TMitTI 1 © Sakari Luukkainen Technological change Market change Standardization Productization Marketing R&D Technology Assessment and Forecasting Market Assessment and Forecasting Innovation process

TMitTI 2 © Sakari Luukkainen Content Cooperation and Compatibility (Varian chapter 8) Waging a Standards War (Varian chapter 9) Information policy (Varian chapter 10) Case ERMES paging system standardization

TMitTI 3 © Sakari Luukkainen Cooperation and Compatibility Expanded network externalities Reduced uncertainty Reduced consumer lock-in Competition for the market vs in the market Competition on price vs features Competition to offer proprietary extensions Component vs systems competition

TMitTI 4 © Sakari Luukkainen Who wins and who loses from standards? Consumers Complementors Incumbents Innovators

TMitTI 5 © Sakari Luukkainen Standard setting organizations International Telecommunications Union (ITU) Instititute of Electric and Electronic Engineers (IEEE) Telecommunications Industry Association (TIA) European Telecommunications Standards Institute (ETSI) The Internet Engineering Task Force (IETF) 3rd Generation Partnership Project (3GPP) Open Mobile Alliance (OMA) Liberty Alliance World Wide Web Consortium (W3C)

TMitTI 6 © Sakari Luukkainen Tactics in standard setting Do not automatically participate Keep up your momentum Look for logrolling opprtunities Be creative about cutting deals Beware of vague promises Search carefully for blocking patents Consider building an installed base preemptively

TMitTI 7 © Sakari Luukkainen Building alliances – retain relative advantage Time-to-market Manufacturing cost Brand Edge in development

TMitTI 8 © Sakari Luukkainen Building alliances Assembling allies Interconnection among allies Negotiating a truce Cases of Ethernet, Postscirpt, PDF, ActiveX

TMitTI 9 © Sakari Luukkainen Standard war When two incompatible technologies struggle to become a de facto standard These wars may end in - truce (56 k modems) - duopoly (video games) - fight to death (VCRs)

TMitTI 10 © Sakari Luukkainen Classification of standard wars Rival Technology Your Technology CompatibleIncompatible Compatible Rival evolutionsEvolutions vs revolution (DVD vs Divx,(Lotus vs Excel, dBaseIV 56k modem, Unix) vs Paradox) Incompatible Revolution vs evolRival evolutions (Nintendo 64 vs PS, Netscape vs Explorer)

TMitTI 11 © Sakari Luukkainen Key Assets in Standards War Control over installed base of customers IPR Ability to innovate First mover advantage Manufacturing abilities Complementary products Brand

TMitTI 12 © Sakari Luukkainen Tactics in standard wars Preemption Expectations management

TMitTI 13 © Sakari Luukkainen After winning Staying on your guard Commoditizing complementary products Competing with your own installed base Protecting your position Leveraging installed base Staying ahead

TMitTI 14 © Sakari Luukkainen After losing Adapters and interconnection Survival pricing Legal approaches

TMitTI 15 © Sakari Luukkainen Competition policy Priciples Implications for strategy Mergers and joint ventures Co-operative standard setting Single-firm conduct

TMitTI 16 © Sakari Luukkainen Direct government intervention Achieving critical mass Universal service

TMitTI 17 © Sakari Luukkainen Case ERMES (Enhanced Radio Message System) ETSI standard for high-speed paging (6250 bit/s) was introduced in the beginning of 1990´s Legacy systems based on Pocsag radio interface (512,1200, 2400 bit/s) ITU recommended global status Open, coordinated and consensus-based technical standardisation driven first by big operators (BT, FT, Telefonica…), no licence, 7 open interfaces From manufactures participated early Tecnomen, Motorola and Ericsson, later Glenayre VHF band in 169 MHZ, increased capacity per channel, roaming, type approval, many access methods, value added services e.g. true group messaging

TMitTI 18 © Sakari Luukkainen after de-facto standard FLEX was introduced cooperation changed quickly to standard war – evolution vs. revolution using FLEX required licence payment two way FLEX and ERMES US companies had large and advanced paging domestic market (low mobile penetration) and succeeded also in FLEX promotion in Asia European PTT´s started to invest in small ERMES pilot networks by running parallel Pocsag, larger networks by new operators ERMES was also promoted in Asia, success only in the middle east Tecnomen was market leader in ERMES infrastructure, efficient open migration product strategy, influence to the standardized interfaces Case ERMES

TMitTI 19 © Sakari Luukkainen Motorola was market leader of paging terminals, ERMES terminals were more expensive and larger than in Pocsag, no economies of scale Introduction of CPP (Calling Party Pays, no fixed subscriber fee) service in mid 90´s increased subscriber base parallel with massive marketing campaigns, but did not create long term traffic and revenue for operators SMS started to influence as a substitute service, virtuos cycle of GSM/SMS No critical mass reached, no further investments in infrastructure expansion or pager R&D, paging into vicious cycle Currently most european operators have discontinued their paging service Case ERMES

TMitTI 20 © Sakari Luukkainen Conclusions Market and committee based mechanisms – strong standardization culture differences between USA and Europe Success requires economies of scale and network externalities – leveraging domestic markets parallel with early setting of global objectives Market aspects for new services have to be considered early in the standardization process: enduser real needs, threat of substitutes, service / terminal pricing and availability, system life cycle, network roll-out strategy Modular open system architecture, scalability, open service platforms The role of governments in the creation of global standards