Standards WarsOverviewWhat is a Standards War?OutcomeStandards Wars – ClassificationClassification of WarsExamplesKey AssetsKey Assets ( Cont... )Slide 10Two Basic TacticsTwo Basic Tactics ( Cont… )Once You’ve WonOnce You’ve Won, cont’d.Slide 15Slide 16Slide 17What if You Fall Behind?Slide 19LessonsLessons, continuedDiscussion QuestionsInformation Rules:A Strategic Guide to the Network EconomyStandards WarsCarl ShapiroHal R. VarianModified By Ravi Nangunoori And Vikas BandagaddeInformation RulesSpring 982Overview•What is a Standards War?•Outcome.•Classification .•Key Assets.•Two Basics Tactics.•Once You’ve Won.•Discussion.Information RulesSpring 983What is a Standards War?Historical examples•RR gauges•AC v. DC•NBC v. CBS in color TVhttp://www.ntsc-tv.com/ntsc-main-01.htmWhen two new incompatible technologies struggle to become a ‘de facto’ standard.Information RulesSpring 984Outcome •End in a truceBlu Ray and HD DVDNegotiations for a Common standardhttp://www.vnunet.com/vnunet/news/2127198/dvd-standards-war-sight?vnu_lt=vnu_art_related_articles•End in a duopoly Pepsi and Coca Cola.•Fight to deathMicrosoft IE v. Netscape NavigatorWindows and OS/2http://en.wikipedia.org/wiki/Browser_WarsInformation RulesSpring 985Standards 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 •Rival revolutionNeither offers backward compatible technologyInformation RulesSpring 986Classification of WarsCompatible IncompatibleCompatible RivalEvolutionEvolution v.RevolutionIncompatible Revolutionv.EvolutionRivalRevolutionEInformation RulesSpring 987Examples•Evolution Windows OS•Revolution Apple iPod•Rival evolution Athlon , Pentium•Rival revolutions GSM, CDMAInformation RulesSpring 988Key Assets1. Control over an installed baseEvolution strategy offering backward compatibility.MS with loyal locked-in customers2. Intellectual property rightsPatents and Copyrights give firms a strong positionPatents of Sony and Philips in CD and DVD industryInformation RulesSpring 989Key Assets ( Cont... )3. Ability to innovate.Ability to make proprietary extensions in future with your existing IPRs gives you a strong position.HP’s engineering skills.4. First-mover advantages.Exploiting the experience curve to keep costs lower and quality higher.Apple iPodInformation RulesSpring 9810Key Assets ( Cont... )5. Manufacturing Abilities.Low Cost ProducersCompaq and Dell in PC market.6. Strength in complements.Producing complements for a productDigital Cameras & Memory.7. Reputation and brand name.Premium brand name is Highly Valuable.Apple, Intel, SUN etc.Information RulesSpring 9811Two Basic Tactics1. PreemptionExploit Positive Feedback by building an installed base early or learning by doing.Be aggressive.Use Penetration pricing.But watch out for ‘quality’.Examples:Apple iPod, eBayInformation RulesSpring 9812Two Basic Tactics ( Cont… )2. Expectations ManagementLive up to consumers expectations.Vaporware.Assemble Allies to manage expectations.Examples:Opera Web Browser.http://www.opera.com/company/Information RulesSpring 9813Once You’ve Won•Stay on guardAnticipate next generation technology.Offer a migration path for your technology.Maintain compatibility with your own installed base.Examples:Microsoft , MinitelInformation RulesSpring 9814Once You’ve Won, cont’d.•Commoditize complementary products.Encourage a market for complements to your product.Enter adjacent markets only if integration adds value for customers.Inject competition.Examples:Apple & Corbis, Microsoft & IntuitInformation RulesSpring 9815Once You’ve Won, cont’d.•Competing against your own installed base.Improve performance and Innovate.Offer discounts .Beware of “Durable goods monopoly” problemExample:Intel MicroprocessorsSteinway Pianos.http://www.steinway.com/steinway/Information RulesSpring 9816Once You’ve Won, cont’d.•Protecting Your PositionAttractive terms to important complementors.Avoid being held up.ExampleNintendo•Leverage installed baseExpand network geographicallyAT & T Expansionhttp://www.india-cellular.com/Information RulesSpring 9817Once You’ve Won, cont’d.•Stay a leaderBuild a bandwagon.Develop proprietary extensions.Invest in long run research.Example:IBMInformation RulesSpring 9818What if You Fall Behind?•Adapters and Interconnection.Add an Adapter.Discover v. American Express.Sign of Weakness.Large network may keep you out.Performance degradation.Change in interface specifications.Information RulesSpring 9819What if You Fall Behind?•Survival Pricing.Sign of WeaknessExample:IBM offering OS/2 For cheap•Legal ApproachesTake legal actions against anti trustInformation RulesSpring 9820Lessons•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 criticalInformation RulesSpring 9821Lessons, continued•When you’ve won the war, don’t rest easy•If you fall behind, avoid survival pricingInformation RulesSpring 9822Discussion Questions•Microsoft’s IE took over from Netscape Navigator and now Microsoft has launched its new search engine. With Google being the most widely used search engine so far, will the advent of Microsoft’s search engine put to shade Google’s search engine?•Copy-protection technologies like Apple's Fair Play format and Sony's ATRAC3 must work with competing services and players. So what should these companies do to save their market? •How do you think the collaboration between Apple and Intel, result in the acceptance of Apple’s Mac OS X operating system and would this affect the use of PC’s