Architecture, Interfaces, Modularity and Platforms

Technology Strategy High-tech businesses are built on systems, with interfaces, which may be standards • Products part of larger and more complex systems • Products are comprised of multiple (sub-)systems • Systems are comprised of sub-systems and components • Sub-systems and components are integrated, made compatible, through interfaces • Interfaces can be customized or standardized, as compatibility standards ZigBee “…an “…an association association of of companies companies working working together…” together…” Image removed due to copyright restrictions. “…to “…to enable enable … … products products based based on on an open global an open global standard…” standard…” “…providing “…providing interoperability interoperability and and conformance conformance testing testing specifications…” specifications…” Z-Wave Alliance “…an “…an open open consortium consortium of of manufacturers…” manufacturers…” “…who “…who build build products products based based on on Z-Wave…” Z-Wave…” Image removed due to copyright restrictions. “…stringent “…stringent conformance conformance test test to to assure … complete assure … complete interoperability interoperability with with all all other other devies devies and and controls…” controls…” “…allow “…allow all all products products from from all all members to members to interoperate interoperate seamlessly…” seamlessly…” ZigBee and Z-Wave are battling each other, albeit with different strategies… ZigBee Alliance • • • “The ZigBee Alliance is a global ecosystem of companies creating wireless solutions for use in residential, commercial and industrial applications” “[It] comprises technology providers and original equipment manufacturers worldwide. Membership is open to all.” “…the only wireless standards-based technology: – • that addresses the unique needs of remote monitoring & control, and sensory network applications – enables broad-based deployment of wireless networks with low cost, low power solutions – provides the ability to run for years on inexpensive primary batteries for a typical monitoring application” “Initial markets – Home Automation – Building Automation – Industrial Automation” Z-Wave Alliance • • • • • “The Z-Wave Alliance members lead the home controls market…” “ …more than 125 companies are developing products that incorporate the Z-Wave technology.” “…Zensys’ Z-Wave technology is the only technology in the market with a true ecosystem of interoperable products that focuses on the home automation segment.” “Unlike competing technologies, Z-Wave-enabled products are readily available from leading consumer brands, giving Z-Wave a significant time-to-market advantage “Recent findings…have confirmed existing doubts about the viability of wireless control products based on IEEE 802.1.5.4, such as those from the ZigBee community… [and] clearly demonstrated that… products using 15.4 technology are seriously compromised and often inoperable even within the most basic residential” [Compatibility] standards have been around a long while: railroad gauges in the 19th century • Standard gauge 4’ 8½” – George Stephenson – built the Stockton & Darlington Railway – the Rocket • broad gauge 5’0” – American South – Finland • broader gauge 7’0¼” – Great Western Railway Standards battles have been going on for a long while • • • • Electric Power Roads Color Television Air travel • • • • • • • • Video cassettes Cellphones (1) Personal computers 56k modems • • • • • Cellphones (2) • • Documents • DC (Edison) vs AC (Westinghouse) Width, side of the road, signage Mechanical (CBS) vs electronic (RCA) Door on front left, jetways/airbridges, taxi ways Betamax (Sony) vs VHS (Matsushita+) Several co-existing standards Windows vs MacOS K56flex (Rockwell/Lucent) vs x2 (US Robotics/3Com) vs v.90 TDMA (Ericsson/AT&T) vs CDMA (Qualcomm) vs GSM (EU+) vs PHS PDF (Adobe) vs Reader/ (Microsoft) What triggers standards battles, and what are the outcomes? • How important are network effects, how much consumers value broad compatibility • Two (or more) businesses or business ecosystems vying for dominance • Tipping – “fight to the death” • Truce – convergence – comprise • Two (or more) – no tipping – duopoly or oligopoly If network effects, so-called network externalities, are important, adoption may tip 100% Likelihood next customer chooses to adopt A Metcalfe’s Law: Value ∝ n(n-1) = n2 - n 0% 0% A’s share 100% of current adoption - the installed base • Direct or real networks – people I can talk to – content I can use – places I can go • Indirect or virtual networks – software and hardware – development communities – complements Types of compatibility standards Open Although details of standard are published, owner(s) controls evolution and may capture value • Windows • SD cards Standards are publicly owned or held in common • TCP/IP • GSM Information Closed Interfaces amongst subsystems, modules or components are standardized, but not published externally • IBM 360 series • Apple Standards publicly owned or held in common, but kept secret • cryptography • GSM secret keys Proprietary Control Public In practice, the extent of control and the availability of information are both a continuum Open PDF Z-Wave ZigBee Linux GSM CDMA Symbian Information IBM360 Closed Proprietary Control Public And each type of standard has distinct advantages and disadvantages Open Time to market Support Performance Information Closed As user, As producer, value capture value by capture for owner owner Proprietary Control Public Technology envelopes and trade-offs • Adopters face a trade-off between better performance and the payoff from network effects Compatibility Performance Types of standards battles Incompatible Evolution vs revolution Rival revolutions Rival evolution Revolution vs evolution Rival’s Standard Compatible Compatible Your Incompatible Standard Key assets in standards battles • Prior adoption – installed based from previous era – helpful with evolution strategy • Technological innovation – deliver superior performance – helpful with revolution strategy • Timing, being first-to-market – get there early, establish momentum, learn • Intellectual property rights – Qualcomm’s patents for CDMA • Strength in complements – influence overall system level performance • Reputation – credibility, players expectations are that you will win… so you are more likely to Two key strategems for standards battles • Pioneering - pre-emption – just do it – pioneer an early lead so that positive feedback works for you – early entry - with associated trade-offs and risks – penetration pricing which needs to be recouped • Prosletizing - expectations management – convince players that you will win – vaporware – “predatory product pre-announcements” – assembling alliances, announcing adoption – fear, uncertainty and doubt - FUD Standards forums - let’s go shopping! • What are the costs involved in participation? • Who are the participants? – incumbents or insurgents – customers or producers • What is the intellectual property regime? – disclosure and licensing - what is “reasonable” – rights held by non-participants • What is the process by which decisions are made? – consensus – voting • How is compliance enforced? Interesting standards battles going on today • Low-power wireless • ZigBee vs Z-Wave (Zensys) vs ISA-SP100 • Symbian (Nokia and others) vs • Mobile OSs Windows Mobile (Microsoft) vs Linux • Mobile TV • MediaFlo (Qualcomm) vs DVB-H vs DMB • Web content • Flash (Adobe) vs Silverlight (Microsoft) • High definition • Blu-Ray (Sony) vs HD-DVD (Microsoft) content • OpenDocument vs • Documents OpenOffice XML (Microsoft) • WiMAX vs IEEE 802.20(?) vs LTE • Mobile broadband It can get ugly… and expensive (particularly once the lawyers or the government get into it) • Qualcomm’s tactics in mobile broadband – August 2005 pays $818 million for Flarion – September 2005 revives 802.20, proposes OFDM-based technologies – June 2006, IEEE suspends 802.20 at Intel and Motorola’s instigation – Chairman had not disclosed that he is a consultant for Qualcomm – ~20 paid consultants voting as a bloc • Qualcomm in deathmatch over 3G – royalties of ~5% on its CDMA, with >80% of the patents, generating ~$2.5 billion per year – wants ~5% on W-CDMA (vs ~3% incumbents pay), <20% of patents – in litigation with Broadcom and Nokia • Rambus found by FTC to have deceived JEDEC about its patents – amended its patent applications to extend their scope – tried to charge a royalty rate of 3.5% • Microsoft in a stand off with EU – unreasonably high prices for Windows Server Protocol Program – threatened with “structural separation”, fines of €3 million per day