Chapter 9: Standards Wars

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Chapter 9 Standards Wars
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Standards War

• Focuses on the control strategies (Controlled
  Migration and Performance Play) in the context of
  a battle between incompatible technologies.

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Standards War Historical Examples

• DC vs. AC (Edison v. Westinghouse)
• NBC v. CBS in color TV

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Battle of the Systems AC Vs DC circa. 1890

• Edisons DC - First Mover Advantage
• Restricted range due to voltage drops, 1 mile
  limit between generation house and user.
• Westinghouse AC Technically Best Choice.
• Can Transmit Power efficiently across vast
  distances due to Transformers that convert low
  voltage to high voltage for transmission and down
  to low voltage again for distribution.

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AC Vs. DC Tactics

• Edison moved first with infringement actions
  which forced Westinghouse to invent around Edison
  Patents.
• Edison went to great lengths to convince public
  that AC was unsafe.
• Going so far to invent the electric chair, which
  used AC.
• Convinced State of New York to Execute condemned
  prisoners using it.
• Edison went so far as to coin the term to
  Westinghouse with regard to electrocution.

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AC Vs. DC

• AC Won the Battle
• Polyphase AC far more efficient method of
  generating, transmitting and distributing
  electric power.
• Rotary converter allowed DC systems to be
  integrated with AC systems.
• Edison sold his interests leading to the
  formation of the General Electric Company.

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Classification of Wars
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Examples

• Rival evolution
• Video machines (DVD/VCD) UNIX variants
• Rival revolutions
• Nintendo and Sony Play Station AC vs. DC
• Evolution v. Revolution
• Lotus 123 vs. Excel in 80s and 90s

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Recent Standards Wars

• AM stereo
• Auto industry invested, radio didnt
• Digital wireless phones
• Europe GSM
• US GSM, TDMA (cousin of GSM), CDMA
• TDMA 5 million
• CDMA 2.5 million
• GSM 1 million

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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 interconnect

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What does it take to win standards War Key Assets

• Control over an installed base
• Intellectual property rights
• Ability to innovate
• First-mover advantages
• Manufacturing ability
• 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
• Microsoft and Google
• Offer a migration path to fend off challenges (Is
  Longhorn the answer for MS)
• Commoditize complementary products
• Intel
• Competing against your own installed base
• Intel again (continuous improvement of its
  products)
• Sony

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Once Youve Won, contd.

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

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What if You Fall Behind?

• Adapters and interconnection (with larger
  networks)
• 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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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