Technology Strategy 101: Competing technologies… Friend or foe?
February 8th, 2010 by binnur
With the announcement of Apple’s iPad tablet, you may have observed jabs between Apple and Adobe regarding the support of Flash Video on Apple’s iPod/iPhone/iPad platform. Though this article is not about this specific dispute, it has been inspired by the conflict.
Here is a quick backgrounder on the issue. Adobe’s Flash Video (originally developed by Macromedia) is a container format that is used for delivering video over the Internet. Many popular sites use this format to embed video and other content on the Web, such as YouTube, Hulu, Facebook, and Flash-based online games. Through Adobe Flash Player and browser plug-ins, Flash-Video is made available to users. Putting it mildly, Apple has no plans to support Flash on its iPod/iPhone family of products, while Adobe continues to push for its adoption. Instead, Apple has been pushing the HTML5 standard with H.264. For those that are interested, check out the Daring Fireball’s summary on the topic: Apple, Adobe, and Flash.
There are numerous examples of competing technologies: VHS vs. Betamax, Blu-Ray vs. HD DVD, GSM vs. CDMA, .Net vs. J2EE, various flavors of Unix and wireless standards, open vs. DRM, MP3 vs. AAC, AC vs. DC (no, not the music group but Tesla vs. Edison)… In many cases, competing technologies encourage innovation, arguably, sometimes at the cost of building a rich ecosystem. At the same time it is not uncommon for users to experience confusion over compatibility and interoperability, such as in the case with having too many multi-media formats and having to choose a player to match the video format. However, as a technology becomes more attractive, it will see a higher adoption rate, and increasing compatibility and interoperability with others as its ecosystem becomes richer.
This is all good, but as a technology company where do you put your money? As our computing infrastructure becomes more complex and interconnected, your customers are now looking for a total system experience: high-level of system performance and interoperability with others. With this, you need to not only control your technology but also influence and direct related technology decisions with your partners and competitors. To do this, you need to evaluate your technology strategy and decisions within the context of the purpose of your business, technology attractiveness and your ecosystem.
The purpose of your business
“There is only one valid definition of business purpose: to create a customer.”
– Peter F. Drucker; The Essential Drucker
With this, Drucker continues and states that, “Because its purpose is to create a customer, the business enterprise has two — and only these two — basic functions: marketing and innovation.” Lets apply that thought process to Apple. In a previous article, I highlighted that …By owning hardware, software, online services and everything in between, Jobs successfully controls the end-to-end customer experience, and thereby delivers on his core value: products that work seamlessly together and seldom break down.
Given this clear focus, Apple’s position on Flash-Video (remember, Apple does not use Flash-Video in any content delivered from iTunes store) and its tight control over the App Store is not a surprise (preventing developers from impeding or disturbing Apple’s ecosystem), especially with the iTunes Music Store universe it has created for its customers. Contrast this to Western Digital with a purpose to help you collect, manage and use digital information. This drives their product design decisions, such in the case with their Western Digital WD TV Live Network-ready HD Media Player
The government can also influence which standards and technologies you need to provide. It is common for governments to take leadership in technology development and standard setting, such as with the Chinese government’s initiative of the AVS (Audio Video Standard) compression codec, a competitor to H.264/AVC. If the standard becomes commercially successful, it would not only put Chinese electronic companies on the map, but would also reduce their licensing/royalty payments significantly. Standards, regulations and policies enable governments to:
- regulate goods for the safety of their consumers;
- encourage prosperity of local economy (by licensing domestic standards vs. paying for foreign standards);
- push for compatibility and interoperability (domestic electricity and plug standards) which benefits consumers and producers;
- sponsor development of emerging technologies (such as green-tech).
In summary, your technology strategies, along with your core competencies, need to be aligned to support your business purpose. Perhaps Facebook’s recent announcement on their HipHop for PHP technology development is a good example of focusing on core competencies (in this case PHP development) and building/leading technologies to lead with that strength (transform PHP code to optimized C++ for better performance and scalability.) Through this alignment, you can evaluate relevant technologies and start outlining your strategic position for each: lead/follow, in-house development/outsource/acquire, invest/divest/migrate, …
Technology attractiveness
- Network externalities — or network effect basically states that the value of a product/service for any given user increases as more people use it. Just think back to the pre-standardization days of fax technology, or even the value of telephones in 1878. Or why does one choose Facebook over MySpace?
- Economies of scale — is about the cost advantage a firm achieves when its average cost of a good drops as it scales up its unit production. In other words, a firm’s product/service cost decreases as its volume increases. This also relates to the concept of experience curve. For example, as a company gets more experienced with a manufacturing process, as Intel must have done while transitioning from 386 to 486 to Pentium and beyond, they become more efficient at managing introduction of new technologies, requiring relatively less investment in effort. Experience curve certainly contributes to economies of scale, which the consumers benefit from in the form of lower prices from one generation to another.
