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Chapter 9: Standards Wars

Chapter 9: Standards Wars. Standards War. Focuses on the control strategies (Controlled Migration and Performance Play) in the context of a battle between incompatible technologies. Standards War: Historical Examples. DC vs. AC (Edison v. Westinghouse) NBC v. CBS in color TV.

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Chapter 9: Standards Wars

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  1. Chapter 9: Standards Wars

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

  3. Standards War: Historical Examples • DC vs. AC (Edison v. Westinghouse) • NBC v. CBS in color TV

  4. 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.

  5. 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.

  6. 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.

  7. Classification of Wars

  8. 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 80’s and 90’s Examples

  9. AM stereo Auto industry invested, radio didn’t Digital wireless phones Europe: GSM US: GSM, TDMA (cousin of GSM), CDMA TDMA: 5 million CDMA: 2.5 million GSM: 1 million Recent Standards Wars

  10. 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 interconnect Standards Wars

  11. 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

  12. Two Basic Tactics • Preemption • Build installed base early • But watch out for rapid technological progress • Expectations management • Manage expectations • But watch out for vaporware

  13. Once You’ve 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

  14. Once You’ve Won, cont’d. • Attract important complementors • Leverage installed base • Expand network geographically • Stay a leader • Develop proprietary extensions • Intel, Sony again

  15. 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

  16. Microsoft v. Netscape • Rival evolutions • Low switching costs • Small network externalites • Strategies • Preemption • Penetration pricing • Expectations management • Alliances

  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 you’ve won the war, don’t rest easy • If you fall behind, avoid survival pricing

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