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Standards Wars

Standards Wars. Hal R. Varian. 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 AOL et al Instant Messaging. Classification of Wars. Rival evolution VCRs (Sony/Betamax)

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Standards Wars

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  1. Standards Wars Hal R. Varian SIMS

  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 • AOL et al Instant Messaging SIMS

  3. Classification of Wars SIMS

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

  5. 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 SIMS

  6. 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 Recent Standards Wars SIMS

  7. 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 Standards Wars SIMS

  8. 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 Standards Wars, cont’d. SIMS

  9. 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) • 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 SIMS

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

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

  12. 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 SIMS

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

  14. 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 SIMS

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

  16. 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 SIMS

  17. 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? SIMS

  18. 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 SIMS

  19. Lessons, continued • When you’ve won the war, don’t rest easy • If you fall behind, avoid survival pricing SIMS

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