These slides discuss standards and how they impact on a firm's scope of activities as part of a course on business models for hi-tech products.
Transcript of Biz model 5 standards
1. A/Prof Jeffrey FunkDivision of Engineering and
TechnologyManagementNational University of SingaporeStandards,
Network Effectsand Complex SystemsSources: Shapiro and Varian,
Information Rules; Rohlfs, Bandwagon Technologies; Payingwith
Plastic, Evans and Schmalensee
2. Business Model Value proposition: what to offer and how
todifferentiate Customer selection: whom to serve and not serve
Scope of activities: what activities to carry out andwhat
relationships to haveThis partly depends on the existence
ofstandards Value capture: dominant sources of revenue Strategic
control: how to sustain profitability (e.g.,how to control
architecture and standards)
3. Outline What are standards and complex systems? How are
standards chosen? What are network effects? What is a critical mass
of users? What are standards wars and what impact do theyhave on
competition? Key issues: Performance vs. compatibility Open vs.
closed Key tactics and assets Various examples
4. What are Standards A Standard is a set of
technicalspecifications adhered to by a producer,either tacitly or
as a result of a formalagreementSource: David and Greenstein, The
Economics Of Compatibility Standards: An Introduction ToRecent
Research, Economics of Innovation and New Technology, Volume 1,
Issue 1-2, 1990
5. Types of Standards Reference and minimum quality standards
Provides a signal that a given product conforms to thecontent and
level of certain defined characteristics (e.g., ISO9000) Todays
focus: Interface or compatibility standards Assures the user that
an intermediate product or componentcan be successfully
incorporated in a larger systemcomprised of closely specified
inputs and outputs
6. Examples of Interface Standards Mobile phones: between
Phones and base stations Operating systems and apps Music and video
systems: between phonograph record and stylus, magnetic tape/disk
and read-write head optical disk and read-write system (laser and
photodiode) MP3 player and Internet Computer systems: between
hardware, operating system andapplication programs Transportation
systems: between train wheels and rail gauge Trading systems:
money
7. Examples of Interface Standards (continued) Wireline
Communication systems, between modems and computers facsimile
machines and telephone system Broadcasting systems between
transmitters and receiver (e.g., television, radio) Electric power:
between power station, transmissionsystem, and home appliances
Automobiles and fueling station between fuel source and method of
propulsion between nozzle and fuel tank What about energy (e.g.,
smart grids), water, satellitesystems? in the future?
8. What do Interface Standards have todo with Business Models?
Standards Impact on Vertical (Dis)integrationand Vertical
(Dis)integration impacts on scopeof activities Open standards
facilitate vertical disintegration Vertical disintegration enables
smaller scope ofactivities And we want to understand the best scope
ofactivities for firms
9. Vertical (Dis)integration Represents extent to which work is
shared amongdifferent organizations Changes in vertical
(dis)integration can come fromtechnological, institutional, or
social changes In particular, reductions in transaction cost reduce
costs of having work done by multiple agents importance of
integrative capabilities and thus facilitate the emergence of
vertical disintegration(and entrepreneurial opportunities)
Standards are one way to reduce transaction costs
10. Source: Christensen & Raynor, 2003Vertical
DisintegrationEmergence of Standards Drove:
11. When Do Standards Emerge? Emergence of standards depends on
technological,institutional, and social factors Starting with
technological factors, standards emerge when modular design is
technically and economically feasible this depends on tradeoffs
between integral and modular design Modular design leads to
standards when firms agree to use the same modules and the same
rules that defineinterfaces between standards Whether standards
lead to vertical disintegration depends are standards are open? are
different capabilities required in different activities? are there
economies of scale or network effects in some activities? firm
strategies
12. From Integral to Modular Design Often evolution from
integral to modular design over time Integral design often has
higher performance Improvements in performance often enable modular
design Wireline and wireless telecommunication Broadcasting, music
players, computer, and Internet Example of Internet compatible
mobile phones Low processing power and memory capacity of first
Internet-compatible mobile phones made integral design necessary
Successful services designed and controlled by service providers
Improvements in processing power and memory capacity enabledmodular
design and phones that were capable of accessing PCInternet content
with PC-compatible standards
13. Outline What are standards and complex systems? How are
standards chosen? What are network effects? What is a critical mass
of users? What are standards wars and what impact do theyhave on
competition? Key issues: Performance vs. compatibility Open vs.
