A Brief Analysis of Groupons Profits-Revenues Data

Summary
Groupon is a relatively new web-based company, founded in October 2008. It became a public company in November 2011. However, the company has reported a profit for only 4 out of 14 quarters for which data is available. It reported a small profit for 1Q2010. Since then, although revenues have increased steadily, the company has consistently reported a loss. Nonetheless, things have been actually improving, with the losses decreasing with increasing revenues. Groupon has finally reported a small profit again for 2Q2012. The profits and revenues data is shown to follow a simple linear law y = hx + c = h(x x0) where x is revenues and y is profits. This is a consequence of the classical breakeven analysis for the profitability of a company. Depending on the numerical values of h and c (which can be either positive or negative), we have at least three possibilities: Type I behavior (h > 0, c < 0) increasing profits and profit margins with increasing revenues, Type II (h > 0, c > 0), increasing profits but decreasing profit margins with increasing revenues, and Type III (h < 0, c > 0), decreasing profits and profit margins with increasing revenues. Early in 2009, Groupon was operating in the Type I mode and reported a profit for 2Q2009 and 3Q2009. It then made a sudden jump to report a loss in 4Q2009 which began the prolonged period of Type III behavior with losses increasing (profits decreasing) with increasing revenues. It has recently made a transition back to Type I mode, which began in quarter ending Dec 2011 and has now reported a profit again for 2Q2012. A very brief description of this transition is provided here with a more detailed discussion available in a companion article, click here http://www.scribd.com/doc/103027366/Groupon-Analysis-of-ProfitsRevenues-Data-and-its-Business-Model ******************************************************************
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1. Introduction
The main purpose here is to provide a brief analysis of the available profits and revenues data for Groupon Inc., which was started in October 2008. It became a public company in November 2011. Its IPO was the biggest for a US web-based company since Googles IPO in 2004. Groupon has just filed its second quarter financial results on August 14, 2012 (for quarter ending 6/30/12) and has reported a profit of $28.39 million with revenues of $568.34 million, for a profit margin of 4.99%. The profits-revenues data has been compiled, for convenient review, in Table 1, which may be found at the end of this article.
40

Quarterly Profits, y [$, millions]

20 0

Profits

Losses
-20 -40 -60 -80 -100 -120 -140 0 100 200 300 400 500 600

Quarterly Revenues, x [$, millions]

Figure 1: The quarterly profits and revenues data since March 2011 indicate a general decline in the losses with increasing revenues. The only exception to the general upward trend is the data for quarter ending Sep 30, 2011. Has Groupon revenues exceeded the breakeven revenue needed for sustained profitability? See also an alternative view of this same data provided later in Figure 5.
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Based on the available profits-revenues data, the company last reported a profit for the quarter ending March 31, 2010. The profits were $8.551 million with much smaller revenues of $20.272 million. The profit margin was a whopping 42.2%. However, the company was not able to sustain this high rate of conversion of revenues into profits in the subsequent quarters. Although the revenues increased steadily, losses were reported, consistently, starting with 2Q10. A turn around, which has resulted in the first profitable quarter since March 2010, began with the quarter ending Dec 31, 2011. Losses have been decreasing since then, which is mathematically equivalent to an increase in profits. Thus, it appears that Groupon may have achieved its breakeven revenues, see Figure 1, and is now ready to report profits consistently.

