Standards wars
1 / 25

Standards Wars - PowerPoint PPT Presentation

  • Uploaded on

Standards Wars. Hal R. Varian. Examples. Historic RR gauges Edison v. Westinghouse in electric power NBC v. CBS in color TV Recent 3Com v. Rockwell/Lucent in 56Kbs modems Microsoft HTML v Netscape HTML Writeable DVDs (R-,R+,-RW,+RW) AOL et al Instant Messaging HD DVD v BluRay.

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
Download Presentation

PowerPoint Slideshow about ' Standards Wars' - weston

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Standards wars

Standards Wars

Hal R. Varian



  • Historic

    • RR gauges

    • Edison v. Westinghouse in electric power

    • NBC v. CBS in color TV

  • Recent

    • 3Com v. Rockwell/Lucent in 56Kbs modems

    • Microsoft HTML v Netscape HTML

    • Writeable DVDs (R-,R+,-RW,+RW)

    • AOL et al Instant Messaging

    • HD DVD v BluRay


Incentive to interconnect
Incentive to interconnect

  • Value of network depends on size, so ther are strong social benefits to interoperability

  • But not necessarily private benefits due to loss of monopoly power

    • Bell System in 1890s and long distance

    • Marconi Intl Marine Corp

  • But even dominant incumbent may find interconnection compelling

    • Your value = your share x industry value

    • If industry value increases dramatically, may be worth loss of monopoly

    • See auto industry, next slide


Historical standards
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 Society of Automotive Engineers

    • Eventual adoption of standards


Standards setting competition
Standards setting competition

  • Standards war: competing standards

    • HD DVD v BluRay

  • Negotiation: want a common standard, negotiate to determine it

    • Original CD and DVD standards

  • Standards leader: dominant firm creates standard, followers adapt to it

    • Adobe PDF

    • Microsoft SMB []


Standards wars1
Standards wars

  • Strategies in standards wars

    • Penetration pricing

      • AdWords

    • Alliances with Complementors

      • DVD and Hollywood

    • Expectations management

      • Dangers: Osborne computer

    • Commitment to low prices

      • Internet Explorer



  • Both want a standard, but prefer their own (as in “battle of the sexes” game)

    • Must disclose rule in negotiations

    • License on “fair, reasonable, and non-discriminatory terms

    • Cede control to a 3rd party

      • Ethernet, C#


Battle of sexes
Battle of sexes

Ms Column

Mr. Row

Two pure strategy equilibria + mixed strategy


Follow the leader
Follow the leader

  • Dominant firm sets standard, others follow

    • Microsoft SMB and Samba

    • Microsoft document formats and decoders


Extending a standard
Extending a standard

  • Have an existing standard, want to extend it

    • E.g., DOS to Windows

    • DVD to high density DVD

  • Backwards compatibility or high performance?



Rival evolution

VCRs (Sony/Betamax v VHS)

Video games

Rival revolutions


Evolution v. Revolution

Windows 98 v. BeOS



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

Recent Standards Wars


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

Standards Wars, cont’d.


Current standards
Current standards

  • Educational courseware

  • XML

    • XML1.1 (W3). Issues: unicode, backward compatibility

    • CBL, FXML, LegalXML,MML,MathML (see

  • 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

    • New standards war: Blu-Ray and HD DVD


Key assets
Key Assets

  • Control over an installed base

  • Intellectual property rights

  • Ability to innovate

  • First-mover advantages

  • Manufacturing

  • Strength in complements

  • Reputation and brand name


Two basic tactics
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!


Once you ve won
Once You’ve Won

  • Stay on guard

    • Minitel’s loss to WWW

  • Offer a migration path (Apple/Intel)

  • Commoditize complementary products

    • Intel and DRAM

  • Competing against your own installed base

    • Intel and Moore’s law

    • Durable goods monopoly


Once you ve won cont d
Once You’ve Won, cont’d.

  • Attract important complementors

  • Leverage installed base

    • Expand network geographically

    • Expand network vertically

  • Stay a leader

    • Develop proprietary extensions


What if you fall behind
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


Microsoft v netscape
Microsoft v. Netscape

  • Rival evolutions

  • Low switching costs

  • Small network externalites

  • Strategies

    • Preemption

    • Penetration pricing

    • Expectations management

    • Alliances


Standards setting process
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


Policy issues
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?



  • 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


Lessons continued
Lessons, continued

  • When you’ve won the war, don’t rest easy

  • If you fall behind, avoid survival pricing