closed Key tactics and assets Various examples
14. Types of Interface Standards and How they areChosen 1.
Unsponsored standards The originator nor any subsequent sponsoring
agencyholds a proprietary interest (e.g., UNIX, Linux) 2. Sponsored
standards Where one or more sponsoring entities holding a director
indirect interest, creating incentives for other firms toadopt
particular sets of technical specifications (e.g.,www consortium,
CDs, DVDs, Wintel PCs, facsimiles)
15. Types of Standards and How they are Chosen 3. Standards
agreements These are arrived at within and published by
voluntarystandards-writing organizations (ANSI, ISO, IEEE, etc.)
Sponsored standards (CDs, DVDs, and those for telecom,Internet) are
sometimes addressed in these agreements 4. Mandated standards These
are implemented by government agencies that have someregulatory
authority (building, accounting, and sometelecommunication and
broadcasting standards)
16. De facto and de Jure Standards (1) Defacto Both unsponsored
(1) and sponsored (2) standards emergefrom market-mediated
processes Dejure Both standards agreements (3) and mandated
standards (4)are a consequence of political/committee deliberations
oradministrative procedures which may be influenced marketprocesses
without reflecting them in any simple way
17. De facto and de Jure Standards (2) De jure: created by the
lawful exercise of power In the past, most broadcasting and telecom
standards De facto: determined by a combination of
betterperformance, network effects, openness,
backwardcompatibility, and/or biz model. Examples include: PCs
(Wintel), music (CDs) and movie (VHS, DVD) standards Distinctions
between de jure, de facto are disappearing Power of national
committees have declined But need for agreements on standards have
increased, thusmaking committees more important (>1000 for
mobile phones) Many standards are created in a committee but market
determineswinner (e.g., many mobile phone standards)
18. Outline What are standards and complex systems? How are
standards chosen? What are network effects? What is a critical mass
of users? What are standards wars and what impact do theyhave on
competition? Key issues: Performance vs. compatibility Open vs.
closed Key tactics and assets Various examples
19. What are Network Effects (NE)? Effect that one user of a
good or service has on value ofthat product for other people Direct
effects Value of product depends on number of users Examples:
telephones, facsimile machines, Internet mail, SMS,Social
Networking or Instant Messaging Sites Indirect effects Value of a
product depends on number of complementaryproducts Software &
hardware for computers, video games, music, video players Mobile
phones and applications Note: number of complementary products
often depends onnumber of users
20. Other Examples of Indirect Network Effects (NE)Industry
Product Network EffectsRealEstateProperty sales Buyer,
sellerRentals Renter, ownerMedia Newspapers, Magazines Reader,
advertiserNetwork television Viewer, AdvertiserPortals and
WebPublicationsWeb surfer,advertiserShopping Malls Merchant,
shopperPaymentSystemCharge/debit card Cardholder,merchant
21. How do NEs Impact on Purchasing Decisions? Products
competing inmarket segments withno NE Consumers/customersbase their
purchasedecision on the intrinsicvalue and utility of theproduct to
them Competition on thebasis of features, price,promotion, after
salesservice, etc. Products competing in marketwith NE
Consumers/customers basepurchase decisions on the size ofthe
installed base and/or the(actual or projected)
accessibility,quality, and functionality ofcomplementary products
andservices Competition on the basis of thesize of the installed
base,availability of complementaryproducts and their
supplierscompetence and support
22. With Strong Network Effects, Market Share ItselfCreates
ValueValue toconsumerActual (or anticipated) size of the installed
baseValue of standardsDriven productConventional product
(e.g.,automobile)
23. While the competing standard loses valueCompeti-tiveness
ofcompetingstandardInstalled base of products that work with
yourstandardStandards-Driven productConventional product
24. Winner Take-All from Network Effects1Probabilitynext
consumer/producerchoosestechnology AAssumption:Only two
technologies,A and B, and consumershave same needs0(1) When
Asprobability ishigher than itsmarket share, Atends to convergeto 1
(winner-take-all)(2) When Asprobability is lower,it tends to
convergeto 0 (loser-gets-nothing)(1)(2)As Market Share
25. When Network Effects are Strong,but not winner-take all
strong1Probabilitynext consumer/producerchoosestechnology
AAssumption:Only two technologies,A and B, and consumershave same
needs0The result is aduopoly in whichtwo technologies/standards
co-existAs Market Shareequilibrium
26. Small Change in Support, Large Change in Share Support by
movie distributors in 2007 HD DVD: Paramount, Universal, Warner
Brothers Blu-ray: Sony, Disney, MGM, Warner Brothers 50-50 split in
hardware sales in 2007 Warner Broth removed support for HD on Jan.