2. Linear Profits-Revenues Law and Breakeven Analysis

It has not been appreciated that all companies follow a simple and universal linear law, y = hx + c, which relates revenues x and profits y. The constants h and c in this law can be deduced using the available financial data. Indeed, this linear law can be shown to be the consequence of the classical breakeven model for the profitability of a company. Consider a company making and selling N units of some product (e.g., internet coupons offering a discount, in the case of Groupon). The total cost C associated with the operation is the sum of the fixed costs a and the total variable costs bN where b is the unit variable cost. Thus C = a + bN. If p is the unit price, the total revenues generated R = pN, or equivalently, units N = p/R. Hence, the profits P = Revenues Costs = R C = pN a bN = (p b)N a. Eliminating N using we get, P = [(p b)/p] R a which is a linear relation between profits P and revenues R and can be rewritten as y = hx + c, where Slope h = (p b)/p = 1 (b/p) - Depends on unit variable cost b and unit price p Intercept c = - a - Depends on the fixed cost a
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Although deduced here by considering a single product, the linear law can be shown to hold for a number of companies, large and small. Some examples are Microsoft, Apple, Google, IBM, Southwest Airlines, and Exxon Mobil. Depending on the numerical values of h and c (which can be either positive or negative), we have at least three possibilities. 1. Type I company (h > 0, c < 0): Profits and profit margins increase with increasing revenues. (The reverse is also observed, i.e., profits decreasing with decreasing revenues and is called INVERSE Type I behavior.) 2. Type II company (h > 0, c > 0): Profits increase with increasing revenues, but profit margins decrease. (Companies are usually observed to make a transition from Type I behavior to Type II behavior with increasing revenues, as seen, for example, with Microsoft). 3. Type III company (h < 0, c > 0): Both profits and profit margins decrease with increasing revenues. (Sometimes, even the opposite is observed, i.e., profit and profit margins INCREASE with DECREASING revenues). Each of the linear laws described here applies over a limited range of revenues (and profits). Transitions from one type of linear behavior to another (Type I to Type II, or Type I to Type III, or Type I to Type II to Type III) are observed and the general profits-revenues law is a smooth curve with a maximum point. We thus observe small linear segments of a more general non-linear law, which can be written as follows. Further details about the implications of this general nonlinear profits-revenues law may be found in the companion article. y = mxn [e-ax /(1 + be-ax) ] + c (1)

The linear law is deduced as a special case for n = 1, a = 0, and b = 0. The power law, y = mxn + c, is deduced as a special case for a = 0 and b = 0. Profits increase with increasing revenues at an accelerating rate (n > 1) or a decelerating rate (n < 1). For n = 1, we get the linear law. The power-exponential law, y = mxne-ax + c, is deduced as a special case for b = 0. The x-y graph now reveals a maximum point at x = n/a.
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 The case of a 0, b 0 and n 1 is the most general and again reveals a maximum point. The profits-revenues data for several real world companies can be shown to reveal such a maximum point. Some examples of companies operating past their maximum point are Ford Motor Company, General Motors (which went into bankruptcy in June 2009), Air Tran (which entered into a merger with Southwest Airlines), Southwest Airlines (even prior to Air Tran merger), Yahoo, Verizon Communications, and Kroger. Zynga, which also became a public company very recently (in December 2011) can also be shown to reveal a maximum point. The implications of the appearance of the maximum point and prolonged operation in Type III mode (profits decreasing with increasing revenues) have been discussed in detail in the articles cited in the bibliography and so will not be repeated here. The various transitions outlined (including Type III behavior and operation past the maximum point), very simply put, are due to increasing costs as the company grows and its revenues increase. As we will see shortly, Groupon has been operating in the Type III mode and seems to be making a transition to Type I mode. This transition also reflects the increasing costs of operation as revenues have increased.

3. Analysis of Profits-Revenues data

Groupon is an interesting company for two reasons. First, it is an infant company with only three full years of operation. Second, unlike Microsoft, which reported its first ever quarterly loss in 26 years, for 4Q2012 (for the full fiscal year Microsoft did report a profit), Groupon has been reporting quarterly losses rather regularly since its inception in October 2008. The quarterly data for 2009 has been included in Table 1 which may be found in Appendix I. Prior to the quarter ending June 30, 2012, Groupon has reported a profit for only three other quarters.

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Let us consider the evolution of revenues and profits in 2009, soon after the company was founded. Groupon reported a loss in 1Q2009. In 2Q2009, revenues increased and Groupon reported a profit. The profit margin y/x was rather small, only 0.6% (see Table 1). Notice that x = $3.049 million and y = $0.33 million yielding a positive slope h = y/x = 0.108. In the following quarter, 3Q2009, revenues increased again (x = $6.697 million) and Groupon reported a profit once again (y = $0.829 million). The slope h = y/x = 0.124. The profit margin y/x, however, increased dramatically to 8.5%. If we consider the overall change between 1Q2009 and 3Q2009, x = $9.746 million and y = $1.159 million and the slope h = 0.119.
1.20

Quarterly Profits, y [$, millions]

1.00 0.80 0.60 0.40 0.20 0.00 0

Type I, line y = 0.12x 0.34 = 0.12 (x 2.85) y/x = 0.12 (0.34/x)

10

12

14

16

-0.20 -0.40
-0.60

Quarterly Revenues, x [$, millions]

