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.