4, 2008causing market share for Blu-ray hardware to jump to 90% in
week of January 12 63% in week of January 19 despite heavy
discounts by HDDVD suppliers (Source: NY Times, Feb. 5, 2008, HBS
Case) By mid-February Toshiba stopped production of HD DVD Walmart
and NetFlix would only supply Blu-ray
27. Many Winner Take all Markets for Standards/Firms (fora
certain time period) Computers IBM System/360 in mainframes Wintel
in PCs UNIX in workstations, Portable memory formats Internet HTML,
URLs, etc. Ciscos IOS for operating systems in routers Paypal for
online micropayments Documents e.g., Adobe Vector Graphics e.g.,
Flash
28. More Examples (2) Telecommunication GSM for second
generation mobile phone systems WCDMA for third generation mobile
phone systems Various facsimile and modem standards Transportation
Railroad gauge Specific airports as airline hubs (not as much
winner take all) Container sizes, Automobile fuels, i.e., gasoline
Consumer Electronics B&W and Color Television standards Music:
stereo records, cassette tapes, CDs, MP3 Movie/Video: VHS, DVD
(both 1G and 2G) Video game consoles
29. Implications of Winner Take All You must be part of the
winning standard If youre not, you wont be able to sell your
product As user of wrong standard, it may be hard to purchase
productsfor your standard or to work with other organizations or
Winner take all phenomenon is particularly commonwhen there are
high switching costs The costs that a user incurs when they change
products highswitching costs can lead to lock-in Cant sell your
product because users are locked in Cant use other products because
you are locked in But some standards have low switching costs
particularly whenthe software for the new standard can be quickly
downloaded(e.g., instant messaging services)
30. Suppliers Shouldnt Overestimate Importance of
NetworkEffects and Lock-In Internet Bubble broke in 2000 One reason
bubble occurred isbecause firms thought that Network effects were
very strong Users would be willing to paya higher price for the
servicesfrom the leaders and thus would be locked-in to early
leaders And thus firms needed to obtain market share quickly
Lock-in hasnt occurred to this extent In fact, the leading Internet
firm did not become successful untilafter the bubble had
burstNASDAQComposite
31. Network Effects are Easy to Misunderstand! Even the experts
make mistakes Just remember critical questions: What emphasis do
consumers/customers base theirpurchase decision on the intrinsic
value and utility of the product to them size of the installed base
and/or the (actual orprojected) accessibility, quality, and
functionality ofcomplementary products and services? What are the
extent of the switching costs?
