Standards Wars Hal R Varian SIMS Examples Historic

Standards Wars Hal R. Varian SIMS

Examples • Historic – RR gauges – Edison v. Westinghouse – NBC v. CBS in color TV • Recent – – 3 Com v. Rockwell/Lucent Microsoft HTML v Netscape HTML Writeable DVDs (R-, R+, -RW, +RW) AOL et al Instant Messaging SIMS

Classification of Wars SIMS

Examples • Rival evolution – VCRs (Sony/Betamax) – Video games • Rival revolutions – IRC v IM • Evolution v. Revolution – Windows 98 v. Be. OS SIMS

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 SAE SIMS

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 SIMS

Standards Wars, cont’d. • 56 K modems – US Robotics x 2 attempted preemption – Rockwell/Lucent K 56 Flex – Expectations management, switching costs – Settled Dec 97: estimated then would triple size of market SIMS

Current standards • Educational courseware • XML – XML 1. 1 (W 3). Issues: unicode, backward compatibility – CBL, FXML, Legal. XML, Math. ML (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!) Hollywood’s rearguard action SIMS

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

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! SIMS

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 SIMS

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

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

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

Standards setting process? • Disclosure of relevant IP – But who enforces? – If IP exists and is incorporated into standard, under what terms is it licensed? • W 3 C: RAND • IETF: Royalty Free -> RAND – What if there is misrepresentation? • FTC-Dell case SIMS

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

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

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