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Waging a Standards War. February 14, 2002 Prepared by Ken Song. MGT523: Competitive Strategies for Network Economies Professor Shor. Standards War:. Competition in the information age A battle for market dominance between incompatible technologies

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waging a standards war

Waging a Standards War

February 14, 2002

Prepared by Ken Song

MGT523: Competitive Strategies for Network Economies

Professor Shor

standards war
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?
standards wars examples
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
standards wars lessons
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
standards wars classification
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
seven key assets
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???
two main tactics
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
hypothetical scenario owen s case study battle
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