The battle of the blue laser DVDs: The significance of corporate strategy in standards battles

Markets and industries that require their products to interconnect or utilize important complements are becoming increasingly common. From communication networks to social web sites, network effects have shown themselves to be powerful forces. However, the same feedback effects that make these industries so interesting also makes them difficult to study as often, without an accepted standard, the industry never germinates and grows. This paper takes and refines an existing model for competition in these types of industries and applies it to the recently concluded contest between Sony's Blu-ray and Toshiba's HD-DVD in blue laser DVDs.Analysis of this standards battle suggests some interesting findings. First, in this case corporate strategy provided a decisive advantage to the Blu-ray alliance led by Sony. Sony appears to have “won” the battle in the U.S. by exploiting a superior corporate strategy to not only provide complementary products as called for by the traditional model (e.g. Hill, 1997) but also by utilizing its technology as a component in an ancillary product, its Playstation 3. Second, a heuristic is proposed for considering indirect network effects to complement “Metcalf's Law” for direct network effects. Finally, Sony paid a high a price to “win” this standards battle.

► A case study of the battle between Sony and Toshiba in the blue laser DVD market.
► Introduces a heuristic for indirect network effects.
► Extends Hill's (1997) popular model of competition in these industries.
► Highlights the role of corporate strategy.
► Profiting from getting a standard adopted is a significant challenge.