Special issues in technology strategy Business 290

Sometimes technology businesses are different  We’ve focused on two pillars of sustainable advantage Superior economic contribution Sustainable market position  Issues in market position were isolating mechanisms (making yourself hard to copy) ways of retaining customers (creating switching costs)

Some technology successes need further analysis  Why do people who hate Microsoft use Microsoft products? Yes, Microsoft creates switching costs, but it seems there’s more to it than that.

‘High tech’ industries involve special circumstances  Computers  Software  Telecommunications  Consumer electronics  Pharmaceuticals  Maybe in the future Power generation Aerospace

Standards are obviously central in high tech  Bill Gates and the journey to becoming World’s Richest Man  DVD recorders  Picture phones

What is a standard?  A set of specifications that producers adhere to when making a product  Standard-setting is an ancient process Clocks in the Middle Ages Electricity in 19 th century

Standards lead to strategic victories  Matsushita wins with VHS  Sony wins with 3½ inch disk drive  Dolby noise reduction  ‘The Intel architecture’  Qualcomm cell phone technology

What is the best way to set standards? 

 Companies getting together?  Government action?  Battles in the marketplace?

Often ‘format wars’ set standards  ‘Network effects’ are central Sometimes the size of the ‘network’ of complementary products largely determines how much of a product can be sold When you get some success you get positive feedback loops

Costs in technology industries (sometimes)  Often in technology firms the costs of making is low the cost of designing (making the first one) is high.

In most industries the way to win is to create a distinctive competence  That’s crucial in tech industries, too  But standard-setting competition means it’s especially important how you compete when the standard is being set  Bill Gates at Boston Computer Society, 1984  eBay in 1998  Standards are very hard to change

Is it important to be a first mover?  First-mover advantages Create network effects / set standards Create brand loyalty Scale economies and learning effects Accumulate knowledge about the external environment Create switching costs for customers  ‘free’ wireless phone – the first guys could actually charge for the phone.

 Successful first movers Microsoft in computer languages Intel in microprocessors eBay in online auctions

But first-mover disadvantages also exist  Pioneering costs Motorola, Nokia, and the first cellular network providers had to educate everybody about cell phones Samsung can just copy.  Mistakes in an embryonic environment. Handwriting software in the Apple Newton.

 Pioneers have to invest in inferior technology. Early 1980s predecessors of the Internet. Tiny screens 300 bps.  Build capabilities to serve wrong customers - early adopters (techies) CompuServe When first AoL and later the Internet providers came out, the CompuServe skills became pretty much useless.

 Successful later entrants Sony in compact disks and video games Matsushita in VCRs AoL and Earthlink in on-line services Microsoft in operating systems