Waging a Standards War

1. Waging a Standards War February 14, 2002 Prepared by Ken Song MGT523: Competitive Strategies for Network Economies Professor Shor

2. Standards War: • Competition in the information age • A battle for market dominance between incompatible technologies • A company's success can easily pivot on its ability to vie a standards war • Standards wars are more competitive in markets with strong network effects • Consumers place their value on compatibility • Is it coincidence that we have a single worldwide standard for fax machines?

3. Standards Wars - Examples • End in a truce: • 56k modems & color television • Ultimately common standard was adopted • End in a duopoly: • Nintendo and Sony • Fight to death: • North vs. South Railroad gauges • Belated victory for the North • Southern Railroad had to convert 5'gauge into the now-standard 4'8 1/2" gauge on more than 11,000 miles of track

4. Standards Wars – Lessons • Lessons from the standard war of railroad gauge • Incompatibilities can arise by accident, yet persist for many years • Network markets tend to incline to the leading player, unless the other players coordinate to act quickly and decisively • Seceding from the standard-setting process can leave the player in a weak market position in the future • A large buyer (the U.S. government) can have more influence than suppliers • Those left with the less popular technology have to cut their losses • by employing adapters • by writing off existing assets

5. Standards Wars – Classification • Evolution • New technology that is compatible with the old • Minimal consumer switching costs • Revolution • Incompatible technology with the old • Compelling performance with significant switching costs • Rival evolution • Incompatible with each other • DVD and Divx (both of which will play CDs) • Rival revolution • Neither offers backward comparable technology • Nintendo & Sony PS • Evolution vs. Revolution • One offers backward compatibility and the rival does not • Backward compatibility vs. Superior performance

6. Seven key assets • Control over an installed base of users • MS with loyal locked-in customers • Intellectual property rights • Qualcomm’s CDMA • Ability to innovate • HP’s engineering skills • First-mover advantages • Canon’s personal laser printer • Manufacturing capabilities • Low costs and open standard • Strength in complements • Intel’s efforts to promote new standards • Brand name and reputation • HBS as a top MBA program???

7. Two main tactics • Preemption • build an early lead • So positive feedback works for you and against your rival • With learning-by-doing, the positive feedback is through lower costs • Expectations Management • Assembling allies and claiming about the new technology’s current or future popularity • Sun has gathered allies in support of Java • Taking out full-page advertisements of the company lists in the Java coalition

8. HBS’s Case study - Standardization in MBA program

9. HBS’s Case study - Standardization in MBA program

10. Hypothetical Scenario – Owen’s Case study battle • Preemption • Find the pioneers • Mostly keen to try new technology and sign them up swiftly • MBA programs with high attention to eCommerce strategy • Pricing below cost, i.e., penetration pricing • Free copies maybe • Assemble allies • Support of consumers • MBA programs/Faculties/Students • Even from HBS • Expectations Management • Strong network effects in MBA programs • Engage in aggressive marketing • Make early announcements of Owen Case studies • Don’t price to survive • Establish a compelling performance advantage • Interconnect with the prevailing standard, HBS Cases