Standards Wars

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Standards Wars

• Hal R. Varian

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Examples

• Historic
• RR gauges
• Edison v. Westinghouse
• NBC v. CBS in color TV
• Recent
• 3Com v. Rockwell/Lucent
• Microsoft HTML v Netscape HTML
• Writeable DVDs
• AOL et al Instant Messaging

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Classification of Wars
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Examples

• Rival evolution
• VCRs (Sony/Betamax)
• Video games
• Rival revolutions
• IRC v IM
• Evolution v. Revolution
• Windows 98 v. BeOS

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Historical standards

• Cost side standardization
• Auto parts standardization c. 1910
• Risk avoidance for suppliers
• Economies of scale for manufacturers
• Lack of interest on part of Ford/GM
• Role of SAE

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Recent Standards Wars

• AM stereo
• Auto industry invested, radio didnt
• Digital wireless phones (1998)
• Europe GSM
• US GSM, TDMA (cousin of GSM), CDMA
• TDMA 5 million
• CDMA 2.5 million
• GSM 1 million
• Not much of a direct network effect since they
  all interconnect through the PST

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Standards Wars

• Ericsson (TDMA) has ATT, SBC , Bellsouth
• Qualcom (CDMA) has Bell Atlantic, US West, etc
• Performance play strategy
• How big are the network externalities?
• Geographic scope
• Investment is sunk, systems already interconnect

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Standards Wars, contd.

• 56K modems
• US Robotics x2 attempted preemption
• Rockwell/Lucent K56 Flex
• Expectations management, switching costs
• Settled Dec 97 estimated then would triple size
  of market

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Current standards

• Educational software (Fred B)
• XML
• XML1.1 (W3). Issues unicode, backward
  compatibility
• CBL, FXML, LegalXML,MML,MathML (see oasis.org)S
• DVDs (4.7 gigs)
• DVD-RAM plain data, written over, not movies
• DVD-RW works for video, need to be erased
• DVDRW written over, like big floppy
• Blu-Ray DVD (27 gigs!)s
• Hollywoods rearguard action

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Key Assets

• Control over an installed base
• Intellectual property rights
• Ability to innovate
• First-mover advantages
• Manufacturing
• Strength in complements
• Reputation and brand name

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Two Basic Tactics

• Preemption
• Build installed base early
• But watch out for rapid technological progress!
• Expectations management
• Manage expectations
• But watch out for vaporware!

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Once Youve Won

• Stay on guard
• Minitel
• Offer a migration path (Apple/Intel)
• Commoditize complementary products
• Intel
• Competing against your own installed base
• Intel again
• Durable goods monopoly

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Once Youve Won, contd.

• Attract important complementors
• Leverage installed base
• Expand network geographically
• Stay a leader
• Develop proprietary extensions

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What if You Fall Behind?

• Adapters and interconnection
• Wordperfect
• Borland v. Lotus
• Translators, etc
• Survival pricing
• Hard to pull off
• Different from penetration pricing
• Legal approaches
• Sun v. Microsoft

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Microsoft v. Netscape

• Rival evolutions
• Low switching costs
• Small network externalites
• Strategies
• Preemption
• Penetration pricing
• Expectations management
• Alliances

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Standards setting process?

• Disclosure of relevant IP
• But who enforces?
• If IP exists and is incorporated into standard,
  under what terms is it licensed?
• W3C RAND
• IETF Royalty Free -gt RAND
• What if there is misrepresentation?
• FTC-Dell case

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Policy issues

• FTC subsequent complaints
• Rambus failure to disclose in JDEC meeting
• Sun-Kingston case
• Stronger disclosure rules chilling effect? Or
  weaker ruleschilling effect?

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Lessons

• Understand the type of war
• Rival evolution
• Rival revolution
• Revolution v Evolution
• Strength depends on 7 critical assets
• Preemption is a critical tactic
• Expectations management is critical

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Lessons, continued

• When youve won the war, dont rest easy
• If you fall behind, avoid survival pricing