4.4.1 Factors Influencing Dominance
Many factors interact at the same time to determine dominance of a specific technology or design. This section presents an integrated framework within which players in the wireless industry can better assess the potential impact of their strategic and tactical efforts to influ-ence the emerginflu-ence of SDR as the dominant design. Conceptually, however, it is helpful to classify the different scenarios where dominant processes unfold:
Figure 4.10 Ranking in importance of software phone design elements (the range of responses is also indicated)
† market competition involving products embodying unsponsored standards, where no players in the market have proprietary interests in any of the relevant competing technol-ogies;
† market competition among sponsored (proprietary) standards, where firms fight to impose their own proprietary standards;
† agreements within voluntary standards-writing organizations, where all or the main players agree upon a specific technology;
† direct government promulgation/intervention, where the government makes the final deci-sion about which technology to accept.
Any integrative framework should build upon the existing management literature, and fulfill at least two goals. First, provide a complete but sparing list of factors that affect dominance. Second, provide an indication of the conditions under which each factor will have a stronger or weaker effect on the final result of the dominance battle. The framework provided below [17] tries to address both points.
The following factors can be considered to affect the likelihood of dominance of a specific technology in the market. No factor by itself tends to have enough power to tilt the balance in favor of a specific technology. Rather, the end result is the outcome of the interplay among all the factors:
† technological superiority
† firm’s assets and credibility
† firm’s strategic maneuvering:
entry timing
pricing and communications alliances and sponsorships
provision of complementary products and systems
Figure 4.11 Questionnaire responses: ‘‘Who is actively supporting SDR today in the global wireless industry?’’; ‘‘Who would have to actively support SDR in order for the technology to achieve global acceptance?’’; ‘‘Who do you think will have the most influence on the further evolution of international wireless standards?’’
† government intervention
† relative size of the installed base
Technological superiority captures the pure effect of technology, e.g. how a specific technology performs vis-a`-vis competing alternatives. Other things being equal, the better a technology is, the higher the likelihood that it will become dominant. The combination of a firm’s assets and credibility captures what has been termed ‘complementary assets’, e.g. those assets that are necessary for a firm to benefit from (read impose) its technological innovation.
These assets may be crucial when battling for dominance, as the well-known case of IBM and the Apple Macintosh illustrates.
A firm’s strategic maneuvering captures the key elements of strategy open to a firm when it comes to promote its technology to be the dominant one. Four elements are of particular importance: the timing of entry to the market (launching of the product); the specific pricing and communications strategy that the firm follows to introduce and promote its technology in the market; the firm’s strategy with respect to alliances and sponsorships (including licensing) to favor its technology; and the ability of a firm to secure the provision of products and systems complementary to its technology.
Government intervention captures the role of the government as a regulator and arbitrator of competing technologies; in some cases, it is the government which finally decides which technology will dominate.
The last factor, relative size of the installed base, captures the pure effect of ‘network externalities’. Even though it could be considered a variable resulting from the interplay of all the other variables, modern economic theory tells us that the dynamics of network external-ities produce a self-reinforcing loop which associates greater relative size of installed base with the rate of adoption of a specific technology. In other words, the size of the installed base provides an ‘extra push’ to the chances of dominance of a specific technology, on top of the specific effect of the previous variables.
Each of these factors is expected to have a different effect depending on the stage of the dominance process in which a market finds itself, as summarized in Figure 4.12. Consider an industry in which a battle for dominance will emerge. The beginning of the industry can be considered to be at time t0, when a pioneer firm starts doing applied R&D aimed at producing the product in question (e.g. digital cellular phones, which are supplanting analog phones in the wireless communications marketplace). As other studies have shown, other firms soon follow the first one, and a virtual ‘development race’ begins.
The next milestone in the dominance process is the launching of the first commercial product (tLin Figure 4.12), which for the first time directly connects a product coming out of the lab’s ideas with customers and other market agents. The first commercial launching triggers a whole new set of dynamics in the industry’s dominance battle, and therefore it is a key event that all players watch carefully.
Finally, at some point in time, a specific technology achieves dominance over competing ones. Different researchers have termed this differently, in particular ‘dominant design’ or
‘standard’. The broader notion of ‘dominance’ is used here to refer to both concepts: the fundamental idea in both dominant designs and standards is that a given technological approach achieves dominance over competing alternatives. In Figure 4.12, tDdenotes the time of emergence of a dominant alternative.
