Standard-setting processes: evidence

from two case studies

Vittorio Chiesa,1 Raffaella Manzini2 and Giovanni Toletti3
1
Università di Milano Bicocca, Piazza della Scienza 2, 20126, Milano, Italy
vittorio.chiesa@unimib.it
2
LIUC – Libero Istituto Universitario C. Cattaneo, Corso Matteotti 22, 21053 Castellanza, Varese, Italy
rmanzini@verdi.liuc.it
3
Politecnico di Milano, Piazza L. da Vinci 32, 20133 Milano, Italy
giovanni.toletti@polimi.it

In many hi-tech sectors one of the most important dimensions of competition is standardisation. This is
particularly true in modular markets (i.e. markets characterised by the existence of modular
architectures) and in network markets (i.e. markets where users would like to buy products
compatible with those bought by others). Different processes may lead to the standard-setting.
Sometimes there are fierce standardisation wars whereas in other cases competitors are able to agree on a
common standard before the introduction of the technology on the market. In this paper we endeavour to
provide an interpretative framework of the standardisation process and validate such a framework
through an in-depth analysis of two case studies in a typical network market (the multimedia sector): the
case of the Modem 56k and the case of the Information Appliances-Enhanced TV.
The two case studies offer some evidence of the standardisation process and of the growing importance
of super-partes organisations (Standard Development Organisations) in the mediation process between
different interests and technologies to impose a common standard on the market.

1. Introduction facto standard-setting of a modular product architec-

n many hi-tech sectors one of the most important
I dimensions of competition is standardisation. It is
particularly true in modular markets (i.e. markets
characterised by the existence of modular architec-
tures) (Sanchez and Collins, 1999) and in network
markets (i.e. markets where users would like to buy
products compatible with those bought by others)
(Besen and Farrell, 1994). Quite often modular
markets are also network markets because the
advantages of modularity strengthen the importance
of network externalities (Besen and Farrell, 1994;
Katz and Shapiro, 1985; Lehr, 1996; Greenstein,
1997; Faraoni, 1997; Besen, 1992; David, 1992,
Langlois and Robertson, 1992, Liebowitz and Mar-
golis, 1994; Kogut et al., 1995) that, in turn, push a de
ture.
In the literature, several definitions of standard have
been offered. However, the proposal of David and
Greenstein (1990) provides a good synthesis of
literature definitions considering a standard as ‘a set
of technical specifications that can be adhered to by a
producer, either tacitly, or in accord with some formal
agreement, or in conformity with explicit regulatory
authority’. Such definition suggests that different
processes may lead to the standard-setting: it may be
either the result of the wide diffusion of a firm’s
technology on the market, or of an explicit agreement
among competitors, or of the action of a regulatory
authority. Indeed, according to the literature, two
different typologies of standardisation processes may
be identified: de iure standardisation and de facto

R&D Management 32, 5, 2002. # Blackwell Publishers Ltd, 2002. Published by Blackwell Publishers Ltd, 431
108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.
Vittorio Chiesa, Raffaella Manzini and Giovanni Toletti
standardisation (Axelrod et al., 1995; David and
Steinmueller, 1994; David and Greenstein, 1990; Besen
and Farrell, 1994; Lehr, 1996; Greenstein, 1997;
Malerba and Orsenigo, 1997; Ehrnberg and Jacobsson,
1997; Faraoni, 1997; Besen, 1992).
De iure standardisation concerns standards promul-
gated by legislative bodies, or by order of govern-
mental agencies in agreement with regulatory authority
(mandated standards), and standards published by
independent organisations – as for instance ISO – that
have regulatory power in specific fields (voluntary
standards) (David and Greenstein, 1990; David and
Steinmueller, 1994; Lehr, 1996). Quite often such
organisations are identified as Standards Development
Organisations (SDOs). However, SDOs may have
different origins and roles and often could be
considered as players in a de facto standard-setting
process. Indeed, as we will see in this paper, SDOs may
be the players that bridge the gap between de iure and
de facto standardisation and hence we deem it
inappropriate to strictly limit their participation to de
iure standard-setting.
De facto standards emerge when a firm operates in a
market where standardisation is necessary, but no
legislative bodies nor independent organisations are
able to define (or are interested in defining) a standard.
In such cases the standard has to arise from a
standardisation struggle between different technolo-
gies, each of them sponsored by a firm or a coalition of
firms (David and Greenstein, 1990; Axelrod et al.,
1995). Eventually, quite often, one technology will be
able to impose itself on the market hence becoming the
de facto reference standard. However, if the coalitions
have a well-balanced market power, they could be
unable to impose one technology or the other as the
market standard. In such cases it could be necessary to
form a Standards Development Organisation (SDO).
The SDO can be considered as a voluntary organisa-
tion, formed by almost all the major market players,
whose purpose it is to set a common standard by
mediating among the different interests. Standards
Development Organisations may be seen both as an
extreme form of collaboration between firms or as a
particular form of independent organisation (often
temporary) that makes de iure a standard commonly
defined by the majority of competitors. The possibility
of turning to SDOs shows that a clear-cut difference
between de iure and de facto standard-setting does not
always exist – sometimes the two typologies of
standards seem to merge.
De facto standardisation is far more ‘challenging’ for
companies, since the role they can play in the process
of standardisation is more relevant than in de iure
standard-setting. Indeed, several different strategies
can be adopted in order to affect the final adoption of
the desired standard (see Section 2), while in de iure
standardisation the available strategies are signifi-
cantly limited by the action of a regulatory body.
432 R&D Management 32, 5, 2002
Besides, greater threats are connected with a de facto
standardisation, and even surviving can be difficult if
the standardisation strategy fails (David and Green-
stein, 1990; Chiesa et al., 1998a). The loser of the
standardisation race loses the first mover advantage
(i.e. the benefits of a momentary monopolistic power)
and may have to spend a lot of resources to bridge the
technological and knowledge gap with the winner.
Furthermore, the loser has to compete within the
boundaries defined by the competitor who imposed its
standard. On the one hand, the standardisation
concept itself guarantees the possibility of competing
within such boundaries, since it implies the adoption of
a modular architecture available to all the actors of the
market (Sanchez and Mahoney, 1996). On the other
hand, however, the developer of the standard technol-
ogy could be able to maintain a clear and strong
leadership in the ‘core’ competencies required by its
technology.
These considerations have led us to analyse the de
facto standard-setting process. We have focused the
analysis on a typical example of a network market: the
multimedia sector that derives from the integration of
four sectors (Contents, Communication, Consumer
Electronics, and Computer) that are strongly charac-
terised by the presence of network externalities. The
multimedia sector is particularly interesting to study
because it provides many well known examples of
different standard-setting processes: sometimes there are
fierce standardisation wars between competitors spon-
soring their own technology, whereas in other cases
competitors are able to agree on a common standard
before the introduction of the technology on the market.
Examples of the former are: the war between
Matsushita=JVC, proposing the VHS technology for
video-recorders, and Sony, proposing the Betamax
technology, that ended with the success of the former;
the war between Sony’s Minidisc and Philips’ DCC
that caused a great inertia of the market making both
the standardisation attempts unsuccessful; and also the
continuing war between Microsoft and Netscape in the
Internet browsers market.
Examples of the latter are: the case of CD, when
Sony and Philips decided to merge their competencies
and market power to jointly develop a technology that
was then imposed as standard; or the case of DVD
when several competitors, fearing the introduction of
incompatible technologies on the market, bargained
the definition of a common proposal.
It is according to these premises that this paper aims
to provide, on the basis of a literature analysis, an
interpretative framework of the standardisation pro-
cess and to validate such a model through an in depth
analysis of two case studies in the multimedia sector
(Modem 56k and Information Appliances-Enhanced
TV).
Hence, the paper is structured as follows: first
the interpretative framework identifying the main
# Blackwell Publishers Ltd 2002
 Standard-setting processes