32. Outline What are standards and complex systems? How are
standards chosen? What are network effects? What is a critical mass
of users? What are standards wars and what impact do theyhave on
competition? Key issues: Performance vs. compatibility Open vs.
closed Key tactics and assets Various examples
33. What is a Critical Mass of Users? The number of users that
are needed for a product orservice to provide them with sufficient
value so that theywill continue to use the product or service
Products with strong network effects often require acritical mass
of users before growth will occur
34. Industries for which a Critical Mass of Users orFirms was
or is Required Direct Network Effects (number of users is key
factor) Telephones; Fax machines; Internet mail Wireless (before
connections with fixed line phones) Video phone/conferencing Social
networking sites Indirect Network Effects (number of
complementaryproducts is important) Broadcasting (local
broadcasters, advertisers, programs) New music or video formats
(hardware and content) Computer hardware and software Mobile
Internet users, services, phones, and content
35. Consider Facebook Mark Zuckerberg first created a critical
mass of users at asingle university and then expanded this critical
mass ofusers to other schools before addressing mass market He
created the first critical mass of users at Harvard Second, at
other universities: Yale, Columbia, andStanford Third, High Schools
Fourth, alumni for U.S. universities and high schools Fifth,
foreign schools Sixth, began offering services that enabled people
to makeconnections between networks
36. Similar things in other technologies Examples:
Telephone,wireless, facsimile, Internetmail, video conferencing
Technologies first diffused in small group of users
(e.g.,intra-firm communication) that were only concernedwith these
users This caused growth to occur primarily in the form
offragmented networks Later these networks became
interconnected
37. IndustryorProductDifferent Sub-Populations for which a
criticalmass of users was createdProducts/Services thatConnected
FragmentedSub-PopulationsTelephone 1. Intra-firm communication2.
Local communication in cities3. Local communication in smaller
cities and ruralareasMedium and long distancephone servicesWireless
1. Intra-firm wireless telegraph services2. Ham radio users (i.e.,
radio heads)3. Intra-organizational wireless communicationMobile
phones andstandardsfor themFacsimile 1. Intra-firm communication2.
Inter-firm and consumer communication throughfacsimile transmission
servicesInexpensive fax machines& standards for themInternet
mail 1. Communication among computer scientists andother univ.
professors2. Intra-firm communication3. General
business/consumersCommercial gateways,telecommunicationbackbones
and standardsVideo telephone/conferencing1. Intra-firm video
conferencing networks2. Inter-firm services3. General business/
consumersInternet, PCs, mobilephones, and standardsA Critical Mass
of Users Was Created Multiple Times(for different sub-populations)
in Many Industries in U.S.
38. Does a Critical Mass of Firms have to be CreatedMultiple
Times for the Mobile Internet? Indirect network effects between
services, phones, andcontent/applications Critical mass of
services, phones, content for Messaging/Texting Ringing tone or
music downloads Video downloads Game or other Java-based downloads
GPS (global positioning system) 2D Bar Codes Payments and tickets
(Wallet Phones) Infrared or Bluetooth Critical mass must be created
for each standard
39. In summary Creating a critical mass of users is
sometimesnecessary Strong network effects often means it is
necessary tocreate a critical mass of users But not always: video
cassette recorders When necessary, creating a critical mass of
users isdifficult Must identify appropriate customers Convince
multiple users to adopt the technology
40. Outline (and Learning Objectives) What are standards and
complex systems? How are standards chosen? What are network
effects? What is a critical mass of users? What are standards wars
and what impact do theyhave on competition? Key issues: Performance
vs. compatibility Open vs. closed Key tactics and assets Various
examples
41. Standard Wars Battle between rival technologies to
becomerecognized standard Winner-take all standards sometimes leads
to winnertake all firms Large benefits to having your technology
become astandard one key method of strategic control control how
different products interact with each other Thus firms invest a lot
of money and time to make (ortry to make) their technology a
standard First key issue is performance vs. compatibility
42. CompatibilityPerformanceEvolutionRevolutionImproved
designand adaptationPerformance/Price Versus Compatibility(as
compared to existing technology)
43. Types of Standards Wars: Degree ofCompatibility with
Existing TechnologyCompatibleIncompatibleCompatible
IncompatibleRevolutionVersusEvolutionRivalRevolutionsEvolutionVersusRevolutionRivalEvolutionsRival
TechnologyYourTechnologySource: Shapiroand Varian
45. Outline (and Learning Objectives) What are standards and
complex systems? How are standards chosen? What are network
effects? What is a critical mass of users? What are standards wars
and what impact do theyhave on competition? Key issues: Performance
vs. compatibility Open vs. closed Key tactics and assets Various
examples
46. Closed versus Open Strategy Closed Strategy Do not release
specifications about interface standards Control everything about
interface standards Open Strategy Release specifications about
interface standards Work with other firms Tradeoff between degree
of openness & control must be open to obtain users and obtain
cooperation fromproducers of complementary products due to
importance ofnetwork effects as degree of openness increases, unit
profits may decline
47. Degree of Openness (Two Definitions)In Specifications Do
not release any specificationsand make all hardware andsoftware
(most closed) Only make software or hardware Release some
information about keyinterfaces Release all information but
controlupdates Fully open standard and standardsetting
processNumber of Firms One firm controlsstandard (mostclosed)
Members of alliancecontrol standard All firms have accessto
standardIncreasing Openness
48.
