Technology Management and Strategy
Standards Battles /
Timing of Entry
Standards Battles
How and Why Dominant Designs Appear
01
01_ Standards Battles
1. Definition of dominant design
A single product or process architecture that dominates a product
category, usually 50% or more of the market
B
A
C
Design Dominance
Market Share
Market Share
Design Competition
(Standards Battles)
B
A
Kinds of Designs
C
Kinds of Designs
3
01_ Standards Battles
2. Why this concept is important
A great number of cases show that a “certain design” dominates the
market at a “certain time” under “certain conditions”
# of firms
What happens
when a dominant design appears?
Typewriters
Automobiles
……
Dominant Design’s advent
Electronic
Calculators
Televisions
Need for research
for this
phenomenon
4
01_ Standards Battles
3. Why dominant designs are selected
3.1 Learning Effects
The more a technology is used, the more it is developed and the more
effective and efficient it becomes
Technology is
adopted
Cost per unit
Self-reinforcing Mechanism(1)
“Learning effects”
Good Cycle
Reinvest
and
refine
Sales
the
revenues
technology
Performance
on each unit
Cumulative output
Cumulative output
5
01_ Standards Battles
3. Why dominant designs are selected
3.2 Network Externalities
With network externalities, the benefit from using a good increases
with the number of other users of the same good
Self-reinforcing Mechanism(2)
Size of Installed Base
Users
Availability of
Complementary Goods
Producers
6
01_ Standards Battles
4. Multiple Dimensions of Value
4.1 A Technology’s Stand-Alone Value
When a new technology is offered to customers, this new technology
itself is valuable to customers
Birth of Airplane
Birth of Cell Phone
Era of
Automobiles
Era of Home
Telephone
We cannot fly.
We cannot call
outside house.
Era of
Airplanes
Era of Cell
Phone
We can fly!
We can call
anywhere!
7
01_ Standards Battles
4. Multiple Dimensions of Value
4.2 Network Externality Value
The size of installed base and the availability of complementary goods
add values to a technological innovation
Additional Value from other than Technology itself
We can just fly.
We can fly anywhere!
Network
Externality
Effect
We can just call anywhere.
We can call anywhere
to anybody!
8
01_ Standards Battles
4. Multiple Dimensions of Value
4.2 Network Externality Value(cont.)
Thanks to superior network externality value, VHS could beat Beta
• High-resolution
• Technical excellence
Superior
Technology’s
Stand-alone value
VHS format
• Cheaper to manufacture
• Many users of VHS
machines
Network externality
value
value
Beta format
VHS wins!!!
Network
Externality
value
Technology
Stand-alone
value
Beta
Technology
Stand-alone
value
VHS
9
01_ Standards Battles
5. Real Case(iPod)
5.1 iPod’s Dominance over the World
There’ s no doubt that iPod is actually the ‘king’ of the MP3 market
MP3 Market Share(2007)
Samsung
2%
Creative
3%
Zune
3%
SanDisk
9%
Other
10%
iPod
73%
Reference: www.bloomberg.com March 13, 2007
10
01_ Standards Battles
5. Real Case(iPod)
5.1 iPod’s Dominance over the World(cont.)
Increasing rate of iPod’s sales revenue is astonishing
Number of iPod Purchased Quarterly from 2002 to 2007
Reference: www.roughlydrafted.com March 16, 2007
11
01_ Standards Battles
5. Real Case(iPod)
5.2 Why is iPod so successful  Brilliant Feature
iPod’s brilliant feature (which is a technology’s stand-alone value)
has made powerful impressions to customers
Various MP3P Designs
iPod Product lines
iPod Classic
iPod Nano
iPod Shuffle
12
01_ Standards Battles
5. Real Case(iPod)
5.2 Why is iPod so successful  User Experience
iPod’s user experience management could make customers happy
and stay with iPod.
iTunes
Nike + iPod sport kit
13
01_ Standards Battles
5. Real Case(iPod)
5.2 Why is iPod so successful  User Experience
Fun with
iPod!!
