i202 Fall 2010 School of Information, UC Berkeley

As described in the lecture, standards are important vehicles for companies to win in a competitive market and to "take it all". Standards are network goods: The perceived utility of a user increases with the number of users to also use the same standard on their devices, software etc. Take Windows, a DVD or the Internet Protocol. This is because standard compliance allows interoperability, higher performance and increased reliability as well it enables new features and services.

In order to be successful with establishing a standard, companies build big business webs arounds them, i.e. an ecosystem of supplier, content provider, peripherals provider etc. For instance in the standard war between DVD HD and Blue-ray, companies build huge business webs of major supplier around them and tried to push the standard into the market.

What is particularly interesting and what makes it a challenging, if not impossible, task to anticipate which standard will eventually be used is the notion of the tipping point. Malcolm Gladwell describes this concept in his book "The Tipping Point" and outlines that there can be very small changes in a system (e.g. an ecosystem around a standard) which causes a snow ball effect which leads to a big impact. He describes several examples such as a New Yorker district which becomes more and more dangerous because of small changes such as broken windows which conveys the message to people that the neighborhood became less caring. It is interesting to think of this notion regarding a standard war. A small change in the setup of the market or the ecosystem can decide whether a standard will succeed  or not. As a matter of fact, the success of the Blue ray standard is largely due the move of a major manufacturer who previously had supported HD DVD and changed to Blue ray. This move let other manufacturer rethink their commitment and eventually let them move to Blue ray as well.