Table 1. Some cases of standardisation.
Case Main companies involved
DVD Sony, Philips, Matsushita, Time-Warner
VCR Matsushita, JVC, Sony
CD Philips, Sony
ACE Microsoft, Intel and many others
DCC-Minidisc Sony, Matsushita, Philips
MS-DOS Microsoft, IBM
PC Software Microsoft, Intel
Internet browser Netscape, Microsoft
dimensions of standardisation strategies is presented
(Section 2); then a brief section dealing with the
construction of the two empirical cases is included
(Section 3); afterwards the two cases of standardisa-
tion in the multimedia sector are analysed in depth: the
case of the Modem 56k (Section 4) and the case of
the Information Appliances-Enhanced TV (Section 5);
finally, in Section 6, some conclusions are drawn.
2. The dimensions of standardisation strategy
Several contributions in the literature have studied de
facto standardisation and the strategies companies may
adopt to successfully lead the standardisation process,
but they are all characterised by considering only a
narrow range of possibilities. We think that among
them three sub-categories can be distinguished:
* works dealing with the tactics that can be used to
sponsor the adoption of one’s own standard (Besen
and Farrell, 1994; Farrell and Gallini, 1988; Besen,
1992; Mangematin and Callon, 1995; Langlois and
Robertson, 1992; Katz and Shapiro, 1994);
* works concerned with the decision of whether or not
to make a coalition in order to facilitate the
adoption of a well defined standard (Jorde and
Teece, 1990; Axelrod et al., 1995, Doz and Hamel,
1998; Weiss and Sirbu, 1990); and
* works that, grounded in the extensive literature
concerning dominant design and the introduction of
new products=technologies on the market (Abern-
athy and Utterback, 1982; Bryman, 1997; Chung,
1999; Cohen et al., 1996; Crawford, 1992; Grindley
and Toker, 1993; Kerin et al., 1996; Teece, 1998;
Tellis and Golder, 1996; Utterback, 1982, 1994;
Vesey, 1991; Von Braun, 1997; Wood and Brown,
1998), try to investigate the definition of the
appropriate timing of standardisation (Bailetti and
Callahan, 1995; David, 1992; David and Greenstein,
1990; David and Steinmueller, 1994; Ehrnberg and
Jacobsson, 1997; Grindley and Toker, 1993; McWil-
liams and Ziberman, 1996; Teece, 1986).
In this paper, a systematic framework of standardi-
sation strategy is proposed (Chiesa et al., 1998b). As
showed in Figure 1, a standardisation strategy is here
intended as the set of decisions concerning tactics,
timing, and forms of co-operation. For the sake of
clarity, each dimension of the standardisation strategy
(i.e. tactics, timing and forms of co-operation) will be
analysed ‘per se’. However, the definition of each
dimension is strongly connected with that of the others
and, hence, the need of coherently defining tactics,
timing, and forms of co-operation should be taken into
account.
2.1. Tactics
With ‘tactics’ we refer to the different operative ways
that can be pursued by a firm to press the market to
adopt its own technology as a standard. All the tactics
that could be adopted are based on the idea that in
network markets the value perceived by users increases
with the number of users. Therefore, the aim of each
competing firm is to lead as many people as possible to
choose its specific technology=product, stimulating in

Standardisation is needed? No

Yes

Strategy
Which
tactics?

Which
Which
forms of
timing?
co-operation?

Figure 1. The standardisation strategy.

