Standards Wars

1
Standards Wars

• Hal R. Varian

2
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 (R-,R,-RW,RW)
• AOL et al Instant Messaging

3
Classification of Wars
4
Examples

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

5
Historical standards

• Standardization as cost saver
• 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

6
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

7
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

8
Current standards

• Educational courseware
• 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!)
• Hollywoods rearguard action

9
Key Assets

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

10
Two Basic Tactics

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

11
Once Youve Won

• Stay on guard
• Minitels loss to WWW
• Offer a migration path (Apple/Intel)
• Commoditize complementary products
• Intel and DRAM
• Competing against your own installed base
• Intel and Moores law
• Durable goods monopoly

12
Once Youve Won, contd.

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

13
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

14
Microsoft v. Netscape

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

15
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

16
Policy issues

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

17
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

18
Lessons, continued

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