Cannibalization Choice

The record

1. 2008

   BlackBerry

   Held

   Whether to cannibalize its keyboard phones by fully building the touchscreen future, or to hedge and protect the existing keyboard margin

   • Fully cannibalize keyboard — Pour money and best engineers into a touchscreen that makes keyboard phones obsolete
   • Hedge with the Storm — Build a touchscreen that preserved keyboard click-feel to avoid offending the old buyerchose this
   • Defend the keyboard — Keep answering the enterprise buyer who still wanted a physical keyboard

   Stated reasonLeadership chose to defend the existing keyboard margin rather than cannibalize it, trying to answer the iPhone while preserving the keyboard's click-feel

   What happened

   • 2011 revenue: revenue topped out at $19.9 billion in fiscal 2011, up 33% from the year before
   • 2014 global smartphone share: fell for seventeen consecutive quarters, down to 0.5% by early 2014
   • 2016 global smartphone share: effectively zero by 2016
   Read the full analysis →
2. 2011

   Netflix

   Reversed

   How to move customers from profitable DVD-by-mail to streaming: fold the businesses together or split them apart

   • Split DVD into Qwikster — Spin DVD-by-mail into a separate brand with its own site and loginchose this
   • Keep one bundled service — Fold DVD and streaming together on one account, as before

   Stated reasonLet the declining DVD business die gracefully on its own track while streaming runs free, pushing customers toward streaming faster

   What happened

   • 2023-09-29 DVD-by-mail end: shipped its final DVD-by-mail discs, the last disc being 'True Grit'
   • 2011 U.S. subscribers: lost about 800,000 U.S. subscribers - its first-ever domestic quarterly decline
   • 2011-10-10 Qwikster spin-off: Netflix canceled the Qwikster spin-off, keeping DVDs on netflix.com
   Read the full analysis →
3. 2014

   Microsoft

   Held

   Whether to keep building around Windows or pour the next dollar into cloud

   • Keep protecting Windows — Continue building the franchise around the desktop flagship
   • Reweight toward cloud — Direct new investment to recurring, consumption-based cloud revenuechose this

   Stated reasonCloud revenue is recurring and grows with usage, while Windows license revenue arrives once per hardware cycle

   What happened

   • 2025 Total company revenue: climbed to $281.7 billion, up 15%, with operating income up 17% to $128.5 billion
   • 2025 Azure annual revenue: surpassed $75 billion in annual revenue in FY2025, growing 34%
   • 2025 Windows OEM and Devices revenue: rose 3% in FY2025
   Read the full analysis →
4. 2019

   Disney

   Held

   Whether to build a direct-to-consumer streaming service to replace ESPN's eroding cable affiliate business

   • Build streaming replacement — Launch Disney+ and direct-to-consumer streaming to replace the eroding bundlechose this
   • Stay with cable bundle — Refuse to build streaming and rely on declining affiliate fees

   Stated reasonWith cord-cutting already eroding affiliate households, streaming was the only move left rather than a bold offensive bet

   What happened

   • 2023 ESPN household penetration: ESPN household penetration fell to 71 million in fiscal 2023, down from 74 million the year before
   • 2024 DTC operating income and revenue: combined DTC operating income reached $143 million on $22.776 billion of revenue
   • 2024-03 first quarterly DTC operating profit: first quarterly operating profit was $47 million in the quarter ending March 2024
   Read the full analysis →
5. 2020

   Comcast / NBCUniversal

   Held in part

   Whether to build a streaming service that competes with Comcast's own dying cable business, rather than defend cable

   • Launch Peacock streaming — Build own streaming service to keep customers in the ecosystemchose this
   • Defend cable bundle — Protect the legacy pay-TV subscribers and inventory
   • Cede streaming to rivals — Let customers migrate to Netflix and Disney+

   Stated reasonCable was collapsing across the industry regardless, so Comcast chose to lose customers to its own app rather than to competitors and stay in streaming

   What happened

   • 2024 Peacock revenue: revenue hit $4.9 billion in 2024, up from $3.4 billion the year before
   • 2024 Peacock EBITDA loss: annual EBITDA loss shrank to $1.79 billion from $2.75 billion
   • 2026 path to profit: Peacock expected to 'approach profitability' in Q2 2026
   Read the full analysis →
6. 2023

   Tesla

   Held

   Cut Model Y price to clear the IRA cap and chase volume, or hold margin

   • Cut price for volume — Drop Model Y $13,000 to clear the IRA $55,000 cap and chase deliverieschose this
   • Hold the price and margin — Keep the elevated Model Y price and defend gross margin

   Stated reasonManagement said it made sense to sacrifice margins in favor of making more vehicles, and the cut let the car clear the IRA's $55,000 SUV cap to unlock the $7,500 credit

   What happened

   • 2024 Q1 2024 operating margin and free cash flow: Q1 2024 operating margin fell to 5.5% and free cash flow turned negative at -$2.531 billion as automotive revenue dropped 13% year over year
   • 2025 FY2025 deliveries: Deliveries fell to 1,636,129, a second consecutive annual decline
   • 2023 FY2023 gross margin: Gross margin fell 735 basis points to 18.2% from 25.6%, and total gross profit shrank from $20.85 billion to $17.66 billion despite record volume
   Read the full analysis →
7. 2024

