Coalition building dynamics in video format wars
Didier Calcei
Groupe ESC Troyes, France
Zouhaïer M'Chirgui
Euromed Management, Marseille and CREM - Faculté des Sciences Economiques, Rennes Cedex, France
Abstract
This paper analyses standard-setting coalition dynamics in video formats wars. We study the behavior of actors from several industries joining or leaving format standard-setting coalitions. Our research is based on a cross-analysis of standards literature and secondary data from Internet sites. Our analysis shows that the presence of major actors from various industries connected to the format business ecosystem, the presence of rivals, and the number of actors (size) deeply influence coalition success and can lead actors to leave one coalition for another.
Keywords
Business ecosystems, strategic alliances, standards wars, coalition, video formats
Article Text
Companies such as Sony, JVC, Matsushita and Toshiba are closely linked through a series of relationships that are both cooperative and competitive, described as "coopetition" (Nalebuff & Brandenburger, 1996). Moreover, the relationship between these companies is reinforced by a need for standardization. Although standardization may involve voluntary cooperation between players concerned with fulfilling consumer expectations, increasing competitiveness, or maintaining interoperability, standardization processes are also the result of standards wars (Shapiro & Varian, 1999). It is not uncommon for apparently contradictory rationales to motivate standardization processes. Standardization results not only from voluntary cooperation between some parties in the standardization process, but also from intense competition between them.
Mixed coalitions of rival firms from various business sectors form, constituting business ecosystems (Moore, 1993, 1996; Iansiti & Levien, 2004). These business ecosystems are characterized by cooperation and competition between their members. In these alliances between competitors (alliances which make up specific coalitions) the underlying idea is to avoid a greater threat, i.e. that other business ecosystems emerge.
While most standardization efforts have focused on understanding the economic basis for standards (Arthur, 1994; Shapiro & Varian, 1999; Suarez, 2004) and standards implementation processes (Greenstein, 1992; Weiss, 1993; Lyytinen & King, 2006), few have examined coalition building dynamics and the way players enter and exit. Theoretical (Axelrod, et al., 1995; Foray, 1995; Lukach, Kort & Plasmans, 2007) and empirical (e.g. Funk (2009) mobile phone industry; Cortese, Irvine & Kaidonis (2009) IFRS in mining industries; Leiponen (2008) wireless telecommunications; Chiesa, Manzini & Toletti (2002) multimedia sector) studies have examined the role played by coalitions in a standard's success. This paper follows along these lines and proposes to examine coalition dynamics in the video storage format industry. We analyze the reasons why players in one or more sectors of industry join and withdraw from coalitions. This will help understand why some coalitions succeed and others fail to impose their standards.
The video storage format industry is a particularly fertile field for analyzing standards in that the impact of various factors characterizing the standardization process can be studied. Furthermore, this changing industry makes it possible to analyze players' strategic choices during various technological competitions paying particular attention to coalition building.
This paper is organized as follows. In section 2 we demonstrate the importance of strategic alliances in business ecosystem wars. Our methodology is described in section 3. In section 4 we study coalition dynamics in video storage format business ecosystems examining how players enter and exit coalitions. We discuss our results in section 5 and present our conclusions in section 6.
Theoretical perspectives
In this section we present our theoretical and conceptual framework, highlighting alliance building motivations in standardization processes, particularly regarding direct competitors and complementary goods suppliers. Business ecosystems, where various relationships rise and fall, are formed in these alliances.
Business ecosystems
Our study's starting point is the notion of business ecosystems (Moore 1993, 1996; Lado, Boyd & Hanlon, 1997; Bengtsson & Kock, 1999; Iansiti & Levien, 2004; Chesbrough, 2007). A business ecosystem is a "heterogeneous coalition of companies from different sectors forming a community based on strategic interest or values networked around a leader capable of imposing or communicating its marketing vision or technological standard" (Torrès-Blay, 2000). This coalition of diverse companies will focalize around a leader or a group of leaders stimulating business ecosystem stakeholder dynamics in order to dominate the market. In addition to competition between business ecosystems, there is also competition within business ecosystems to determine the leader(s) (Iansiti & Levien, 2004; Gueguen, 2008). This intra-ecosystem competition means that there is simultaneously competition and cooperation between firms. While they have a collective interest in their ecosystem's success, they also have an individual interest in dominating their rivals. Particularly where the business ecosystem is formed around a standard, companies cooperate to develop a common standard but compete with products involving that standard.