# Blackwell Publishers Ltd 2002 R&D Management 32, 5, 2002 433

Vittorio Chiesa, Raffaella Manzini and Giovanni Toletti
this way a bandwagon effect. Six tactics seem to be the
most common and useful in network markets (Axelrod
et al., 1995; David and Greenstein, 1990; Farrell and
Gallini, 1988; Langlois and Robertson, 1992; David
and Steinmueller, 1994; Besen and Farrell, 1994;
Grindley and Toker, 1993; Besen, 1992; Mangematin
and Callon, 1995; Katz and Shapiro, 1994):
1. Second sourcing;
2. Building an early lead;
3. Influencing forecasts of future sales;
4. Attracting the suppliers of complements;
5. Product preannouncements;
6. Price commitment.
Second sourcing. A company voluntarily facilitates
the entry of competitors into the market, for instance
by licensing a product at low royalties or by using an
‘open architecture’ (Katz and Shapiro, 1994). In this
way the company aims to increase the confidence of
the market in the diffusion of the technology spon-
sored and, hence, its attitude to invest in such
technology. An example of using second sourcing is
that of Ethernet (a local-area network product). Xerox
(the developer) offered open licenses at a nominal
charge allowing some competitors (like Intel) to enter
the market, gaining in this way the trust of the users
(Farrell and Gallini, 1988).
Building an early lead. Network externalities stimu-
late users to adopt the most widely diffused technol-
ogy, hence if a technology gains a large installed base it
increases its chances of being adopted as a standard.
However, this tactic is really effective only if the level
of sales can be continuously monitored by users. To
build an early lead, firms usually exploit the so called
‘penetration pricing’: companies sell products to early
customers at low prices that could stimulate potential
consumers to buy the technology, allowing rapid
growth of the installed base. It is for instance the case
of Netscape that gave away its Navigator at no cost in
order to help impose it on the market.
Influencing forecasts of future sales. The expectations
about the ultimate size of a network can affect the
adoption of a specific technology. Buyers’ purchase
decisions are strongly influenced by their forecasts of
future sales, and a technology that is simply expected
to be the winner can really become the standard. It is
the typical situation in which there are self-fulfilling
forecasts. If many users think that a technology will
impose itself as a standard, it is very probable that it
will do. An example can be found in the success of MS-
DOS that did not depend on any technical superiority,
but on the fact that it was supported by IBM and
hence, great future sales were expected (Besen and
Farrell, 1994). One possible way to influence forecasts
434 R&D Management 32, 5, 2002
of future sales is, for instance, to claim that large users
support a particular standard.
Attracting the suppliers of complements. The avail-
ability of complementary goods can strongly stimulate
users to adopt a specific technology. Hence, firms
usually try to attract components’ suppliers in order to
offer more choices to their customers. For this reason,
for instance, IBM and Microsoft encouraged indepen-
dent developers to write software applications for their
operating systems (Besen and Farrell, 1994; Cusumano
and Selby, 1995). The lack of complements, on the
contrary, limited the early diffusion of FM transmis-
sions. When the possibility of FM transmissions
appeared for the first time, producers did not succeed
in attracting broadcasters, because there were very few
potential customers and hence the expected payoff was
very low. This in turn obviously limited the number of
users interested in the FM band, creating a catch 22
problem (Besen, 1992).
Product preannouncements. In order to discourage
users from buying rivals’ products, it is possible to
preannounce the launch of innovations so to induce
buyers to wait until the new product will be on the
market. This tactic has been used successfully by IBM
and Microsoft (Besen and Farrell, 1994).
Price commitment. A firm’s strong commitment to
guarantee low prices in the future can help to convince
potential customers to adopt that firm’s standard, even
if other companies currently have lower prices. Potential
long term users of a standard could forgo a cost saving
today in order to achieve greater ones tomorrow. For
instance, the price commitment of Microsoft and US
Robotics favoured the standardisation respectively of
the PC software and of the Modem 56k.
2.2. Timing
Despite the extensive literature on dominant design
and the growing interest in the introduction of new
products on the market (Abernathy and Utterback,
1982; Utterback, 1982, 1994; Von Braun, 1997; Cohen
et al., 1996; Chung, 1999; Vesey, 1991; Bryman, 1997;
Kerin et al., 1996; Wood and Brown, 1998; Tellis and
Golder, 1996; Crawford, 1992; Teece, 1998; Grindley
and Toker, 1993), timing in standard-setting has not
been deeply studied yet (David and Steinmueller, 1994;
David and Greenstein, 1990; Teece, 1986; Ehrnberg
and Jacobsson, 1997; Grindley and Toker, 1993;
Bailetti and Callahan, 1995).
Setting the standardisation timing means basically to
define (Chiesa et al., 1999):
1. Whether it is preferable to achieve a common
standard definition before (ex ante) or after (ex
post) the introduction of the new technology on the
# Blackwell Publishers Ltd 2002
 Standard-setting processes