MerchantMerchant(98%)ConsumerVisa,MasterCardAcquirer(0.4%)ConsumerIssuer(e.g.,
Banks)AmericanExpress,Discover1 (Shop)2 33223Bill/Pay1 (Shop)3
2Bill/PayClosed-Loop SystemOpen-Loop System2: Authorization3:
Settlement (interchange fee in this case is 1.4% and merchant
discount is 1.8%)TogetherShare 1.4%Credit Cards(example of greater
openness with more firms): Visa and Master Card enabledacquirers
and issuers to sign up merchants and consumers, i.e., more
open
49. Outline (and Learning Objectives) What are standards and
complex systems? How are standards chosen? What are network
effects? What is a critical mass of users? What are standards wars
and what impact do theyhave on competition? Key issues: Performance
vs. compatibility Open vs. closed Key tactics and assets Various
examples
50. Key Tactics in Standards Wars Preemption Announcing a
product or service before it is ready in order toreduce interests
in a competitors products or services Expectations management
Assemble allies Convince large companies or governments to support
yourservice and then everyone expects you to win Governments (e.g.,
European governments in case of GSM) Large corporations in case of
video and software formats Discounting the service for a specific
set of users or providers ofcomplementary services (previously
discussed) Document readers (Adobe) Video and music players
51. Key Assets in Standards Wars For benefitting from network
effects Control over an installed base of users Microsoft in
operatingsystems First-mover advantages Apple, Google, Samsung For
convincing other firms to align their technology withyour
technology or users to adopt your technology Strength in
complements Samsung, Apple Brand name and reputation Apple, Google,
Samsung For benefiting from technology being part of standard
Intellectual property rights Qualcomm in phones For reducing need
to have your technology in standard Ability to innovate Apple
Manufacturing capabilities Japanese firms previously
hadadvantages
52. Outline (and Learning Objectives) What are standards and
complex systems? How are standards chosen? What are network
effects? What is a critical mass of users? What are standards wars
and what impact do theyhave on competition? Key issues: Performance
vs. compatibility Open vs. closed Key tactics and assets Various
examples
53. Standards Battle in the US Railroad Gauges Although some
governments chose the width of the railroadgauge (e.g., Japan,
Europe), the U.S. government did not By accident different size
gauges (width of rail line) were usedin different parts of the U.S.
