1. February 14, 2002 Prepared by Ken Song
Waging a Standards War
MGT523: Competitive Strategies for Network Economies
Professor Shor
February 14, 2002
Prepared by Ken Song

2. Standards War: Competition in the information age
A battle for market dominance between incompatible technologies
A company's success can easily pivot on its ability to vie a standards war
Standards wars are more competitive in markets with strong network effects
Consumers place their value on compatibility
Is it coincidence that we have a single worldwide standard for fax machines?

3. Standards Wars - Examples
End in a truce:
56k modems & color television
Ultimately common standard was adopted
End in a duopoly:
Nintendo and Sony
Fight to death:
North vs. South Railroad gauges
Belated victory for the North
Southern Railroad had to convert 5'gauge into the now-standard 4'8 1/2" gauge on more than 11,000 miles of track

4. Standards Wars – Lessons
Lessons from the standard war of railroad gauge
Incompatibilities can arise by accident, yet persist for many years
Network markets tend to incline to the leading player, unless the other players coordinate to act quickly and decisively
Seceding from the standard-setting process can leave the player in a weak market position in the future
A large buyer (the U.S. government) can have more influence than suppliers
Those left with the less popular technology have to cut their losses
by employing adapters
by writing off existing assets

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
DVD and Divx (both of which will play CDs)
Rival revolution
Neither offers backward comparable technology
Nintendo & Sony PS
Evolution vs. Revolution
One offers backward compatibility and the rival does not
Backward compatibility vs. Superior performance

6. Seven key assets Control over an installed base of users
MS with loyal locked-in customers
Intellectual property rights
Qualcomm’s CDMA
Ability to innovate
HP’s engineering skills
First-mover advantages
Canon’s personal laser printer
Manufacturing capabilities
Low costs and open standard
Strength in complements
Intel’s efforts to promote new standards
Brand name and reputation
HBS as a top MBA program???

7. Two main tactics Preemption Expectations Management
build an early lead
So positive feedback works for you and against your rival
With learning-by-doing, the positive feedback is through lower costs
Expectations Management
Assembling allies and claiming about the new technology’s current or future popularity
Sun has gathered allies in support of Java
Taking out full-page advertisements of the company lists in the Java coalition

8. HBS’s Case study - Standardization in MBA program
Owen
Customer Control
Strong:
large base of locked-in MBA programs
Pursue an Evolution strategy
Block rivals from offering compatible cases
Force rivals to play risky Revolution strategy
Weak:
Rival evolution?
Intellectual property rights
Yes
Innovation
High:
- Ability to publish more cases in the future puts HBS in a strong position today
EC Strategy
Professor Shor

9. HBS’s Case study - Standardization in MBA program
Owen
1st mover adv.
Yes No
Manufacturing
Yes:
- low-cost producer, due to both scale economies and manufacturing competence (HBS Publisher)
Complements
High:
“Information rules” is also published from HBS
More MBA students will read books from HBS
Low
Brand equity
- #1 Case study school
Moderate

10. Hypothetical Scenario – Owen’s Case study battle
Preemption
Find the pioneers
Mostly keen to try new technology and sign them up swiftly
MBA programs with high attention to eCommerce strategy
Pricing below cost, i.e., penetration pricing
Free copies maybe
Assemble allies
Support of consumers
MBA programs/Faculties/Students
Even from HBS
Expectations Management
Strong network effects in MBA programs
Engage in aggressive marketing
Make early announcements of Owen Case studies
Don’t price to survive
Establish a compelling performance advantage
Interconnect with the prevailing standard, HBS Cases