market. In the first case only one standard
technology arrives on the market and the competi-
tion is limited to the boundaries of that standard,
whereas in the second case different technologies hit
the market and then a standardisation war to define
the one that will emerge as standard starts;
2. Having answered the first problem, when it is better
to define the standard (i.e. whether it is better, for
the firm attempting to standardise its technology, to
delay or not the definition of the standard).
Briefly, in the case of ex ante standardisation the
earlier an agreement on the technology to be imposed
as the standard emerges the lesser will be the costs and
the delays faced by the standardisation process. On the
other hand, in the case of ex post standardisation the
definition of the best standard-setting timing is not so
simple. Indeed, in markets characterised by inertia, the
owner of the technology could have greater advantages
when two or more incompatible standards compete
than when, after the standard-setting, the competition
takes place within the standard specifications.
However, the most important aspect of timing, at
least for the aim of this paper, is the former. Indeed,
the most important decision that a firm has to take is
whether to attempt an ex ante or ex post standardisa-
tion, because it is such a choice that presents greater
opportunities and threats and that influences more in
depth the standardisation process.
Usually, when there are competitors developing
alternative technologies or the technology is easy to
imitate and when an ex post competition among
different standards would be too costly and=or risky,
firms prefer an ex ante standard-setting. On the
contrary, when there are no competing technologies
ready to enter the market and when a firm is able both
to develop a new technology and to impose it as the
market standard, attempting an ex post standardisa-
tion is usually feasible and more convenient (see
Table 2).
Both ex ante and ex post standardisation can achieve
positive or negative results. For instance, the ex ante
standardisation was a success (i.e. it led to the
definition of a common standard) in the case of the
CD and a failure (i.e. it failed to set an unique
standard) in the case of DVD. The ex post standardi-
sation was a success in the cases of QWERTY
typesetters and VHS video-recorders and a failure in
the case of Betamax and Minidisc=DCC (in this case a
standard was eventually set, but the length of the
standard-setting reduced the market to a niche size).
2.3. Form of co-operation
In general, when a de facto standardisation has to be
pursued, firms have to co-operate because they usually
lack the resources and=or the competencies needed in
order to impose autonomously a standard. Theoreti-
cally, a firm can choose from four possibilities:
1. stand-alone;
2. developing alliances;
3. sponsoring alliances;
4. Standard Development Organisations.
Stand alone. The firm decides to undertake, without
any form of collaboration, the standardisation process
and carries out an autonomous introduction. Actually,
this is not a real form of collaboration, but it represents
the extreme alternative of not co-operating at all. It is
rare enough that a firm possesses the competencies and
the resources needed to attempt a stand-alone stan-
dardisation. However, if it happens, a stand-alone
standardisation could strengthen the firm’s control of
the market. For instance the stand-alone standardisa-
tion of PC software carried on by Microsoft allowed
the firm to dominate this market in the following years.
Developing alliances. These are aimed at developing a
new technology (be it a product or process technology)

Table 2. Main factors influencing an ex ante or ex post standardisation and the precise standard-setting time during the
chosen phase.

Standard- Factors pressing for an earlier

setting timing It is preferred when standard-setting

Ex ante * There are competitors developing alternative * Need of minimising costs:

technologies or the technology is easy to imitate;
* A competition among standards would be too much
costly and=or risky.
Ex post * There are not competitors developing alternative
technologies;
* The firm considers itself strong enough both for
protecting its own technology and for imposing it as
the standard even in the case of competing
technologies would arise.
– sustained to find an agreement among
competitors;
– related to the late quitting of the own
technology;
– concerning the R&D expenditures.
* Low market power of the firm;
* Characteristics of the market (i.e. high
excess of inertia).

# Blackwell Publishers Ltd 2002 R&D Management 32, 5, 2002 435

Vittorio Chiesa, Raffaella Manzini and Giovanni Toletti
in order to impose it as the standard of the market. The
collaborating firms have to define the characteristics of
the technology=product to be developed and the way
to be followed in order to impose it as a standard.
Developing alliances are mainly stimulated by the need
to reduce the high costs and risks involved in the
process, and by the need to gather all the resources and
competencies necessary to develop a technology and
then sponsor it as standard. An example of developing
alliances comes from the CD standardisation. Sony
and Philips (the former previously hurt by the war