Each dominance factor has also been ranked by the degree of control (high to low) that a firm has over it. Some factors are directly controlled by a firm (e.g. pricing strategy), whereas there are factors over which a firm has little, if any, control (e.g. government intervention).
Even though the specific order in the figure is somewhat arbitrary, it does convey the important message that a firm has different degrees of control over the many variables that influence its likelihood of winning the dominance battle.
Moreover, the effect of each variable is not the same throughout the industry timeline. Only a correct understanding of these issues will allow the firm to focus on the right dominance variables at the right time. In particular:
Strategy entry timing. Other things equal, maximum effect on achieving dominance will occur when the firm is the first to launch a commercial product (that is, ti, the launch date for firm i, ¼tL). Close followers will not affect significantly its chances of success. However, later entry will seriously reduce a firm’s likelihood of dominance.
Strategy pricing and communications. Pre-announcements just prior to the first commer-cial launching and an aggressive pricing strategy may increase a firm’s likelihood of domi-nance. However, the relative importance of this effect will diminish after launching, as other factors of dominance start to predominate.
Firm’s assets and credibility. Even though it is not important during the development phase, the assets and credibility of a firm will be crucial during the market phase, as well as during the pre-announcement phase before the first launch.
Technological superiority. This dominance factor can have its greatest effect during the last segments of the development phase, when firms have a more concrete technology port-folio to use as a base for negotiation and persuasion for alignment. For instance, in part
Figure 4.12 A firm’s control, as a function of time, over factors influencing dominance
because of their superior technology, Sony and Philips were able to align several firms around their CD technology before the commercial launch. At that time, both firms were recognized as leaders in technological development of CDs. Soon after launching, though, technology variables rapidly lose importance to other variables in the quest for dominance, as the examples of VCR and PCs show.
Strategy provision of complementary products and systems. Firms often seek to align suppliers of complementary products well before the launching of the first commercial product. In the wireless communications industry today, for example, both traditional cell-phone manufacturers and potential new entrants from the handheld computer industry are aggressively trying to align suppliers of operating system components and value added services and applications prior to introducing the next generation of user terminals. Soon after the first launch, however, many key competitors will also have introduced their own products and forged their own alliances with suppliers of complementary products, and therefore the effect that this strategy can have on the dominance battle tails off.
Strategy alliances and sponsorships. There are two types of alliances/sponsorships that are important for dominance: technology-oriented and market-oriented. The timing for each is also different. Technology alliances can strengthen the credibility and performance of a competing alternative. These alliances often happen somewhere between t0and tL– when a firm’s technological approach can already show its potential but – obviously – before it has been completely developed. Market alliances tend to happen right after – or even before in some cases – the launching of the first commercial product in the industry.
Relative size of the installed base. This variable captures the pure effect of network externalities, and its increasing effect on dominance will start to be present soon after the launching of the first commercial product.
Government intervention. The effect of government intervention on dominance is often strongest in the second half of the development period, where firms have developed their technological alternatives to a point where the government can make an informed decision regarding specific purchases or specific targets for industry regulation. Via such decisions, governments can effectively trigger the dominance of a specific technology among competing ones. After products are launched in the market, government effect on dominance tends to vanish as market forces prevail.
4.4.2 Discussion: Dominance and SDR
By simultaneously examining Figures 4.8, 4.11, and 4.12, a consistent picture can be painted which provides deep insight into the dynamics of an industry poised for the emergence of a new dominant design. The lessons learned from a careful examination of the details found in this picture offer several strategic insights for those companies choosing to enter the industry and to those market incumbents who have no choice but to adapt, compete successfully, or exit the industry.
Of the six factors found to influence the outcome of the battle between competing digital wireless standards (Figure 4.8), the second most important – adding multiband and multi-mode capabilities to wireless phones – corresponds to the emergence already of one key architectural element of SDR devices as the dominant design platform. The remaining design elements are expected to emerge as SDR devices continue to evolve.
The remaining five factors presented in Figure 4.8 can be mapped onto the dominance
factors listed in Figure 4.12, as shown in Table 4.1. It is the timing of each factor – in terms of its ability to influence the outcome of a pending dominance battle – that emerges as the parameter that has determined its importance in influencing the dynamics of the wireless industry. Figure 4.11 drives this point home by revealing that the three wireless industry value chain links most empowered to wield early influence according to Figure 4.12 – equipment manufacturers, government/regulatory agencies, and network operators – are the ones broadly identified as having the greatest power to influence future standards development.