Transcript Standards Wars

Standards Wars
Hal R. Varian
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Examples
• Historic
– RR gauges
– Edison v. Westinghouse
– NBC v. CBS in color TV
• Recent
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3Com v. Rockwell/Lucent
Microsoft HTML v Netscape HTML
Writeable DVDs
AOL et al Instant Messaging
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Classification of Wars
Compatible Incompatible
Compatible
E
Rival
Evolution
Incompatible Revolution
v.
Evolution
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Evolution v.
Revolution
Rival
Revolution
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 didn’t
• 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 AT&T, 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, cont’d.
• 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)
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DVD-RAM: plain data, written over, not movies
DVD-RW: works for video, need to be erased
DVD+RW: written over, like big floppy
Blu-Ray DVD (27 gigs!)s
Hollywood’s rearguard action
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Key Assets
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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 You’ve 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 You’ve Won, cont’d.
• 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
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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 -> 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 rules=chilling 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 you’ve won the war, don’t rest
easy
• If you fall behind, avoid survival pricing
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