between VHS and Betamax for the VCR standard)
decided to jointly develop and define the CD standard.
The agreement between these two major producers
persuaded Columbia and PolyGram (among others) to
support the CD, providing a rich catalogue of titles
that favoured the diffusion of such a technology and
determined its success.
Sponsoring alliances. These are aimed at imposing an
already developed technology as a standard for the
market. It means that partners develop their own
technology and that they find an agreement on a
common proposal only after the introduction on the
market. Some or all the firms participating in the
alliance may have developed their own technology, but
they accept they must shift their attention from the
proprietary technology to the one that will be jointly
sponsored by the alliance. Such technology could be
one of the proprietary technologies or even a
compromise between two or more of them. Sponsoring
alliances may help to increase the installed base (by
increasing the number of sponsors of a specific
technology) and the confidence of consumers in the
sponsored technology. The case of Minidisc (spon-
sored by Sony) and of DCC (sponsored by Philips-
Matsushita) offers evidence of the importance of
sponsoring collaborations. The aim of both Sony and
Philips-Matsushita was to replace tapes with another
product without the possibility of rewriting. However,
each firm sponsored its own technology. Record
companies refused to supply them with their products
because of the high risks associated with the low
market share that each could guarantee. This was the
main reason for the market failure of both Minidisc
and DCC. On the contrary, the success of the VHS
standard for videocassette recorders is strongly related
to the presence of a sponsoring alliance involving
initially Matsushita and JVC, but soon many other
partners. Sony’s Betamax gained a first advantage in
terms of installed base, but, eventually, it lost the
standardisation race. This was mainly due to the
different choices about collaborations: Matsushita-
JVC, not only decided to co-operate between them-
selves, but also attracted as many partners as possible,
whereas Sony tried to fight alone. For instance the
VHS sponsors licensed their product, improved the
capacity of their device in order to allow four hours
436 R&D Management 32, 5, 2002
registration (as required by RCA that was thus
involved in the alliance), created distributive collabora-
tions, and so on. By the mid-1980s the powerful
network of alliances built up by Matsushita-JVC
determined the success of the VHS standard and the
failure of the Betamax one.
Standard Development Organisations (SDOs). SDOs
are a particular form of co-operation. Numerous firms
decide to form a committee able to promulgate a de
iure standard that could satisfy all the competitors.
SDOs are the extreme development of sponsoring
alliances because they involve almost all the actors of
the market. The aim of SDOs is to avoid competition
inter standards through the definition of a common
proposal on which all actors of the market could agree.
There are different reasons that could suggest the
formation of SDOs: (i) they allow the greatest possible
enlargement of the installed base, hence favouring the
diffusion of the standard and increasing the probabil-
ities of success of the standard-setting; (ii) they
guarantee the presence on the market of several
competitors reducing the risks of their opportunistic
behaviours; (iii) they reduce risks and costs of the
standard-setting process; (iv) they also allow small and
medium enterprises to participate actively and with
some decision power in the standardisation process. In
the past, the work of SDOs gave some good results as
for instance in the case of the standards promulgated
by the International Telecommunication Union (ITU),
but was also unsuccessful as it happened in the case of
the ACE (Advanced Computing Environment) con-
sortium that was unable to set a standard in the RISC
(Reduced Instruction Set Chip) computer field.
Usually it is not possible for firms to define once and
for all which typology of collaboration best fits their
standardisation goals.1 Indeed, alliances are characterised
by an evident dynamic. It is common that firms start
with a stand-alone strategy, eventually forming develop-
ing or sponsoring alliances. It is also possible that firms
could be compelled to work in SDOs in order to put an
end to long and fruitless competition inter standard.
The evolution of the standard-setting strategy may
be studied on the basis of a simple model that uses a
triangle pyramid in order to represent which typologies
of collaboration are carried on by the firm in the
different phases of the standardisation process. In
order to explain such a model let us consider a generic
firm (F). It has, over the course of time, chosen from a
set of infinite possibilities to undertake different
collaborations (see Figure 2). It has first started with
a stand alone strategy, then it has shifted to a
developing alliance that, afterwards, has been enlarged
to include also sponsoring collaborations. Finally, F
has undertaken a collaboration policy exploiting at the
same time developing and sponsoring alliances and at
participating in an SDO.
# Blackwell Publishers Ltd 2002