Figure 2: The profits-revenues graph for the period 1Q2009 to 3Q2009. Revenues increased with each succeeding quarter, profits increased, and profit margins also increased. The three points are seen to lie on a nearly perfect straight line with a positive slope (h > 0) and a negative intercept (c < 0) in the y-axis (profits-axis). In fact, the three slopes are seen to be roughly equal to each other. On a x-y graph, see Figure 2, the three data points can be seen to lie on or very close to the straight
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line, with the equation y = 0.12x 0.34 = 0.12 (x 2.85). This equation is deduced by considering the two extreme points and is a Type I line (h > 0, c < 0). This also means that there is a cut-off revenue x0 = $2.85 million, above which profits will appear. This was the situation for 2Q2009. Profits and revenues continued to increase along the same Type I line through 3Q2009. Also, it is now easy to see why the profit margin y/x increased from 1Q2009 to 3Q2009. The linear law means the ratio y/x = 0.12 (0.34/x) will increase as x increases along the Type I line. A straight line can always be drawn between any two points in (x, y) space. Here, however, we find three points lining up nicely on a straight line. Why do the three data points fall on a nice straight line instead of just being scattered? After all, the profit margins vary widely. (The annualized profits-revenues data points for Zynga, click here, do NOT fall on a single straight line.) Why is it a Type I line, rather than a Type II or Type III line? This has to do with the organizational structure of the company being studied. This structure dictates how costs increase with increasing revenues. The simple breakeven model teaches us that profits will appear only if revenues exceed a minimum amount, the fixed cost a. As revenues increase further, not all of the revenues will be converted into profits because of the variable cost. Only a portion (pN bN) will appear as profits. The rate of conversion of revenues into profits is given by the slope h = 1 (b/p). The lower the unit variable cost b the higher the slope h. Also, the higher the unit price p, the higher the slope h. It is this subtle interaction of costs and revenues, in other words, the organizational structure, or the business model of the company, which dictates whether the three (or more) data points that we have just considered fall on a Type I line or a Type II line, or even a Type III line. As we from the profits-revenues data, Groupon was not able sustain this profit generation rate beyond 3Q2009. For 4Q2009, Groupon reported a loss, which implies a sudden jump in the costs, i.e., a change in the nonzero intercept c. The
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(x, y) pair for 4Q2009l, see Figure 3, falls well below the Type I line. This began the prolonged period of what may be called Type III behavior with losses increases (or equivalently profits decreasing) with increasing revenues. This is illustrated in Figure 4, where we consider all the available quarterly data.
1.0

Quarterly Profits, y [$, millions]

0.5

0.0
0 -0.5 -1.0 -1.5 2 4 6 8 10 12 14 16 18 20

4Q2009
-2.0 -2.5

Quarterly Revenues, x [$, millions]

Figure 3: The 4Q2009 data falls off the Type I straight line followed by the data for the period 1Q2009 to 3Q2009. This can be explained by a sudden jump from one value of the nonzero intercept c to another, i.e., a change in the fixed cost. With increase in revenues (to $16.920 million), an extrapolation along the Type I line would have yielded a profit of $1.673 million, i.e., the projected Costs = Revenues Profits = $15.247 million. Instead, Groupon reported a loss of $1.903 million, i.e., Costs = $18.823 million. The higher costs meant a loss, instead of a profit. The difference between projected profits and actual loss 1.673-(-1.903)= 3.576 = difference in costs =(18.823-15.247). With reference to Figure 4, a Type I line with the equation, y = 0.372x 212.7 = 0.372 (x 571) joins the data for March 2011 and March 2012. Thus, Groupon
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seems to be poised to make the transition from a sustained period of Type III behavior, which began with the loss in 4Q2009, to the more desirable Type I behavior which was SEEN EARLIER from 1Q2009 to 3Q2009. Type III behavior (h < 0, c > 0, negative slope and positive intercept, see dashed line) implies increasing revenues with decreasing profits, or equivalently, increasing losses with increasing revenues.
100

Quarterly Profits, y [$, millions]

50 0 0 -50 -100 -150 -200 -250 -300 -350 100 200 300 400 500 600 700 800

Type I line y = 0.372x 212.7 = 0.372 (x 571)

Type III trend line y = - 0.258x June 11 to origin

Quarterly Revenues, x [$, millions]

