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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 (R-,R+,-RW,+RW) AOL et al Instant Messaging. Classification of Wars. Rival evolution

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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 (R-,R+,-RW,+RW) • 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 • 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

  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. 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

  8. Current standards • Educational courseware • 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!) • Hollywood’s rearguard action SIMS

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

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

  15. 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

  16. 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

  17. 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

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

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