Stand Alone
1
SDO
2
3
Developing Alliances
Figure 2. Evolution of the standard-setting strategy from the point of view of the form of co-operation.
In the following sections we will briefly present our
empirical study and then, on the basis of the
interpretative framework here presented, we will
analyse the cases of Modem 56k and Information
Appliances-Enhanced Television.
3. The empirical study
The two case studies chosen in order to validate our
interpretative framework of standard-setting processes
are those of Modem 56k and Information Appliances-
Enhanced Television. The choice is based on two
considerations: on the one hand, these are not well
known nor studied cases and, on the other hand, they
represent very interesting situations that could offer
useful insights in the standardisation process.
The analysis of these cases is based on eight
qualitative interviews with four different managers of
3Com and Oracle2 that have been integrated with
information collected via literature and the Internet.
Two interviews were undertaken with each manager
interviewed. The first round of interviews, lasting on
average about two hours each, was based on an open
questionnaire that provided the framework for the
discussion, while at the same time allowing for the
possibility of following the hints offered by the
interviewee. The second round, that was intended only
to complete the information elaborated in the first,
concerned the doubts that the first interview and the
ensuing analysis of the collected data had generated.
In particular, the questionnaire was intended to
collect the following information:
* general description of the company;
* main features of the markets in which the firm
competes;
# Blackwell Publishers Ltd 2002
Standard-setting processes
Sponsoring Alliances
* typologies of products realised;
* main motivations of the need of standard-setting;
* milestones of the standard-setting process;
* main problems faced during the standard-setting
process;
* results of the standard-setting process;
* typologies of standard-setting strategies pursued
(i.e. stand alone or collaboration-based strategies);
* main reasons leading to co-operate or not co-
operate;
* typologies of collaborations undertaken;
* motivations leading to a specific form of co-operation;
* typologies of partners selected;
* relationships formed with partners;
* evaluation on the collaboration results;
* factors affecting the success or failure of the
collaboration;
* changes of strategy during the standard-setting
process;
* motivations behind such changes;
* immediate effects of the strategy’s changes;
* long-term effects of the strategy’s changes.
In the following sections the results of our analysis
will be presented assuming mainly, in the case of
Modem 56k, the point of view of US Robotics=3Com
and, in the case of Information Appliances-Enhance
TV, the point of view of NCI=Liberate Technologies
(firm participated by Oracle).
4. Modem 56k: case study
4.1. The technology
Analog modems are devices used for the transmission
of data in telecommunication networks. As with other
high-tech products, modems underwent great changes
R&D Management 32, 5, 2002 437
Vittorio Chiesa, Raffaella Manzini and Giovanni Toletti
in recent years. In a short space of time, through
radical innovations, their performance grew by an
order of magnitude, closing the gap between analog
transmission and concurrent technologies such as
ISDN.
The technology characterising the Modem 56k
(Pulse Code Modulation) was presented for the first
time, with the brand X2, by US Robotics in early
September 1996.
The Modem 56k technology was developed from
an original idea of a researcher at the Quebec
University, Brant Townsend. After several failed
attempts he was able to convince an investor (US
Robotics) of the commercial possibilities of his
project. Townsend’s idea was revolutionary because
it aimed to go beyond the limit of 35kbps considered
insurmountable with the normal telephonic cables.
On the contrary, X2 was able to exceed this limit
through the exploitation of a simple stratagem.
Indeed, on the server side X2 does not use another
modem (that would necessitate a double conversion
from digital to analog in entrance and from analog to
digital in exit), but instead it makes use of a digital
device to control the signal. In so doing, the client
modem receives data faster, not loosing information
in the digital to analog conversion.
The PCM technology represents a conceptual
revolution in comparison with previous standards. It
is based on the observation that, using Internet, the
exchange of data between server and client is not well
balanced. The client receives far more data than it
transmits. Hence, in order to increase the transfer
speed and in order to make it possible for users to
benefit, it is important to act only on the server to
client connection. This solution is also favoured by
the wide diffusion of digital nodes in the incumbent
carriers’ networks that provides the right environ-
mental conditions for the success of the new
technology.
X2 has several technological success factors (TSFs).
One of the main ones is its high velocity of data
reception. The transfer rate has become the most
important attribute required by Internet navigators
who are often subject to long and expensive waits on
account of the growing dimensions of web pages and
the growing use of the Net for downloading pro-
grammes. X2 allows reductions of the transmission
time by up to one half and hence it increases the
possibilities of using video and audio effects on the
Net. Another important technological success factor of
X2 is the opportunity that it offers of upgrading, via
software, the connection codes used. In this way, it
assures a complete compatibility of this technology
with the previous and the future standards of
transmission both digital and analog. Finally, X2 is
based on technological infrastructures with a broad
diffusion, hence reducing significantly the switching
costs of web administrators.
438 R&D Management 32, 5, 2002
4.2. The story
US Robotics announced the launch of X2 in Septem-
ber 1996 and, after a few weeks, Rockwell and Lucent
Technologies preannounced the near introduction of a
similar technology called k56flex. It was clear from the
start that the similarities between these technologies
were not a matter of chance. Indeed, after the claim
presented by US Robotics for the violation of its
patent, its competitors were condemned to pay a huge
compensation for damages.3
Anyway, the competition between two alternative
standards had begun. Eventually, many historical
competitors of US Robotics, as for instance Motorola,
Lucent, and Rockwell realised the need to closely
collaborate in order to better face the competition of
the X2 technology. It is for this reason that, together
with many small firms, they formed in February 1997
an alliance christened ‘Open 56k Forum’. Modem
producers, OEM producers of PCs, and networking
companies participated in the Forum. In this way the
war between the two 56k technologies escalated.
At the start US Robotics had introduced the X2
technology hoping to avoid competition for a time
long enough to impose X2 as a de facto standard for
the market. The quick reaction of the Rockwell=Lu-
cent alliance however ended this hope. Indeed, right
from the start, the competition between X2 and k56flex
seemed very hard. For this reason, managers of US
Robotics soon tried to avoid a direct clash on the
market, proposing the mediation of an SDO. To this
aim they proposed the ITU for the definition of a
common standard for the 56k technology. Initially,
this proposal did not gain widespread consent (even
though ITU started to work on the definition of the
desired standard) and competitors continued to fight
each other in the client and server markets trying to
achieve an initial advantage from which to influence
the standard definition.
US Robotics in particular tried to improve its image
in the market of Internet Service Providers by forming
collaborations with America On Line, Prodigy, MCI,
Compuserve, AT&T WorldNet, NetCom Canada,
Web America, Gateway Direct, SNET, and Sprint
Consumer Internet Services. At the same time it tried
to gain the support of PC and hardware producers
through collaborations with Texas Instruments and
IBM, but also with Hewlett Packard, Gateway 2000,
NEC, and Packard Bell. In the June 1997 3Com
acquired US Robotics, but the standardisation strategy
of X2 did not change. On the contrary, the presence of
3Com in the key markets of client-server communica-
tion, its important role in the market of Internet
Service Providers (ISPs), and its leadership in the web
card sector strengthened the competitive position
of X2.
On the other hand, the k56flex sponsors undertook a
threefold strategy: they tried to strengthen their control
# Blackwell Publishers Ltd 2002

