The Blu-ray vs. HD-DVD Showdown
From 2003 to 2008, the tech world witnessed an intense and captivating battle for the next-generation video format. In one corner stood Sony, with its Blu-ray technology backed by a consortium of companies. In the other corner was Toshiba, championing HD-DVD, supported by the DVD Forum, making it the “official” successor to the DVD format. This clash was not just a mere tussle over technological superiority but a war that would determine the future of home entertainment.
The tipping point in this battle came in early January 2008, on the eve of the Consumer Electronics Show in Las Vegas. Time Warner announced its defection to the Blu-ray camp, triggering a domino effect among retailers. Within days, major players like Best Buy, Walmart, and Netflix declared their allegiance to Blu-ray, signaling an unexpected and devastating blow to Toshiba and its HD-DVD.
What led consumers, retailers, and movie producers to choose Blu-ray over HD-DVD, was it mere luck and random circumstances? Why does there have to be a winning product, and why do markets tend to converge to a standard dominant design?
To understand this, we must delve into the concept of dominant design and the dynamics to Technology cycles.
The Technology Cycle and Creative Destruction
Joseph Schumpeter’s concept of “creative destruction” aptly describes the constant upheaval in capitalism, driven by technological change. Managing through such periods requires a keen understanding of technological cycles and the patterns of innovation.
As Foster’s notion of S-curves suggests, industries evolve through successive technology cycles. Each cycle starts with a technological discontinuity—a breakthrough innovation that significantly advances the industry’s state-of-the-art. This breakthrough triggers an era of ferment, marked by two overlapping processes:
Era of Substitution: The new technology begins to replace its predecessor.
Era of Design Competition: Multiple competing designs emerge, each embodying the breakthrough innovation differently.
The culmination of design competition is the emergence of a “dominant design,” a concept introduced by Abernathy and Utterback. This design becomes the market standard, not necessarily due to its superiority but because it combines features that set a new benchmark.
Winner winner chicken dinner.
The technology cycle typically features a stage where the industry coalesces around a dominant design, and the consistency of the dynamics in play breaks the Luck Factor.
This adoption drives the very value of a technology, and the standardization is lead by two market features : the Learning effects and Network externalities.
Learning Effects: As a technology gains traction, firms accumulate experience, which enhances their ability to use the technology more effectively- reduced costs and waste rates and optimizes processes. The snowball effect makes the technology more and more attractive among the adopters.
Network Externalities: The value of a product increases with the number of users when complementary goods are important. Many products are only functional or desirable when there is a set of complementary goods available for them. This phenomenon is evident in platforms like Microsoft Windows. Once Windows secured the largest user base, developers flocked to create software optimized for it, creating a self-reinforcing cycle that solidified its dominance.
Another compeling example in the history of computers is the MS-DOS operating system of Microsoft . Read more.
Implications for Managers
Understanding these technology cycles offers valuable insights for managers navigating periods of technological upheaval:
– Expect Discontinuities: Develop competencies that can weather technological revolutions, such as flexible manufacturing capabilities or robust distribution channels.
– Anticipate Ferment and Dominant Design: Recognize that a technological breakthrough will lead to a period of competition, ultimately resulting in a dominant design that becomes the industry standard.
For Innovation managers, the lesson is clear: in the race for technological dominance, understanding and anticipating the patterns of innovation can be as crucial as the technology itself. Developing this instinct will keep your firm ahead of the curve.
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