ISOM 1380 Module 2 Innovation & Society: 2.2 Standards & Dominant Design

Q: What are the two ways a dominant design can be chosen?

*Market* chosen vs. *Regulator* chosen

Give an example of Market-chosen vs. Regulator chosen dominant design

- EU regulators chose GSM over other competing technologies for the mobile phone market - US: mobile phone technologies competed with each other

Examples of products that benefit from network externalities

- telephone - Microsoft office - Blu-ray disc - x-box

Network externalities depends on two things...

1. Installed base: the number of people who have bought Sony PS 2. Complementary Goods: the number of games available for Sony PS Direct vs. Indirect network externalities - they both lead to each other

Network Externalities

A customer's value for an innovation depends on the total number of users of that innovation e.g. the telephone benefits from network externalities i.e. the value for a telephone is affected by the total number of other people who use a telephone

Dominant Design

A single product or process *architecture* that dominates a product category. A dominant design is a "de-factor standard" (a custom or convention that achieve a dominant position due to public acceptance or market position e.g first-mover).

Q: What are the different perspectives as to why we need a dominant design? (4) (FCSG)

Firm's perspective: - lower uncertainty - can reduce costs (EOS) - network externality Consumer's perspective: - lower learning cost - lower uncertainty - network externality Suppliers & Partner's perspective: - lower uncertainty - can focus on providing right products to complement - network externality Government's perspective: - standardization - ability to promote greater adoption

How to solve the Chicken & the Egg problem?

Get support from multiple parties i.e. large vendors, large customer base - give subsidies/promotional offers

What is the lesson learnt from the Octopus card example?

Lesson: You often need a large customer base to get started (otherwise retailers will end up waiting for business --> like Google Wallet)

Network externality Example: Octopus card - what has made O-card so successful in HK?

MTR installed octopus card as their base system and therefore everyone used it for convenience - once there were enough users due to MTR, other stores such as 7/11 and PnS also adopted it

Technologies have to compete with each other to become the dominant design

OOoOoOoooOO

Chicken & the Egg Problem

Retailers hesitate to install Google Wallet readers before there is a big enough network of consumers. Consumers may hesitate to adopt Google Wallet before there are enough retailers and compatible credit cards. Credit card companies may hesitate if there aren't enough customers & retailers who have adopted credit cards.

Network Externalities and Dominant Design

Sometimes inferior technologies can become the dominant design because of network externalities. Example: QWERTY keyboard.

Google Wallet Eco System

There are often *multiple sides* to market. It is important to gain support from multiple partners to ensure that people will adopt the innovation in the market place. By gaining support from multiple partners, the innovation gets bigger and bigger.