The companies forming a business ecosystem include direct competitors and complementary goods and services suppliers using that standard. Since these companies' convergent interest is the standard's success, they will form different types of alliances: between direct rivals to impose a joint standard or with complementary goods suppliers to obtain an exclusive deal. Fostering collaborative relationships between both vertical and horizontal partners to achieve symbiotic synergy is a key factor for success (Li, 2009). Competition and cooperation strategies increasingly intermix attenuating their contradictory nature as they co-evolve concurrently along multidimensional strategic sequences. This situation with firms simultaneously competing and cooperating is known as "coopetition" (Nalebuff & Brandenburger, 1996; Lado et al. 1997; Bengtsson & Kock, 1999, 2000; Dagnino & Padula, 2002; M'Chirgui, 2005).
Business ecosystem membership is not necessarily exclusive and can be partial. This is the case for complementary goods suppliers and companies using the standard that might belong to several business ecosystems. One reason for business ecosystem membership is that companies must meet a number of different needs stemming from a number of different clients. For example, a manufacturer of smart mobile terminals uses several operating systems according to specific client requirements. In the case of smart mobile terminals, the relationships between the Linux and Symbian or Palm and Linux business ecosystems are relatively close with major players participating in both business ecosystems (Gueguen, 2008). Uncertainty regarding a business ecosystem's successful competition with other business ecosystems is another reason for multiple ecosystem membership. To avoid early commitment, some companies prefer to take part in several business ecosystems or leave one ecosystem for another one. Complementary product suppliers may offer different versions of their products to different business ecosystems.
Strategic alliances and standardization
Standardization strategy literature has examined the role of various factors in a standard's success: increasing returns and particularly network effects (Katz & Shapiro 1986; Shurmer 1993; Choi, 1994; Choi & Thum, 1998), establishing an installed base (Farrell & Saloner, 1985, 2002), developing a market for complementary goods (Schilling, 1998, 2002), and penetration pricing (Seifert & Varé, 2008, 2009). One of the arguments put forward by these studies is that the standard's value increases with network size reaching critical mass. Although several strategic actions are proposed and discussed, the role of strategic alliances (Weiss & Sirbu, 1990; Axelrod et al., 1995; Vanhaverbeke & Noorderhaven, 2001; Warner, 2003), where cooperative relationships are established between competitors and other firms to develop and impose a standard (Bengtsson & Kock, 2000; M'Chirgui, 2005), remains decisive and has aroused interest from several analysts. This research is based on network effects (Katz & Shapiro 1986; Farrell & Saloner, 1985), R&D investment cooperation/competition (d'Aspremont & Jacquemin, 1988; Dasgupta, 1986), and endogenous coalition building (Aumann & Drèze, 1975; Bloch, 1996; Yi, 1997; Goyal & Joshi, 2003; Joshi, 2008). The decision to establish a standardization agreement (Economides, 1996; Choi & Thum 1998; Cabral, Salant & Woroch, 1999), various types of strategic alliances (Warner, 2003; Seifert & Varé, 2008, 2009), alliance structure (van Wegberg, 2004), participating firm size and power (Weiss & Sirbu, 1990), size and presence of rivals in an alliance (Axelrod et al., 1995), alliance block development (Vanhaverbeke & Noorderhaven, 2001), and blocking alliance creation (Warner, 2003) have all been studied.
Strategic alliances represent appropriate means for building and locking-in a market[1]. Moreover, for the last three decades, the number of standardization agreements has consistently increased (Warner, 2003, 2005). Furthermore, alliance block membership significantly influences performance and can be an efficient way of determining the emergence of new standards, new concepts and new operating modes in industries (Cowan & Jonard, 2009).
As a result, standards wars regularly turn into wars between coalitions (Vanhaverbeke & Noorderhaven, 2001). These coalitions unite various companies around a standard: whether they are companies developing the standard, firms developing complementary goods or services, or distributor networks, they all have a common interest in the standard's victory. The business ecosystem concept is relevant in that the players making up these alliance blocks are heterogeneous: they come from different sectors supporting horizontal, vertical, and transverse relationships in a dynamic perspective (Hearn & Peace, 2006).
Within the business ecosystem framework, this paper's goal is to analyze how companies from various industries enter and exit coalitions. This will enable us to better understand why certain coalitions succeed and others fail to impose their standards.
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