Friday, 7 September, 2007

The Art of Standards Wars

Today I enjoyed reading the article, titled "The Art of Standards Wars". This article was published in Winter 1999 issue of California Management Review. Unlike the famous book titled "The Art of War", this article is quite readable! It 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.

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 learnings 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:
  1. Control over an installed base of customers - can be used to block cooperative standard setting and also to block rivals from offering compatible products.
  2. Intellectual Property Rights (IPR)
  3. Ability to innovate
  4. First-mover advantages
  5. Manufacturing capabilities - cost advantage is important!
  6. Strength in complements
  7. 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:
  1. Stay on guards and let not rigidity due to early move constrain you for brining in improvements.
  2. Offer customers a migration path so that newer versions of products can be brought out without worrying about supporting the older versions.
  3. Commoditize complementary products so as to maintain a competitive market.
  4. Competing against your own installed base
  5. 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.
  6. Leveraging your installed base by carefully expanding in adjacent space and/or by expanding geographically.
  7. Staying a leader by means such as developing proprietary extensions to otherwise open standards and by allowing complementers and even rivals to participating in developing standards under your terms (Thinking of Sun's JSRs!)
The advice for losers for recovery is as follows:
  1. Add an adapter or somehow interconnect with a larger network.
  2. Resist from offering survival pricing as it signal weakness.
  3. If all else fails, sue!
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.

1 comment:

Anonymous said...

Very good review ! I had to read it for a course, but didn't end it (way too long) !
All the learnings can be seen today in the greatest and biggest companies.