Tuesday, January 16, 2007

Markets resolve a hi definition DVD standards war

Have you been waiting to choose one of the new generation of high-definition DVDs and disc players? I have because there are two rival formats (Blu-ray and HD DVD) and because I don’t want to be left with a format that eventually is rejected by the market as was the Betamax videocassette. Consumers generally are unwilling to open their wallets while there are two incompatible formats if they assume one might dominate eventually but don't know which one.

A decade ago, I bought a laserdisc player plus a collection of $80 laserdisks only to find they were essentially made redundant by the DVD – I am not going to get burned again!

The choice of a format is referred to in economics as a ‘standard’ choice. There are ‘standards wars’ as firms compete to be the dominant technology format.

A famous example of a war was fought by Adobe Systems which invested heavily in developing a ‘page description language’ called PostScript for desktop publishing. Adobe realized that no one would invest the time necessary to learn PostScript unless it was the clear ‘standard’. So the firm deliberately allowed competitors to clone its language to create a competitive market in PostScript interpreters.

Adobe’s strategy paid off: several competitors emerged (including one that gave its product away) and PostScript became a widely-used standard for desktop publishing. Adobe kept a few things proprietary – for instance techniques for displaying fonts at low resolution – and managed to dominate the high end of the market. Ironically, Adobes’s market success was due to its ability to encourage entry by its competitors!

With respect to the high definition DVD format issue, 2 business responses to the ‘standards’ problem have been developed and were announced at the recent Las Vegas Consumer Electronics Show.

1. South Korea’s LG offered a DVD player which will, at modest additional cost, accommodates both high definition formats. It sells for about $1200US. Consumers then can buy a player and be confident that it will be useful if only one of the two formats endures. It also boosts the demand for complementor disk products.

2. Warner Bros plans to release a disk that will compete in either type of recorder with a Blu-ray movie on one side and a HD DVD format version on the other. This can be demanded by users of either type of player thus expanding its market. Moreover such disks will remain useful longer-term even if one of the formats fails to be a standard. It boosts demand for complementor DVD player products even those that deliver in only one of the two formats.

Each of these moves are interesting attempts to cash in on the standard war dilemma and each provides benefits to different complementor products. Of course the development does not ensure an unending lifespan for any of the products since it is very likely new ways of delivering high definition content are about to appear. Amir Majidimehr, corporate vice president of consumer technology at Microsoft has said that:
‘…the lifespan of both formats would also be less than the current DVD format. It has lasted 10 years with great success but …the technology would be superseded by developments in online delivery of hi-def content’.

9 comments:

Anonymous said...

It's lucky that the benefits of early adoption in such technology, such as....well, I guess prestige, are completely outweighed by the massive benefits of being a late adopter, whereby you not only do not run the risk of getting a dud format, but the unit costs are substantially lower for a product which will work better and be smaller.

In fact, I'd say the best thing to be said for the prestige of early adoption is it causes enough vain people to buy ludicrously priced and bulky machines to sort out what will be the standard for the rest of us, and of course spurring enough production for economies of scale to result.

Damien Eldridge said...

Sometimes more than one standard can survive. For example, PCs and Macs!!!

rabee said...

Microsoft has made a lot of money by

1. keeping its .doc format (format for word documents) secret and regularly changing it. yet people insist on using Word.

2. keeping the the internals of the Windows operating system secret and regularly changing it. The market responded by universally (well almost ) adopting windows.

3. secretly changing the standards for writing webpages. The market responded by adopting IE, and the crackers responded by writing viruses that take advantage of design bugs in IE.

It seems to me that if you own a standard and its implementation, and people almost universally use your product, then it pays to keep the standard secret and regularly change it so that people have to upgrade.

For that reason I try very hard to avoid using programs that do not implement open public standards.

hc said...

Rabee, I concur with your complaint about Microsoft. But what do you do when you get a word document sent to you as an email attachment - one with lots of maths that other word processors won't read accurately?

I got into a bind by refusing to upgrade my last office version of Word when I received email attachments in an updated version of Word.

rabee said...

Hi Harry,

If openoffice doesn't open the document, then a polite e-mail telling the sender to save the file in a specific format usually does the trick.

One unresolved paradox is why a lot of open source software is technically so much better than closed source software that you have to pay for. The dynamics of open source communities is not at all simple.

My own feeling is that the computer is an extension of my mind and I genuinely love the tools that I use. So I'm very uncomfortable using proprietary programs whose inner workings are trade secrets.

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hc said...

Rabee, Are part of those instincts you recognise the desire to be independent and your own boss? Using a PC gives me that feeling - I can do a lot and, like you, I don't like depending on 'witchcraft' solutions of others.

Oner really does wonder if the recurrent very minor innovations in the Office software and Windows are advancing the social good.

Sir Henry Casingbroke said...

rabee, the open office solution is crap. Respondents can't often read your emails and one doesn't often have the luxury of sending them polite emails. In many cases, computer illiterate minions in offices will not take the trouble.

My solution is to simply use "unbought" MS Office. This covers your objection and mine.

It must be said that MS is in its quasi monopoly situation because Apple locked up its software system to its hardware, and MS opened it up.

Likewise, Betamax was a proprietary cartel owned by Sony and Sanyo, with licensing to Toshiba and Pionner (at first). JVC's VHS competing system was open to all comers who were worried that the giant Sony would keep the cream and dole out the scraps and opted for the inferior (VHS) system. The rest is history.

BTW, Beta became the broadcast newsgathering standard and Sony reaped the benefits. In the same way, Mac became the system of choice for graphic design among professionals. Small consolation.

As reagrds movie watching at home, I recommend you all read David Denby's piece in the New Yorker.
http://www.newyorker.com/printables/critics/070108crat_atlarge

derrida derider said...

I use Word at work and OpenOffice at home, Casingboke, and have never had a problem reading. The "incompatibility", despite MS's efforts, is pretty minor.

The only problem I find is incompatibility between spreadsheets, especially the macro languages. As I use lots of VBA in my large Excel models I can't use them at home without considerable work (the superiority of the VB editing environment and the Excel object model is IMO the only large advantage Office has over OpenOffice, BTW. Pretty well everything else that matters is done better in OpenOffice).