on the modem producers leveraging their production
leadership, they formed collaboration with partners
interested in developing DSPs similar to the ones used
by X2, and, finally, they started collaborations with
several small and medium ISPs.
April 1997 was a turning point in the Modem 56k’s
process of standard-setting. ITU decided to form a
labour group (Group 16) specifically dedicated to this
process. This decision was aimed at (i) reducing the
time needed for the achievement of a standard; (ii)
increasing the co-ordination and the communication
between participants; (iii) involving the technicians of
competitors in the definition of the standard’s specifics;
(iv) reducing the number of deciders; (v) improving the
monitoring and the control over the standardisation
group.
However, even though a new working group was
forming, competition in the market did not decrease.
Nevertheless, the work of the committee proceeded
rather successfully until September 1997 when the
group of k56flex sponsors, realising that US Robotics
had a seemingly incontestable influence on the decision
of the standardisation group, threatened to leave the
committee. However, this did not happen, but instead
the events pushed the competitors towards finding an
agreement. Indeed, the complementarity of marketing
strategies of the two groups of competitors had made
X2 the most diffused standard among ISPs and k56flex
the most diffused standard among users, leading to a
situation in which the connection between client and
server could become impossible. Hence, an agreement
was needed. The compromise finally achieved received
about 70% of specifics from US Robotics and the
other 30% from Motorola, one of the leading partners
of the k56flex coalition.
Paradoxically, the partial success of Motorola was a
big failure for the coalition. After a few months
Motorola announced its departure from the analog
modem sector, hence reducing to almost zero the
advantages that the k56flex coalition had gained by
standardisation.
After a few minor revisions the final standard was
defined on 14 February 1998. Here on, both coalitions
started their advertising policy of the new-born V.90
standard, making available software updating of their
previous protocols. The Internet played a fundamental
role becoming the main vehicle of transmission of this
updating.
3Com was able to release its modems onto the
market and update it servers to the new standard
before its competitors, hence gaining a temporary
monopoly and consolidating its role of sector leader.
Major efforts in promoting the new products
together with a great similarity between X2 and V.90
also resulted in all 3Com’s products being rated
superior to those of its competitors in the inter-
operability tests carried out by some of the most
important specialised journals.
# Blackwell Publishers Ltd 2002
Standard-setting processes
3Com competitors were not able to organise an
advertising campaign as convincing as the one of the
sector leader. The different goals pursued by the
partners and the great overlapping of their markets
caused them to compete more between each other than
against 3Com.
4.3. The strategy
The key elements of the strategy of US Robotics=
3Com can be highlighted.
Timing. US Robotics chose to introduce X2 on the
market as soon as possible in order to precede its
competitors. Its goal was to exploit the monopolistic
power derived from the early introduction in order to
impose the technology as a de facto standard.
However, the quick and unexpected reaction of Rock-
well and Lucent disrupted its plans. Indeed, it was
compelled to compete actively on the market taking
new decisions about the timing of standard-setting.
Facing an undesired and unexpected situation, first US
Robotics and then 3Com made some mistakes in
defining the timing dimension of the standardisation
strategy. This happened because 3Com was not able to
forecast correctly the growth rate of Modem 56k
technology and it misunderstood the prerequisites
needed for a successful standardisation.
3Com believed that its technology would have
quickly won the standardisation race and hence
decided to compete on the market without trying to
define a common standard jointly with Rockwell and
the other competitors. This decision was an error
because it increased the inertia of the market that,
unable to forecast the winner of the standardisation
struggle, did not grow at the expected pace. In turn, it
allowed the Rockwell alliance to close the gap between
the two competing technologies therefore increasing
the level of competition and delaying the standard-
setting.
3Com then took another decision doomed to
influence negatively the timing of the standardisation.
It refused to adhere to the Open 56k Forum, proposing
instead the mediation of ITU. This choice extended the
time needed for the standard-setting and hence reduced
the window of opportunity available for the exploita-
tion of the Modem 56k technology.
In conclusion the timing decisions of 3Com, though
aimed at guaranteeing a quick de facto standardisation
of X2, contributed to delay the standard-setting
process reducing the profitability of the technology.
Tactics. 3Com adopted different tactics to increase
the installed base of X2 and impose it as a de facto
standard for modem 56k. These tactics can be grouped
into five main categories.
Attracting suppliers of complements. 3Com formed
numerous collaborations with OEM producers and
R&D Management 32, 5, 2002 439
Vittorio Chiesa, Raffaella Manzini and Giovanni Toletti
Internet Service Providers in order to provide a greater
range of products and services to potential customers.
Product preannouncement. This tactic was frequently
adopted by 3Com both during the launch of the PCM
technology and during the final phase of standardisa-
tion just before the adoption of V.90. The tactic
however was not successful because of the lack of trust
in the firm’s ability to achieve the promised results.
Influencing forecasts of future sales. This was the
tactic most used by both US Robotics=3Com and its
competitors. In order to sustain the expectations
around their own technology they systematically tried
to magnify the forecasts of future sales of their
technology. However, it had a self-defeating effect
because the continuous disparity between forecasts and
actual results contributed to disorient the market,
increasing the inertia that characterised it from the
start.
Price commitment. Traditionally 3Com paid great
attention to its customers. Hence, even if 3Com did not
promise explicitly significant reductions of modem
prices, its behaviour towards customers was considered
a sufficient guarantee of its future price policy.
Building an early lead. Throughout the standard-
setting process 3Com acted in order to build an early
lead and improve its power versus the standardisation
committee. The entire 3Com strategy was always
characterised by the attempt of anticipating the
market. For instance it began to sell products
compatible with the V.90 standard seven months
before such a standard was finally ratified.
Form of co-operation. Despite its traditional stand-
alone policy 3Com formed several collaborations in
order to impose the X2 technology on the market.
Particularly, the collaboration with Texas Instru-
ments can be considered the key to X2 success. This
0
SDO
3 4
2
1 5
1
Developing Alliances
Figure 3. Dynamic of the alliances in the case of Modem 56k.
440 R&D Management 32, 5, 2002
collaboration started in 1989 when US Robotics was
only a small firm competing in the modem market. It
enabled the development of the system needed for the
software upgrading of the communication codes.
Texas Instruments made available to US Robotics its
DSPs (Digital Signal Processors). DSPs have a lot of
advantages: they increase the velocity of the system,
they favour the upgrading of the system, they present
low production costs. The partnership between 3Com
and TI allowed the former to gain access to the DSP
technology, and the latter to exploit the know-how
about networking that US Robotics=3Com has piled
up, together with the license for the use of X2.
Among the collaborations formed by 3Com it is also
important to note the one involving IBM intended
mainly to guarantee the interoperability of digital
processors, modems, and servers.
3Com was also able to gain a strong influence on the
ITU’s Group 16 forming a collaboration involving a
few strong allies in contrast to the choice of its
competitors that bet on the number of partners more
than on their quality. 3Com was able to form
collaborations with important partners in all the
sectors connected to the modem’s one: Texas Instru-
ments, IBM, and Hewlett Packard among the Digital
Signal Processors; Hewlett Packard, Gateway 2000,
NEC, and Packard Bell among desktop and notebook
PC producers; America On Line, Prodigy, MCI,
Compuserve, AT&T WorldNet, Netcom Canada,
Web America, Gateway Direct, SNET, and Sprint
Computer Internet Services among Internet Service
Providers and Network Service Providers.
The network of collaborations formed by 3Com
was indeed very important even if the single
collaborations were individually rather superficial,4
limiting themselves quite often to technology licen-
sing and assistance in the installation of X2 first and
Stand Alone
US Robotics/3Com
Rockwell
3
5
2 Sponsoring Alliances
# Blackwell Publishers Ltd 2002
 Standard-setting processes

