The Art of Standards Wars
Summary
The article begins with a discussion of the historic examples: North vs South in railroad gauges, Edison vs Westinghouse in electric power and RCA vs CBS in color television. Besides telling the stories, this section also draws the learning from these examples. Then the authors go on describing the types of standards wars. They have identified three types: Rival Evolutions, Rival Revolutions and Revolution vs Evolution. The terms evolution and revolution refers to the backward compatibility (and lack of it, respectively) of new technologies.The authors have then identified seven key assets, ownership of which could indicate strength for waging in the standards war:
Control over an installed base of customers - can be used to block cooperative standard setting and also to block rivals from offering compatible products.
Intellectual Property Rights (IPR)
Ability to innovate
First-mover advantages
Manufacturing capabilities - cost advantage is important!
Strength in complements
Reputation and brand name
In next section, the authors have identified two crucial marketplace tactics: preemption and expectations management. There are multiple ways to preempt. One simple way is to be first to market. Secondly, you should aggressive early on to build an installed base of customers. Penetration pricing can be used to build such installed base of customers. For expectations management, vaporware is a classic way: announcing an upcoming product so as to freeze rival's sales. But perhaps the most direct way to manage expectations is by assembling allies and by making grand claims about product's current and future popularity.
Finally, the authors have given advice to both winners and losers. The advice for winners is as follows:
Stay on guards and let not rigidity due to early move constrain you for brining in improvements.
Offer customers a migration path so that newer versions of products can be brought out without worrying about supporting the older versions.
Commoditize complementary products so as to maintain a competitive market.
Competing against your own installed base
Protecting your position by offering ongoing attractive terms to important complementers and by taking steps to avoid being held up by others who claim that your product infringes their patents or copyrights.
Leveraging your installed base by carefully expanding in adjacent space and/or by expanding geographically.
Staying a leader by means such as developing proprietary extensions to otherwise open standards and by allowing complementors and even rivals to participating in developing standards under your terms
The advice for losers for recovery is as follows:
Add an adapter or somehow interconnect with a larger network.
Resist from offering survival pricing as it signal weakness.
Contribution and Critique
The authors tried to understand how standards wars begin and to classify type of standards wars through historic examples. Even though empirical analysis didn’t, they identified seven key assets in network market and the crucial market tactics. Also, they commented the action of companies depending on whether they won or they fell behind.
Although written for technology companies engaged in standards wars, this article is a good read for anybody interested in knowing how standards get established and in knowing the political side of standards-setting.It also contains very pertinent advice to the technology companies, which are involved in the standards wars. It talks about strategies and tactics with quite a few examples from field.