Figure 4: The transition from one Type I behavior observed in 2009 to another Type I behavior established more recently is illustrated here, with an intervening period of Type III behavior over several quarters. Because of the explosive growth in revenues, all the 2009 data points are now clustered together near the origin. The Type I line joining the (x, y) pairs for Mar 2011 and Mar 2012 has the equation y = 0.372x 212.7 = 0.372 (x 571). This is essentially an alternative view of the quarterly data presented earlier in Figure 1, see also Figure 5 where we consider only the six most recent quarters, as
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in Figure 1. Instead of a nonlinear, or a seemingly erratic variation depicted in Figure 1, we now envision a movement in the profits-revenues space along roughly parallel lines. The June 2011 and Dec 2011 data can be seen to fall on a roughly parallel line with a slope h = 0.364. The Sep 2011 and June 2012 data fall on another roughly parallel line with a somewhat smaller slope h = 0.31.
100.0

Quarterly Profits, y [$, millions]

50.0

0.0 0 -50.0 100 200 300 400 500 600 700 800

-100.0

-150.0

Type I line y = 0.372x 212.7 = 0.372 (x 571)

-200.0

Quarterly Revenues, x [$, millions]

Figure 5: An alternative viewpoint of the profits-revenues data presented earlier in Figure 1. The same six quarters, starting with March 2011 are considered here. The data for the six quarters can be seen to represent a movement along roughly parallel lines with a slope h = 0.372. The small fluctuations in the quarterly profits are thus entirely due to the changes in the work function (see discussion in the companion article), represented by the nonzero intercept c. If this recent profits-revenue trend is sustained, overall, Groupon may be considered to have made a transition from the Type I line in Figure 2 with a slope h = 0.12 to another Type I line, with a slope h = 0.37, with an intervening adjustment period with the Type III behavior (Figure 4).

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In summary, Groupon may have achieved its breakeven revenue level in the quarter ended June 30, 2012 and so seems to be poised to report profits on a more consistent basis. However, efforts must be made to control both the fixed costs and the variable costs which (as shown here) have increased since March 2010.

Table 1: Profits and Revenues Data for Groupon

Quarter ending 31-Mar-09 30-Jun-09 30-Sep-09 31-Dec-09 31-Mar-10 31-Mar-10 30-Jun-10 30-Jun-10 30-Sep-10 30-Sep-10 31-Dec-10 31-Dec-10 31-Mar-11 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12 30-Jun-12 Revenues, x $, millions 0.252 3.301 9.998 16.920 44.24 20.27 87.3 38.67 185.23 81.78 396.60 172.22 644.73 292.52 392.58 430.16 492.16 559.28 568.34 Profits, y $, millions -0.309 0.021 0.850 -1.903 8.028 8.551 -35.929 -35.929 -49.032 -49.032 -313.23 -313.23 -146.48 -146.48 -101.24 -10.57 -64.95 -11.695 28.39 Profit margin, y/x % 0.6 8.5 39.6 42.2 Higher revenues in S-1 filings restated in the subsequent 10-K S-1 filing was for the IPO launch in November 2011 Change, x Change, y Slope, h = y/x

As given in the S-1 filing June 2, 2011 Revenues were restated in 10-Q filings

264 4.99

135

0.511

The change in revenues x and profits y between March 2011 and 2012, yield the slope h = y/x = 135/264 = 0.511. The revenues were restated in the 10-K filings (post IPO). The higher revenues figures are from the S-1 filing in June 2011 (prior to IPO). Also, three line items called net loss, net loss attributed to common shareholders and net loss to Groupon, are reported. In some cases only net loss to Groupon figures are available. Data sources: http://www.sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs -1.htm#do79801_management_s_discussion_and_an__man03466 SEC Registration statement S-1 filed on June 2, 2011. (The March 2011 and March 2010 values are different.)
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http://files.shareholder.com/downloads/AMDA-E2NTR/2021598481x0xS1445305-121731/1490281/filing.pdf and http://files.shareholder.com/downloads/AMDAE2NTR/2021598481x0xS1490281-12-15/1490281/filing.pdf and http://files.shareholder.com/downloads/AMDA-E2NTR/2021598481x0xS1445305-12922/1490281/filing.pdf

