(such as .arj, WinRAR, and WinZip).
These examples suggest that first-
mover advantage does not always
translate into the persistent market
power to be expected of a winner-
Several factors drive this trend:
First, in a digital environment, a
large number of essentially equiva-
lent designs is possible, making an
increased variety of independently
produced formats more likely. In
contrast, in an analog environment,
natural laws tend to limit the design
space. Additionally, digital forms are
relatively easy to copy, encrypt, com-
press, and communicate than their
analog counterparts, all of which re-
duce the overall cost of diversity.
However, this environment suggests
only how multiple standards come into
existence, not why they survive. One
critical factor enabling the coexistence
of competing digital standards is the
presence of hardware- or software-based digital converters; for example,
hardware-based flash memory converters allow users of one standard to easily
transfer their content onto other devices
through the ubiquitous USB interface.
For digital file conversion, a computer
with appropriate software can serve as
a flexible universal converter, allowing for, say, straightforward conversion
of a .jpg image file to a .gif image file.
Likewise, video editors on a Macintosh
platform easily convert .wma audio files
created on Windows PCs to an i Tunes-compatible .aac format, with little discernible loss in media quality.
In contrast, prior to the digital revolution, analog media “readers” were
typically fixed in hardware and relatively inflexible. Conversion between
two incompatible standards in this
context was slow, and led to significant
signal loss; for example, conversion
from vinyl record albums to analog
tape is costly in terms of both time and
lost audio quality. Likewise, providing
the ability to play two incompatible
formats (such as VHS and Betamax
videotapes) and write in at least one of
them would nearly double the cost of
the hardware. 4 These significant costs
but wait, aren’t blu-ray discs digital? and isn’t satellite radio a digital signal? why do
these markets have a single winner?
Blu-ray/HD-DVD. it is important to note that while blu-ray content is digital, it
is encoded onto a fixed medium not easily converted between standards due to
intellectual-property protections. moreover, differences in the lasers used to encode
blu-ray and hd-dVd content mean “dual players” would cost nearly twice as much as a
single player (similar to a dual Vhs/betamax player). as a consequence, the blu-ray vs.
hd-dVd “standards war” had a single winner, as with beta-Vhs.
XMand Sirius. Xm and sirius were established by the u.s. Federal Communications
Commission as separate licenses to promote competition. however, bidding for
content and subsidization of early adopters threatened to bankrupt both sides.
their merger was the solution to the failed regulatory enforcement of multi-vendor
competition. a converter, in the form of a dual receiver, would still be required to
receive both signals. For these reasons a single provider has survived.
of multi-homing led consumers to
choose a single standard, and a single
winner generally emerged.c
figure 3. Digital-products delivery chain.
Digital Products Delivery Chain
A model is helpful for observing simi-larities among what otherwise might
be seen as disparate products. Figure 3 highlights three essential elements in the digital-products delivery
chain, starting with Digital Content.
These information goods represent
anything that can be encoded digitally, including data, images, music,
and video. Producers of information
goods must decide how they deliver
these goods, represented as the second step—Media or Format—in the
delivery chain. In the analog era,
goods were delivered in fixed media
(such as videocassette tapes and vinyl
records). The first move toward full
digitalization was digital information
communicated on physical media
(such as audio CDs and video DVDs);
see the sidebar “Digital Winner-Takes-All Standards.” Digital goods
today are increasingly delivered as a
stream of bits following a standard
format (such as one of the audio, image, and video formats outlined earlier). Formats can be seen as “contain-
Media or Format
b Not all analog markets become winner-takes-all,
and not all digital markets become winners-take-some; however, when conversion is essentially
lossless and costless, the likelihood of a multiple-winners outcome increases substantially.
c Consistent with Eisenmann et al., 8 “
multi-homing” is used here as “affiliating with multiple platforms”; for example, in the context
of video games, demand-side multi-homing
would involve a consumer with more than one
video-game console, while supply-side multi-homing would involve a video-game creator
developing versions for more than one console platform.
ers” that fulfill the role once filled by
Finally, the end consumer needs
a playback device, or reader, to allow
consumption of the information good.
In the analog era these were single-purpose devices (such as VCRs and
players), a model that persists today
in single-purpose e-book readers. Increasingly, however, general-purpose
devices with built-in converters serve
the playback role for multiple media
types; for example, e-books may be
read on multipurpose devices (such
as a PC, a smartphone, or tablets like
Apple’s iPad6), reducing what would
otherwise be multi-homing costs.
future Standards Wars
How might these trends evolve in the
future when even more products are
digital? It seems likely that media
quality will continue to be an impor-