contributed articles

Doi: 10.1145/2447976.2447994

Markets characterized by multiple competing
digital standards have room for more than
one winner, unlike traditional analog markets.

BY ChRiS f. KemeReR, ChaRLeS ZheChao Liu,
aND miChaeL D. Smith
Strategies for
tomorrow’s
‘Winners-
take-Some’

given their expectation that only one will win, and thus that firms must compete for the market before they compete in the market. This result is common in markets with networks of complementary goods (such as software for hardware, media for players, and games for game consoles), where the market desires a single, dominant standard, and consumers prefer to adopt the market leader, and may even withhold purchases until a dominant technology emerges. 15

In order to win a standards war vendors may engage in competitive behavior, (such as subsidizing early adopters to increase network size and offsetting the lack of network benefits to early adopters), thereby causing the market to “tip” to their technology platform.a When tipping occurs, the winning firm can extract economic rents from its dominant position in the market, and future-generation technologies must then offer significant improvements

Digital Goods
markets

a “Platform” is used here as defined by Eisenmann, et al.8: “…products and services that bring together two distinct groups of user in a two-sided network.” Platforms tend to become standards, though not all standards are platforms. Our analysis here is of technology standards broadly, though some examples are platforms. Markets that tip to a single, dominant standard are commonly called winner-takes-all, despite the fact that the dominant market share may be less than 100%.

key insights

most managers (and Consumers) understand the key patterns of market evolution from earlier standards wars. 10 History provides a number of examples that begin with two or more similar, but incompatible, information technologies introduced to address consumer market needs. Incompatibilities between the technologies mean users of one cannot enjoy the benefits of the other, in terms of either users to communicate with or of content to consume.

Vendors of both technologies, recognizing the network effects associated with adoption, start a “standards war,”

Winner-takes-all markets, where products tend to “tip” toward a single standard, have been common in it, as in vhS over Betamax, Blu-ray over hD-DvD, and microsoft Windows and office over multiple competitors.

Changes in development and delivery of digital goods may portend a winners-take-some outcome that demands a switch from yesterday’s subsidization of early adopters and later reliance on network effects to drive the market toward tipping.

Digital formats conversion across platforms increasingly allows coexistence of multiple winners, as with hardware devices, like flash memory cards, and with multiple digital audio, video, and image formats, allowing conversion across multiple standards.