Appendix I: Bibliography
Related Internet articles posted at this website Since the Facebook IPO on May 18, 2012
The first article listed below discusses a little known mathematical property of a straight line. Figures 1 to 3 in this article provide the philosophical basis for considering the significance of a nonzero intercept c as it applies to many problems in the real world. We make observations (x and y values of interest to us) to deduce y/x, usually called rates, ratios, or percentages. 1. http://www.scribd.com/doc/102000311/A-Little-Known-MathematicalProperty-of-a-Straight-Line-Strange-but-true-there-is-one Published August 4, 2012. Financial data (Profits-Revenues) analysis and Generalization of Plancks law beyond physics. 2. http://www.scribd.com/doc/95906902/Simple-Mathematical-Laws-GovernCorporate-Financial-Behavior-A-Brief-Compilation-of-Profits-RevenuesData Current article with all others above cited for completeness, Published June 4, 2012 with several revisions incorporating more examples. 3. http://www.scribd.com/doc/94647467/Three-Types-of-Companies-FromQuantum-Physics-to-Economics Basic discussion of three types of companies, Published May 24, 2012. Examples of Google, Facebook, ExxonMobil, Best Buy, Ford, Universal Insurance Holdings
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4. http://www.scribd.com/doc/96228131/The-Perfect-Apple-How-it-can-bedestroyed Detailed discussion of Apple Inc. data. Published June 7, 2012. 5. http://www.scribd.com/doc/95140101/Ford-Motor-Company-Data-RevealsMount-Profit Ford Motor Company graph illustrating pronounced maximum point, Published May 29, 2012. 6. http://www.scribd.com/doc/95329905/Planck-s-Blackbody-Radiation-LawRederived-for-more-General-Case Generalization of Plancks law, Published May 30, 2012. 7. http://www.scribd.com/doc/94325593/The-Future-of-Facebook-I Facebook and Google data are compared here. Published May 21, 2012. 8. http://www.scribd.com/doc/94103265/The-FaceBook-Future Published May 19, 2012 (the day after IPO launch on Friday May 18, 2012). 9. http://www.scribd.com/doc/95728457/What-is-Entropy Discussion of the meaning of entropy (using example given by Boltzmann in 1877, later also used by Planck to develop quantum physics in 1900). The example here shows the concepts of entropy S and energy U (and the derivative T = dU/dS) can be extended beyond physics with energy = money, or any property of interest. Published June 3, 2012. 10.The Future of Southwest Airlines, Completed June 14, 2012 (to be published). http://www.scribd.com/doc/102835946/The-Future-for-SouthwestAirlines-The-Unknown-Story-of-Rising-Costs-and-the-Maximum-Point-onProfits-Revenues-Curve Published August 14, 2012. 11.The Air Tran Story: An Important Link to the Future of Southwest Airlines, Completed June 27, 2012 (to be published). http://www.scribd.com/doc/102832984/The-Air-Tran-Story-The-Merger-andMaximum-Point-on-Profits-Revenues-Graph Published August 14, 2012.

12.Annies Inc. A Single-Product Company Analyzed using a New Methodology, http://www.scribd.com/doc/98652561/Annie-s-Inc-A-SingleProduct-Company-Analyzed-Using-a-New-Methodology Published June 29, 2012
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13.Google Inc. A Lovable One-Trick Pony Another Single-product Company Analyzed using the New Methodology. http://www.scribd.com/doc/98825141/Google-A-Lovable-One-Trick-PonyAnother-Single-Product-Company-Analyzed-Using-the-New-Methodology, Published July 1, 2012. 14.GT Advanced Technologies, Inc. Analysis of Recent Financial Data, Completed on July 4, 2012. (To be published). 15.Disappearing Brands: Research in Motion Limited. An Interesting type of Maximum Point on the Profits-Revenues Graph http://www.scribd.com/doc/99181402/Research-in-Motion-RIM-Limited-WillDisappear-in-2013 Published July 5, 2012. 16.Kia Motor Company: A Disappearing Brand http://www.scribd.com/doc/99333764/Kia-Motor-Company-A-DisppearingBrand, Published July 6, 2012. 17.The Perfect Apple-II: Taking A Second Bite: A Simple Methodology for Revenues Predictions (Completed July 8, 2012, To be Published) http://www.scribd.com/doc/101503988/The-Perfect-Apple-II, Published July 30, 2012. 18.http://www.scribd.com/doc/101062823/A-Fresh-Look-at-Microsoft-After-itsHistoric-Quarterly-Loss Microsoft after the quarterly loss, Published July 25, 2012. 19.http://www.scribd.com/doc/101518117/A-Second-Look-at-Microsoft-After-theHistoric-Quarterly-Loss , Published July 30, 2012. 20.http://www.scribd.com/doc/103027366/Groupon-Analysis-of-ProfitsRevenues-Data-and-its-Business-Model Published August 16, 2012. More detailed analysis including discussion of the idea of a work function. ****************************************************************** The Unemployment Problem: Evidence for a Universal value of h in the unemployment law.

