Standardization and competition (2)

In the previous blog we talked about competition between standards (like Betamax and VHS, or Blu-ray and HD-DVD) and competition within standards (when companies collaborate and market products using the same standard). History has shown that competition between standards results in an all-out standards war or the carving out of a small niche market: both delay or prevent market harmonization and fast market growth. Luckily this doesn’t happen too often.

In most cases when new technology enables new forms of connectivity or interoperability, key players get together to jointly create a standard. Knowing that subsequently they will compete within the same standard, they still prefer the access to a jointly created single large market over scattered markets with different technologies.

Competition, securing business by offering superior propositions, will then be fueled by the manufacturer’s unique functionality on top of the standard, or by differentiation on factors other than the standard. Standardization, one could argue, forces companies to be clearer on the strategy they use to compete.

Often, developing a strategy is an enlightening activity as is it requires a company to bring together the know-how of all functions in its value chain. Price, promotion, channel policy, time-to-market, R&D focus, customer support and quality can all be identified and applied as differentiating factors over the competition.

Another element in strategy development is to analyze the architecture of one’s products and systems and the effect of the new standard in this architecture.

Consider the following example. Consumer electronics companies introduced software in their television sets in the 1980s to respond to the remote control and operate menu controls. By the early 2000s, the size of this software had grown to several megabytes, and every successive generation of TV required hundreds of man-years to create it. Our analysis at the time showed that most of this effort was in fact spent in creating a non-differentiating operating system on which the company’s TV functionality would then be programmed. When business management recognized this, the CE Linux forum could be formed between the fierce TV manufacturing competitors to agree on the functionality and interfaces of a common operating system that could then be delivered to them by a few dedicated OS companies. Their economies of scale made it more efficient for TV companies to buy their software than create their own.

In this example, a decent strategy demonstrates not only what to do, but also what not to do. By understanding better how to stay in control and focus on the differentiating factors in their products, CE companies could save significantly on the cost of their software stack and focus on what really matters.

In a similar way, other businesses have benefited from such analysis of system architectures through standardization efforts for non-differentiating product elements: Continua for healthcare interoperability, Zhaga for LED modules, ZigBee RF4CE for control of CE appliances, and ZigBee Light Link for consumer lighting products.

Generalizing, one could state that operating system standards, middleware APIs and connectivity standards delineate interfaces of non-differentiating functionality for the OEMs in industry. They should welcome such standards and the suppliers that implement them, and the smaller players especially should enjoy the capacity which is thus freed up to work on truly differentiating product and business elements.

We assume of course that the company’s strategy has identified these: competition is about picking one’s battles. The beautiful effect of a standard is that it provides the framework on which a company can mount its (differentiating) message: “we’re putting Wi-Fi on wheels”, “With our products, you can activate any existing ZigBee Light lamp of other manufacturers”, etc.

Standardization, in short, does not reduce competition. Instead, it forces companies to contemplate on their core capabilities, on the specific “superior propositions” on which they want to stand out and for which they want to be known. Standardization helps to make the battle ground big enough to be worth fighting for.

If you’re aiming to compete “within a standard” and need help, call us or attend our Standards-based Innovation Masterclass (SIM) in spring 2018, where this will be one the topics we’re going to cover.  Check our website www.sim-masterclass.com. For questions, contact us at www.neovate-ip.com.