with potential investible companies. For example, the adoption of smartphones told us the story of Apple uncovering a paradigm shifting addressable market which became a muti trillion dollar opportunity.

Credit: Horace Adeu Asymco

Another reason to follow S-Curves is to measure progress and to track the success of a questioned technology from early adopters to general population. Once a technology or product has surpassed approximately 10-15% of the general population, typically a swift ramp up in adoption is expected. If this does not occur, then the S-Curve is unrealized, which in turn suggests the technology is not expected to saturate the population.

How S-Curves develop

A key indicator of when a technology's S-curve is changing from it's early adopter stage to mass adoption is the decline of cost which makes the technology more accessible to the general populace. Another reason for S-Curves developing is when an incumbent technology is ripe for disruption because the it cannot serve to solve a problem. Using the mobile phone example, previous phones only were effective in one type pf communication. Smart phones offered more ways than one to allow people to communicate with one another.

The Future of the S-Curve looks more like a "J"

One interesting takeaway for all of this is that as time progresses, we have seen a shortening of time from when a technology is introduced to when it reaches peak saturation.

Source: Our World in Data

The washing machine took approximately 70 years to reach 80% saturation while the mobile phone took only 15. The curve is even shorter in software. Instagram took a little over 2 years to reach 100 million subscribers.

Key Takeaways

• S-Curves plotted along a chart, start with:
  • Innovators and Early Adopters (0-20%)
  • The Majority (20-80%)
  • Laggards (80-100%)
• As cost decline, there are increased opportunities for the general population to participate in the given product of technology
• Almost every popular technology has followed the s-curve phenomena
• Learning about emerging technologies can help us determine if it has potential of an S-curve as it plots it's way along time and is adopted by the general population.