1. Information Rules: A Strategic Guide to the Network Economy Standards Wars Carl Shapiro Hal R. Varian Modified By Ravi Nangunoori And Vikas Bandagadde

2. Information Rules Spring 98 2 Overview What is a Standards War? Outcome. Classification. Key Assets. Two Basics Tactics. Once You’ve Won. Discussion.

3. Information Rules Spring 98 3 What is a Standards War? Historical examples RR gauges AC v. DC NBC v. CBS in color TV http://www.ntsc-tv.com/ntsc- main-01.htm When two new incompatible technologies struggle to become a ‘de facto’ standard.

4. Information Rules Spring 98 4 Outcome End in a truce  Blu Ray and HD DVD  Negotiations for a Common standard http://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/2 http://en.wikipedia.org/wiki/Browser_Wars

5. Information Rules Spring 98 5 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 Rival revolution  Neither offers backward compatible technology

6. Information Rules Spring 98 6 Classification of Wars

7. Information Rules Spring 98 7 Examples Evolution Windows OS Revolution Apple iPod Rival evolution Athlon, Pentium Rival revolutions GSM, CDMA

8. Information Rules Spring 98 8 Key Assets 1.Control over an installed base  Evolution strategy offering backward compatibility.  MS with loyal locked-in customers 2.Intellectual property rights  Patents and Copyrights give firms a strong position  Patents of Sony and Philips in CD and DVD industry

9. Information Rules Spring 98 9 Key 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 iPod

10. Information Rules Spring 98 10 Key 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.

11. Information Rules Spring 98 11 Two Basic Tactics 1. Preemption Exploit 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, eBay

12. Information Rules Spring 98 12 Two Basic Tactics ( Cont… ) 2. Expectations Management Live up to consumers expectations.  Vaporware.  Assemble Allies to manage expectations. Examples: Opera Web Browser. http://www.opera.com/company http://www.opera.com/company /

13. Information Rules Spring 98 13 Once 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, Minitel

14. Information Rules Spring 98 14 Once 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 & Intuit

15. Information Rules Spring 98 15 Once You’ve Won, cont’d. Competing against your own installed base.  Improve performance and Innovate.  Offer discounts.  Beware of “Durable goods monopoly” problem Example: Intel Microprocessors Steinway Pianos. http://www.steinway.com/steinwayhttp://www.steinway.com/steinway/

16. Information Rules Spring 98 16 Once You’ve Won, cont’d. Protecting Your Position  Attractive terms to important complementors.  Avoid being held up. Example Nintendo Leverage installed base Expand network geographically AT & T Expansion http://www.india-cellular.com/

17. Information Rules Spring 98 17 Once You’ve Won, cont’d. Stay a leader  Build a bandwagon.  Develop proprietary extensions.  Invest in long run research. Example: IBM

18. Information Rules Spring 98 18 What 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.

19. Information Rules Spring 98 19 What if You Fall Behind? Survival Pricing.  Sign of Weakness Example: IBM offering OS/2 For cheap Legal Approaches  Take legal actions against anti trust

20. Information Rules Spring 98 20 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

21. Information Rules Spring 98 21 Lessons, continued When you’ve won the war, don’t rest easy If you fall behind, avoid survival pricing

22. Information Rules Spring 98 22 Discussion 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 ?