The Smooth DJ

The historical examples of standards wars, their salient features, and useful strategy to fight them, were covered in depth by Carl Shapiro and Hal R. Varian in their excellent 1999 California Management Review article (Vol. 41 No.2), "The Art of Standards Wars".

Shapiro and Varian started their story in 1860, when rail was the dominant economic mode of transportation in the US. As the network of railway lines were being created, a funny thing happened. The widths of the track (called gauges) varied regionally. Two guage widths dominated the terrain: 5' in the north/east and 4'8.5" in the South. How did trains travel between regions? It was a painful and slow transition: cars were built with sliding wheel bases, boxcars were hoisted off one wheel platform to the other, or a third rail was added.

What kept the regional rail companies from coming together and standardizing? For one, each group wanted the other to adopt their way, and for good reason - the costs to lay new track where significant. Secondly, there was resistance from rail workers whose sole function was to transition trains from one guage to another. The rail workers remind me of those services that sprang into existence in the last few years that rip your CD collection to your iPod.

So how did the US rail system eventually get to a standard guage? Perhaps the biggest influencer was the Civil War. The Congress of 1862, with no representation from the newly suceded South, passed a bill for railroad tracks to be standardized at 5' guage. At the same time, US western exapnsion was on a rapid pace, and the big eastern railroad companies, the 5' guagers, dominated the bulk of east-west transport. The Southern states were isolated and losing out. After twenty years of painful interconnections, the South capitulated and switched over to 5' guage (more than 11,000 miles of track underwent conversion).

Shapiro and Varian mention a few characteristics of the railroad wars that apply today:

1. Incompatibilities sometimes arise by accident, and can last for many years. Each faction will feel their standard is superior.

2. The industry leader(s) (in this case, the big East companies) can tip the scales in their favor by flexing their muscle. Think Microsoft IE vs. Netscape.

3. Make sure you show up for the standard setting process and voice your position!

4. If you're on the loosing end, you'll have to pay for the costly adaptations to operate in the dominant landscape, or just give up and join everyone else. This is somewhat analogous to Apple allowing MS Office on their OS to gain more business legitimacy. This was costly for Apple in that many PC-to-Apple switchers chose the MSFT software over Apple's when it came to productivity software. Or more recently, the dual blu-ray / HD DVD players. A certainly odd and expensive solution. This will certainly backfire on LG - few units will move, plus the studios (save Sony) are releasing titles on both formats until the storm settles.

Can we apply any of the above to the hi-def DVD war? Yes. Although the information above is not enough to pick a winner yet (we'll try after part 2), it does give us some insight:

Although there is no formal, lawful requirement for next gen dvd standardization, alliances of corporations did come together in an effort to agree upon a de facto standard. Unfortunately, there were two competing alliances! Looking back, it's hard to believe that two groups effectively said "Yeah, lets have another standard war, those are fun", but, hey, that's what happened. See point 4 - it's going to be costly for the loser. Wouldn't want to be that guy.

In this case, the incompatibility didn't arise by accident, it arose from greed: billions in licensing royalties to be had. So you can be sure it will be bitter till the end.

It's too early to tell if there is a clear industry leader. The adoption rates are just too low. Perhaps by default, Sony will win this one since they bundled a blu-ray on all these PS3s. Smart move.

Stay tuned for part 2 as we try to get some more answers.