In 1860 (beginning of U.S. North-South Civil War) 50% of rail gauge
was 4 feet 8 inches (the northern states) 50% was 5 feet (the
southern states) No real issues of openness (all were open)
orcompatibility/performance comparison with previoustechnology Key
issue was network effects and winner take all North built railroad
to west during and after Civil War Network effects caused 4 feet 8
inch gauge to win and Southchanged all of its railroad lines to 4
feet 8 inches
54. Color Television U.S. Government chose RCAs (owned NBC)
technology as black-and whitestandard in 1940 Initially chose CBSs
technology as color standard in 1951 But CBS technology was not
backward compatibilitywith B&W TVs And manufacturers refused to
make color TVs RCA proposed color TV standard that was
compatiblewith B&W TV U.S. government changed to RCA technology
in mid-1950s But took many years (until 1968) for color TVs sales
topass those of B&W TVs issue of critical mass
55. Color Television (continued) Openness versus control Both
CBS and RCA licensed their technology (similaropenness) Choice of
RCAs technology provided it with importantlicensing fees and
temporary manufacturing advantages Compatibility and Performance
Performance advantages of first color TVs did not make upfor lack
of compatibility with B&W TVs
56. Video Cassette Recorders (VCRs) Ampex introduced first VCR
in mid-1950s for broadcasters Many firms (including Japanese ones)
introduced simpler andcheaper VCRs (Helical design) for training
etc. in mid-1960s Reductions in price created consumer market in
early 1970s Consumers used them to record television programs
Pre-recorded movies did not have strong sales until early 1980s
Sony and Matsushita/JVC introduced incompatible systems inmid-1970s
Sonys (Betamax) system appeared first and achieved early lead in
sales But Matsushita/JVCs system (VHS) had longer recording times
and moremanufacturers Sales of VHS units passed Beta in 1977, Beta
discontinued in mid-1980s
57. Video Cassette Recorders - continued Network Effects they
emerged as pre-recorded movies became available; thiscaused winner
take all for VHS However, since recording television programs drove
diffusion ofVCR, network effects did not initially apply to VCRs
Compatibility and Performance Backward compatibility with Ampex
Quadruplex was irrelevantas only broadcasters used Quadruplex But
many argue performance advantage of VHS (longerrecording time) led
to its greater diffusion than Betamax Openness versus control
Others argue that VHSs greater openness (JVC/Matsushitalicensed
more producers of hardware) was key to success
58. Personal Computers Initial competition First PC released in
1975 Apple, Commodore, Tandy released PCs in 1977 Apple and CP/M
compatible (OS) machines were leaders by1978 Apples machine used
proprietary technology such as OS IBM PC IBM introduced
open-modular product in 1981 that usedexternal technology (e.g.,
Microsoft and Intel) that issummarized on the next slide
59. IBMs PC included: Operating System from Microsoft Hybrid 8-
and 16-bit microprocessor from Intel 8-bit capability provided
compatibility with software writtenfor CP/M OS 16-bit capability
enabled software superior to that used inApple computer: Word
Perfect replaced Word Star in wordprocessing software, Lotus 1-2-3
replaced VisiCalc inspreadsheets But other manufacturers introduced
clones Microsoft (and Intel) became big winners throughcontrol of
key interfaces. Subsequently, they haveintroduced products that are
backward compatible
60. Personal Computers - continued Network Effects Increased in
importance following release of IBM PC Openness versus control
Openness of IBM machine contributed to its success But openness
enabled Microsoft, Intel to become big winners Lessons: IBM should
have pursued more closed policy Apple should have pursued more open
policy Compatibility and performance IBM PC was not compatible with
previous generations ofcomputers (but compatible with some previous
PCs) But for many users IBM PC was superior in terms
ofperformance-price ratio to mainframe and mini-computers
61. Outline (and Learning Objectives) What are standards and
complex systems? How are standards chosen? What are network
effects? What is a critical mass of users? What are standards wars
and what impact do theyhave on competition? Key issues: Performance
vs. compatibility Open vs. closed Key tactics and assets Various
examples (mobile phones)
62. Mobile Phones (1) First systems introduced in 1920s for
police, taxi, fire,military, etc.; public systems introduced in
1950s Single transmitter/receiver restricted number of users
Dividing system in cells and reusing frequencyspectrum in each cell
increased system capacity andreduced the cost First cellular
systems introduced in late 1970s inScandinavia and later in U.S.