21.http://www.scribd.com/doc/100984613/Further-Empirical-Evidence-for-theUniversal-Constant-h-and-the-Economic-Work-Function-Analysis-ofPage 14 of 17

Historical-Unemployment-data-for-Japan-1953-2011 Single universal value of h for US, Canada and Japan in the unemployment law y = hx + c, Published July 24, 2012. 22.http://www.scribd.com/doc/100939758/An-Economy-Under-StressPreliminary-Analysis-of-Historical-Unemployment-Data-for-Japan, Published July 24, 2012. 23.http://www.scribd.com/doc/100910302/Further-Evidence-for-a-UniversalConstant-h-and-the-Economic-Work-Function-Analysis-of-US-1941-2011-andCanadian-1976-2011-Unemployment-Data Published July 24, 2012. 24.http://www.scribd.com/doc/100720086/A-Second-Look-at-Australian-2012Unemployment-Data, Published July 22, 2012. 25.http://www.scribd.com/doc/100500017/A-First-Look-at-AustralianUnemployment-Statistics-A-New-Methodology-for-Analyzing-UnemploymentData , Published July 19, 2012. 26.http://www.scribd.com/doc/99857981/The-Highest-US-Unemployment-RatesObama-years-compared-with-historic-highs-in-Unemployment-levels , Published July 12, 2012. 27.http://www.scribd.com/doc/99647215/The-US-Unemployment-Rate-Whathappened-in-the-Obama-years , Published July 10, 2012.

**************************************************************** Traffic-fatality and Teen pregnancy problem 28.http://www.scribd.com/doc/101982715/Does-Speed-Kill-Forgotten-USHighway-Deaths-in-1950s-and-1960s Published August 4, 2012. 29.http://www.scribd.com/doc/101983375/Effect-of-Speed-Limits-on-FatalitiesTexas-Proofing-of-Vehciles Published August 4, 2012. 30.http://www.scribd.com/doc/101828233/The-US-Teenage-Pregnancy-Rates-1 Published August 2, 2012. 31.http://www.scribd.com/doc/102384514/A-Second-Look-at-the-US-TeenagePregnancy-Rates-Evidence-for-a-Predominant-Natural-Law Published August 8, 2012. ******************************************************************

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About the author V. Laxmanan, Sc. D.

Email: vlaxmanan@hotmail.com

The author obtained his Bachelors degree (B. E.) in Mechanical Engineering from the University of Poona and his Masters degree (M. E.), also in Mechanical Engineering, from the Indian Institute of Science, Bangalore, followed by a Masters (S. M.) and Doctoral (Sc. D.) degrees in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, MA, USA. He then spent his entire professional career at leading US research institutions (MIT, Allied Chemical Corporate R & D, now part of Honeywell, NASA, Case Western Reserve University (CWRU), and General Motors Research and Development Center in Warren, MI). He holds four patents in materials processing, has co-authored two books and published several scientific papers in leading peer-reviewed international journals. His expertise includes developing simple mathematical models to explain the behavior of complex systems. While at NASA and CWRU, he was responsible for developing material processing experiments to be performed aboard the space shuttle and developed a simple mathematical model to explain the growth Christmas-tree, or snowflake, like structures (called dendrites) widely observed in many types of liquid-to-solid phase transformations (e.g., freezing of all commercial metals and alloys, freezing of water, and, yes, production of snowflakes!). This led to a simple model to explain the growth of dendritic structures in both the ground-based experiments and in the space shuttle experiments. More recently, he has been interested in the analysis of the large volumes of data from financial and economic systems and has developed what may be called the Quantum Business Model (QBM). This extends (to financial and economic systems) the mathematical arguments used by Max Planck to develop quantum physics using the analogy Energy = Money, i.e., energy in physics is like money in economics. Einstein applied Plancks ideas to describe the photoelectric effect (by treating light as being composed of particles called photons, each with the fixed
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quantum of energy conceived by Planck). The mathematical law deduced by Planck, referred to here as the generalized power-exponential law, might actually have many applications far beyond blackbody radiation studies where it was first conceived. Einsteins photoelectric law is a simple linear law, as we see here, and was deduced from Plancks non-linear law for describing blackbody radiation. It appears that financial and economic systems can be modeled using a similar approach. Finance, business, economics and management sciences now essentially seem to operate like astronomy and physics before the advent of Kepler and Newton.

Cover page of AirTran 2000 Annual Report

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