14
01_ Standards Battles
5. Real Case(iPod)
5.2 Why is iPod so successful  Perfect Mate ‘iTunes’
User friendly interface and stable supply of songs of iTunes bind users
strongly. This guarantees big advantages from network externalities.
Self-reinforcing Mechanism in iPod case
A lot of users of iPod
iTunes
Users
iTunes
Availability of almost
every song in the world
Music
Suppliers15
01_ Standards Battles
5. Real Case(iPod)
Growth of iPod
5.3 Conclusion
The combination of Brilliant feature, user experience management and
iTunes make the astonishing success
Through user
experience
management,
strong installed
base is formed
Brilliant feature
stimulates the
first move
Maximizing Network
externality value
Existing installed
base and stable
music supply
through iTunes
maximize network
externality value
Time
16
Timing of Entry
When is the Proper Timing to Enter the Industry
02
Contents
02_ Timing of Entry
1. Definition of Timing of Entry
In technological innovation aspect, the timing of entry is
a decision making for a firm to consider when it starts to spend money
on R&D to produce certain products or service.
Market
High-end
R&D
Selling
Mass
Entry
Launching
Low-end
Time
18
Contents
02_ Timing of Entry
2. Terminology
First-mover
is the first to sell in a new product or service category.
Early followers are early to the market but not first.
Late entrants enter the market when or after the product or service
begins to penetrate the mass market
Market
High-end
Mass
Low-end
First-mover
Early followers
Late entrants
Time
19
Contents
02_ Timing of Entry
3. First-mover Advantages
Being a first mover may confer the advantages.
Brand Loyalty and Technological Leadership
• A long-lasting reputation as a leader in that technology domain
• Yielding sustained monopoly rents
• Sustaining the firm’s image, brand loyalty, and market share
• Shaping customer expectations about the technology’s characteristics
Preemption of Scarce Assets
• The initial cost of the good
• The cost of complements purchased for the good
• Efforts and time becoming familiar with its operation
Exploiting Buyers Switching Costs
• Key locations
• Government permits
• Access to distribution channels
• Relationships with suppliers
The characteristics
of advantages
Extraordinariness
Exclusiveness
20
Contents
02_ Timing of Entry
4. First-mover Disadvantages
Being a first-mover may also have the disadvantages,
while later entrants get the advantages.
• Research and Development Expenses
• Undeveloped Supply and Distribution Channels
• Immature Enabling Technologies and Complements
• Uncertainty of Customer Requirements
The characteristics
of disadvantages
Expensiveness
Easiness of transference
Evasiveness
Late Entrants Advantages
• Ascertain how the product was created and how to focus its development efforts
• Observe the market’s response to particular features of the technology
• Utilize the developed enabling technologies and complements
• Access to the exploited supply and distribution channels
21
Contents
02_ Timing of Entry
5. Factors Influencing Optimal Timing of Entry
How does a firm decide whether to
attempt to pioneer a technology
category or to wait while others do
so? It depends on several factors.
The more checks are on the list,
the better earlier timing of entry is.
Go for it!
22
Contents
02_ Timing of Entry
6. First-mover Vs. Early Follower
P&G’s Pampers crushed J&J’s Chux.
P&G realized customers’ certain preferences.
Customers wanted
soft yet strong and moistureproof
disposable diapers with low price.
• With development of better nonwovens,
softer top sheets made of rayon
started transforming the baby diaper.
• It offered in two sizes, medium and
large. In 1966, it launched a new C-fold
design. and by 1969 started a third
size.
• P&G devised a high-speed, block-long
assembly line that brought the price
down from 10¢ to 5½¢
100(%)
80
P&G
60
J&J
K-C
Others
40
20
0
1967 1968 1969 1970 1971 1972 1973
TIME. Product: The Great Diaper Battle. Jan, 24, 1969
http://www.time.com/time/magazine/article/0,9171,900601,00.html
Disposable Diaper Net
http://www.disposablediaper.net/content.asp?2
Stealing Share
http://www.stealingshare.com/content/1147639142265.htm
The disposable diaper industry in 1974
http://www.slideshare.net/smehro/disposable-diaper-case
23
Contents
02_ Timing of Entry
7. Strategies to Improve Timing Options
Timing of entry is a matter of choice for a firm,
but can it dive into the market when the tide is high?