interface standards determined interaction between basestations and
phones U.S. standard (AMPS) became global standard
63. Mobile Phones (2) Digital services first introduced in 1991
(GSMstandard) First successful mobile Internet service in 1999
inJapan required many different standard standards Compatibility
between different standards and thus integraldesign As processing
power and memory capacity increased, itbecame possible to design
phone systems and phones in a modular way use interface standards
from PC Internet and now we have the iPhone and the Google
phone
64. Lets look at the history of the mobile phone industryin
more detail
65. BatteriesKey Interface Standard in Mobile Phone
IndustryPhoneManufacturersDisplaysInterface defined by
air-interfacestandards such as GSM and
CDMAChipsSoftwareOperatorsBase StationsSwitching EquipmentNetwork
SoftwareRetail CustomerSource: Adapted from (Steinbock, 2003;
Peppard and Rylander, 2006)
66. Type ofMobileDates Generation
ofTechnologyGlobalStandard(s)Singletransmitter/receiverEarly 1900s
Wireless Telegraph Not applicableFrom 1920s Wireless Voice(police,
military)Not applicableCellular 1970s,1980s1GAnalogAMPS
(U.S.)1980s, early1990s2G Digital GSM (Europe)Late 1990s 3G
W-CDMA2000s Mobile Internet PC Internet-basedstandardsEvolution of
Technology and Standards in Mobile Phones
67. Competition Between 2G Digital Phone Systems Europe
Countries agreed to develop single standard in 1987 Began awarding
new licenses in 1989 Non-European countries began adopting GSM in
early 1990s Services started in 1992 U.S. Finalized specs for
standard (D-AMPS) in 1989 But no new licenses! And incumbents didnt
invest in digital Alternative from Qualcomm later emerged and U.S.
governmentallowed service providers to use any standard Japan NTT
DoCoMo created the Japanese standard in cooperation onlywith
Japanese manufacturers (i.e., no openness!)
68. CompatibilityPerformanceEvolutionRevolutionImproved
designand adaptationQualcomms Technology (CDMA) vs. GSM in late
1990sQualcommGSM updates
69. Qualcomms CDMA Technology Successful IP strategy Charges
the same licensing fee for use of its patents in both its3G CDMA
(e.g., cdma2000) technology and the most widelyused version of CDMA
technology (W-CDMA) Qualcomm makes lots of money Unsuccessful
standards strategy W-CDMA is much more widely used than Qualcomms
3Gtechnology Qualcomms partners (Motorola, Lucent, Nortel) have
lostsignificant share of the infrastructure market because of the
lackof success in Qualcomms 3G technology
70. New Standards Continue to Emerge Network standards (between
base station and phone) 4G Cognitive Radio WiFi WLAN Content and
Application related standards 2D Bar Codes Payments and tickets
(Wallet Phones) 3D content Operating System (which connects
applications with content) We will talk about operating systems
next week
71. Conclusions (1) Interface standards technically define
interfacesbetween different modules or building blocks incomplex
systems Relatively open standards facilitate verticaldisintegration
and thus new types of scope ofactivities But small amounts of
control can lead to high profitsfor some firms Thus monitoring,
participating and succeeding instandards are critical issues in
defining businessmodels
72. Conclusions (2) The choice of standards is not just due to
technicalperformance (intrinsic value) but also due to
networkeffects (favors early installed base) Levels of openness and
backward compatibility, andother tactics that lead to an early
installed base (i.e.,network effects) are also important degree of
network effects can differ dramatically among productsand systems
strong network effects can lead to early leader becomingstandard
very strong network effects can lead to high switching costs
73. Conclusions (3) Although different types of standards
require differenttypes of strategies, degree of openness and
compatibilityplay critical roles in all standard setting Openness
increases chance of adoption but may decrease profits Backward
compatibility also increases chances of adoption Performance
advantages can overcome backwardincompatibility (i.e., there is a
tradeoff between performanceand compatibility) Who pays and how
much (methods of value capture) are criticalin building a critical
mass of users for your system/product andthe standards included in
the system/product