   Cisco

   Held

   Whether to buy a software identity via a $28B Splunk acquisition or build recurring revenue organically

   • Acquire Splunk — Buy $4.3B of ARR and a software identity for roughly $28 billionchose this
   • Build organically — Convert existing software base to subscriptions over years

   Stated reasonSplunk gave Cisco a market-leading asset in the AI-and-security budget categories draining away from networking

   Committedroughly $28 billion in cash (largest acquisition in Cisco's history)

   What happened

   • 2024-11 Networking revenue Q1 FY2025: networking revenue fell 23% year over year to $6.75 billion
   • 2025-02 Q2 FY2025 revenue ex-Splunk: excluding Splunk, total revenue actually declined 1% year over year
   • 2024 FY2024 ARR: total ARR hit $29.6 billion, up 22%, including $4.3 billion from Splunk
   Read the full analysis →
8. 1983

   Samsung

   Held

   Whether to buy memory-chip know-how or develop it in-house

   • License know-how from Micron — Pay Micron cash and fab its DRAM designs to enter fastchose this
   • Develop technology in-house — Build memory capability on homegrown engineering alone

   Stated reasonYou cannot reverse-engineer a market you are not already inside, and the license was the ticket in

   What happened

   • 2023 Global semiconductor revenue share: about 7.5% of total global semiconductor revenue
   • 2025 Smartphone market share: shipped 241.2 million smartphones for a 19.1% global share, edged out of the top spot by Apple's 20%
   • 2025 Revenue: record revenue of roughly $233 billion
   Read the full analysis →
9. 2000

   Amazon

   Held

   Where to place third-party sellers: in a separate destination or on Amazon's own product page

   • Separate seller destination — Send third-party sellers to a standalone auction site or storefront tab
   • Third-party on own page — Place third-party listings directly on Amazon's product detail pagechose this

   Stated reasonLet third-party sellers compete against Amazon's own retail managers on the very page the buyer has already opened

   What happened

   • 2026 third-party share of paid units: third-party sellers account for 60% of paid units on Amazon
   • 2001 share of units sold: Marketplace accounted for roughly 5% of units sold
   • 2001 monthly gross merchandise sales: more than tripled in its first four months
   Read the full analysis →
10. 2012

    Diageo

    Held in part

    Whether to lock capital into a decade-long aged-whisky reserve as a scarcity moat

    • Build the aging reserve — Commit capital now into barrels that mature over a decade to build a scarcity moat.chose this
    • Hold back capital — Distill less and keep cash free for debt and shareholders rather than locking it in oak.

    Stated reasonScotch net sales had grown 50% over the prior five years, and the bet was that demand would keep climbing

    Committedroughly £1 billion (To expand Scotch capacity 30–40% and build new warehousing; a further $115 million distillery in Kentucky was added in 2014.)

    What happened

    • 2024 Maturing inventories: reached $7.8 billion, up more than 42% over five years
    • 2025 Net sales and leverage: net sales essentially flat at $20.2 billion, net debt $21.9 billion, leverage 3.4x, outside the 2.5–3.0x target range
    • 2025-09 Production halts: temporarily ceased production at Balcones, George Dickel, and Teaninich, cutting 17 roles at Balcones
    Read the full analysis →
11. 2012

    Facebook

    Held

    Whether to keep the HTML5 hybrid app or rebuild the mobile app in native code

    • Keep HTML5 hybrid app — Continue running one web-based codebase across every phone.
    • Rebuild in native code — Replace the sluggish HTML5 app with a native iOS build.chose this

    Stated reasonThe HTML5 app felt slow, and slow is fatal on a device people use constantly; the native rebuild made stories render faster and doubled consumption

    What happened

    • 2012-09 Feed story consumption: People consumed twice as many feed stories since the native iOS app update
    • 2012 Mobile share of ad revenue: Mobile revenue was ~23% of ad revenue in Q4 2012, up from ~14% in Q3 2012
    • 2013 Mobile crossover: Mobile advertising revenue comprised over half of overall advertising revenue and mobile MAUs exceeded personal computer MAUs in Q4 2013
    Read the full analysis →
12. 2014

    Philip Morris International

    Held in part

    Whether to reallocate capital to a heated-tobacco device meant to cannibalize its own cigarette

    • Cannibalize with IQOS — Invest billions to replace Marlboro with a heated-tobacco devicechose this
    • Defend combustibles — Keep milking the high-margin cigarette cash cow

    Stated reasonThe most credible self-disruption in tobacco, betting on a smoke-free replacement for its own product

    What happened

    • 2023 IQOS vs Marlboro net revenues: IQOS surpassed Marlboro in net revenues
    • 2025 smoke-free share of net revenues: smoke-free products were 41.5% of total net revenues
    • 2021-09-29 US market access: ITC ruled IQOS infringed two patents and ordered PMI to halt US imports and sales
    Read the full analysis →