At the best timing of entry,
firms capable of producing the products or service
can reap the benefit from the market.
Factors defining a firm’s capability
• Closer fit with customer requirements
• Fast-cycle development processes
• Fast development deployment processes
Methods to improve the capability
• Strategic alliance
• Cross-functional new product development teams
• Parallel development processes
24
02_ Timing of Entry
8. Real Case(IDIS)
8.1 Who is ‘IDIS’?
Korea venture ‘IDIS’ is the world leader in Digital Security industry
Profile
•Korea R&D oriented venture
cf. R&D HR ratio: 40% (90people)
Annual Sales Trend
CSGR 30.1%
•World Leader in Digital Security
•Market share(07’): 15% in the world
35% in Korea
•Major product: DVR
(Digital Video Record)
•Established in 1997
• “02’, 04’ Forbes 200 Companies
: best under a billion“
Source: Company Analysis report for ‘IDIS’ published by Dong-bu Research center (2008.07)
25
02_ Timing of Entry
8. Real Case(IDIS)
8.2 What is DVR?
Definition (from Wiki)
a device that records video in a digital format to a disk drive or other memory medium
within a device
Source: J.P. Freeman,2006 US & Worldwide Video Surveillance Market
26
02_ Timing of Entry
8. Real Case(IDIS)
8.3 DVR Market Trend
As market size is bigger and bigger, the need for DVR is changed
Market Size
Paradigm shift for DVR
(US$ in millions)
Need of surveillance
DVR Market size
CSGR 21.0%
Need of Data Management
Source: J.P. Freeman,2006 US & Worldwide Video Surveillance Market
27
02_ Timing of Entry
8. Real Case(IDIS)
8.4 IDIS’s Timing of Entry
DVR industry was emerged from 1998. SO IDIS is the first mover at DVR
industry
DVR Industry Life Cycle & IDIS’ Activities
Present DVR
industry position
1998~2000
Entering
2001~
97
Established IDIS & RnD Center
98
Developed frontier Security Sol.
99
Relationship with Samsung
00
Relationship with S1, PALCOM
01
Relationship with ADEMCO
02
DVR full-lineup Completion
04
Exclusive Provider of PC-Based DVR
at New York Subway System
07
Intelligence Award
28
02_ Timing of Entry
8. Real Case(IDIS)
8.5 IDIS’s First-Mover Advantages & Disadvantage
•Brand Loyalty & Technology leadership
First DVR solution developer
Cumulated Know-how, Deep Trust
Advantages
•Strong Relationship with BIG Client
Domestic: S1, Samsung techwin, Comtech
Foreign: Honeywell, SIEMENS, ADT, PACOM etc
•Research and Development Expense
R&D Expense rate: 8~9% of Total profit
R&D HR: 40% of Total employee
Disadvantages
•Undeveloped Supply and Distribution Channels
Building Relationship with Hitron-systems (Outsourcing)
•Uncertainty of Customer Requirements
NOT Science-push, JUST Customer-driven Development
29
02_ Timing of Entry
8. Real Case(IDIS)
8.6 IDIS’s Factors Influencing Timing of Entry
Due to turning point of CCTV from VCR to DVR in 2000, IDIS started to
develop the DVR solution and they succeeded in being First-mover
100
80
60
43
Analog VCR
94
Turning point of CCTV
From VCR to DVR
87
55
66
78
40
0
DVR
57
45
20
34
6
2001
13
2002
22
2003
2004
2005
2006
Source: JP Freeman Report, 2003
First DVR solution
Development
Model : IDR 1016
2000 Sydney Olympic
Advertising Chance to
Foreign Buyer
30
02_ Timing of Entry
8. Real Case(IDIS)
8.7 Conclusion
IDIS’s Key success factor is the Timing of Entering to DVR industry. Such a
great timing makes IDIS more powerful than other entrants
Recommendation on Timing of Entry
Based on IDIS case
When you decide timing of entry
Analyze Market Trend
Identify Factors defining a firm’s capability
Decide Firm’s Targeting Market Position
Find and Execute Methods to improve the capability
31