- Learning curve — represents the time it would take for a person to learn or become comfortable with a new technology or activity. The simpler and more fun the learning process, the more attractive the new technology would be. It is no wonder the Nintendo Wii became the best selling game console with its easy to use controller and family friendly interactive games that mimic real-life movements. Apple is leveraging the learning curve from iPhone as they introduce iPad tablet, as well.
- Risk aversion — is a very human concept: how do we behave while confronted with uncertainty? Geoffrey Moore’s technology adoption life cycle (Crossing the Chasm
) highlighted different groups of customers (innovators, early adopters, early majority, late majority and laggards) and how they adopt innovations. While a few cannot wait to go to the moon on private space ventures, many might prefer the comfort of their earth-bound transportation solutions…
- Technology interrelatedness — is the fact that no technology stands by itself, but is embedded in, and built upon many other technological accomplishments. Understanding this relationship is important for the survival and prosperity of any technology. There are too many examples of technology ahead of its time, such as the HP Kittyhawk microdrive, which not only missed out on the potential handheld market, but also failed to deliver to the cost/performance expectations. Imagine what would have happened if HP aggressively pursued the digital photography and storage relationship with this device – potentially they would have beaten IBM to the punch. The attractiveness of a technology will partly depend on how much of the required infrastructure is in place, or how aggressively you exploit potential venues.
Understanding and evaluating along these different dimensions and factors would help determine not only the attractiveness of a given technology, but also the factors and trends to watch for as technology implementation progresses. Scenario analysis and what if? brainstorming will help determine trends and identify critical potential inflection points to watch for. Take H.264/AVC digital video coding standard’s license and Mozilla’s stance on embedding the technology. Recently MPEG LA extended its license term where it will not charge royalties for Internet Video that is free to end users till December 31, 2015. What would that mean for competing technologies like Ogg Theora?
History repeats itself, and it could provide guidance on trends that will influence the technology adoption. It is always easier to identify inflection points once the technology war is over. The Adult Entertainment Industry (AEI) was identified as the decision maker in the war between VHS and Betamax. With Sony’s refusal to work with the AEI, Betamax ultimately lost out. As a result, all eyes were on the AEI when next-gen hi-def competition started (Blu-Ray vs. HD DVD.)
Richness of the ecosystem
In simplistic terms, ecosystem encapsulates the concept of a community of things and the environment in which they live. In the world of technology and business, this community includes organizations and individuals such as producers, suppliers, competitors, and other stakeholders contributing goods, knowledge, and other deliverables. Here is an announcement from Microsoft that captures their focus on the IPTV ecosystem from 2007.
The richness of the ecosystem certainly adds to its attractiveness. Again, take the competition between Blu-Ray and HD DVD as an example. When AEI selected HD DVD for their format (mainly driven by production costs), many assumed the format wars were over. At least until the Sony Play Station came out with a Blu-Ray drive, and the owners started to request Blu-Ray DVDs from the AEI. This newly expanded market, coupled with the fact that support from more movie studios reduced Blu-Ray DVD production costs, resulted in the AEI’s move to Blu-Ray.
Richness of the ecosystem can certainly influence/change your technology directions as well. These changes can be driven by your competitors, as in the case with Amazon.com introducing DRM-free music downloads, which resulted in increased customer desire, driving Apple to also provide DRM-free music on iTunes store. The richness of an ecosystem also influences new product concepts, such as Apple building on the strength of iPod and launching iPhone/iTouch family of products.
Thoughts on reducing your development risk…
As I mentioned before, there is no silver bullet when it comes to knowing which technology(s) to invest in. However, you can be smart on how you develop your products/technologies. These include, but not limited to:
- Adapt agile development practices, so you can rapidly shift as your products, markets and customers change. Utilize technology roadmaps as a guidance, and manage migrations as things change.
- Get your customers involved through controlled beta testing, such as with the YouTube HTML5 Video Player.
- Spend time understanding your product requirements and your technology dependencies, and establish a loosely coupled system architecture to reduce dependency.
- Leverage external relationships to reduce development effort and share risks.
- Don’t depend on the if I build it, they will come philosophy of just building the technology. Rather, help its ecosystem flourish with complementary technologies and products.
- Continuously look for ways to build economies of scale and improve your learning curve.
- Be smart about the cost of technology (direct, indirect and hidden). But also take this a step further and analyze the cost to your customers (Sony’s Playstation 3 consumes significantly more electricity than its competitors.)
- As important as standards are, your customers’ performance and functionality requirements come first. So focus on your customers’ needs while designing systems that are compatible and interoperate with standards.
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