then V.90. The importance of this network was
mainly that it helped to increase of the installed base,
and only in some cases it was the sharing of
information and resources.
4.4. The evolution of the standard-setting
strategy
The case of Modem 56k is very interesting because
there is the contemporary presence of two standard-
setting processes: a de iure and a de facto one. On the
one hand, a voluntary standardisation has been tried
involving an independent organisation – the ITU. On
the other hand, the two main coalitions of competitors
tried to impose a standard de facto attracting as many
users as possible towards their own technology.
However, the eventual success of the formal standar-
disation process was considered to be the only solution
capable of guaranteeing the compatibility between
concurrent technologies. Hence, 3Com’s choice of
competing on the market and attempting the achieve-
ment of a de facto standard was deliberately meant to
increase its market power and in turn its potential for
lobbying the standard-setting committee. In so doing
3Com’s managers hoped to secure their position on the
market achieving at the same time a standard similar to
the technology their firm owned.
In Figure 3 and Table 3 the evolution of the
standard-setting collaborations undertaken by US
Robotics=3Com and Rockwell are described and the
main environmental events marking the collaboration
shifts are enlightened.

Table 3. Main phases of Modem 56k standard-setting.

Environmental changes US Robotics=3Com Rockwell

(0) 1995: ITU ends the war related to
the definition of 28.8 K modem.
(1) 1996: the V.34 þ market has a huge
increase.
(2) September 1996: it appears clear
that a standard war between X2 and
k56flex is beginning.
(3) March 1997: the market does not
appreciate the presence of two
competing technologies.
(4) December 1997: the demand for
modem 56k does not grow as expected
and the market starts to wait for
digital modem technologies.
(5) 1998: the demand grows, but not
as quickly as expected.
It starts the stand-alone development of a
new technology for 56k modems (X2).
It announces the introduction of X2. The
final development of the technology
involved Texas Instruments.
It presents its technology to ITU.
It starts to attract important sponsors for
the X2 technology. Among others: IBM,
HP, and NEC.
It increases the number and the
importance of the sponsors of its
technology involving for instance Network
and Internet Service Providers as AOL.
It invests in productive and distributive
capacity showing a great confidence to the
market. It continues to form new alliances.
It continues to exploit the old
technology (28.8k) not investing on the
56k one.
It forms a developing alliance with
Motorola and Lucent Technologies.
The alliance develops the k56flex
technology concurrent to X2.
It does not participate in ITU works
whereas it collaborates with Hayes,
Ascend, and others in order to form the
‘Open 56 K Forum’ aimed at
sponsoring the technology.
It decides to participate in the Group
16 of ITU dedicated to the 56k
technology. However, it continues to
focus its attention on the market.
It decides to accept a compromise
about the standard definition.
Motorola, Ascend, Diamond, and
Hayes leave the market. Rockwell loses
the control on Asian producers and it
starts to form technological alliances.

Table 4. Main characteristics of the standardisation strategy of US Robotics=3Com

Timing Main Tactics adopted Form of co-operation

Ex-post * Attracting suppliers of * Main sponsoring alliances:

complements; – Texas Instruments, IBM, and Hewlett Packard among the
* Product preannouncement; Digital Signal Processors;
* Influencing forecasts of future sales; – Hewlett Packard, Gateway 2000, NEC, and Packard Bell
* Price commitment; among desktop and notebook PC producers;
* Building an early lead. – America On Line, Prodigy, MCI, Compuserve, AT&T
WorldNet, Netcom Canada, Web America, Gateway Direct,
SNET, and Sprint Computer Internet Services among Internet
Service Providers and Network Service Providers.
* Participation in an SDO: ITU.

# Blackwell Publishers Ltd 2002 R&D Management 32, 5, 2002 441

Vittorio Chiesa, Raffaella Manzini and Giovanni Toletti
3Com, through the standard-setting, intended to
increase the market for Modem 56k and to become
leader of the increased market. Only the second goal
was at least partially achieved. The growth of the
market on the contrary is not yet the one hoped, even if
the problems related to the diffusion of digital
technologies may extend the life cycle of analog
modems allowing firms time to achieve some of the
expected results.
However, the demand was not adequately exploited
in 1997 and 1998 when it was at its highest. In this
perspective, the war between competing standards and
the impossibility of finding a common agreement can
be identified as the main causes of the initial limited
success of Modem 56k.
5. Information appliances, enhanced television:
case study
5.1. The technology
Different software may be used to link personal devices
and televisions to the Internet and to each other.
Hence, many hardware devices now offer the possibi-
lity of accessing the Internet in a way that, until
recently, was thought of as unique to the personal
computer. They may all be considered as information
appliances.
It is possible to use the standards of the Internet to
deliver interactive capabilities to a variety of informa-
tion appliances all of which have three things in
common: they are inexpensive, they are easy to use,
and they perform just a few functions superbly.
Different technologies enable the use of the Internet
for delivering interactive capabilities. The main exam-
ples are the TV NavigatorTM of Liberate Technologies
(previously Network Computer Inc.) and the
WebTVTM of Microsoft. These technologies have the
same goals but pursue them through different strate-
gies. Liberate software works with multiple hardware
platforms and operating systems, it supports open
standards and it is compatible with any content
authored in HTML and JavaScript and delivered over
an IP (Internet Protocol) network. Liberate develops
every product around an open, standards-based model,
offering customers maximum flexibility and ease of
content delivery. Microsoft has a different business
model having decided to exploit a completely proprie-
tary technology. Even though the technologies related
to WebTVTM offer a great compatibility with TV and
Internet standards, Microsoft retains complete control
of its technology, hence having the potential to control
the Web.
The Liberate TV NavigatorTM software platform
delivers Internet-based applications to a variety of
interactive information appliances including Internet
televisions, digital and analog set-top boxes, game
442 R&D Management 32, 5, 2002
consoles and embedded devices. The platform enables
OEMs and network operators to combine standard
Internet applications, such as Web-browsing and e-
mail, with a new form of media that merges television
programming with Internet content. Designed for TV
viewing, the content is delivered and displayed using
open Internet standards to ensure universal compat-
ibility and access.
TV NavigatorTM tries to combine specific aspects of
Internet and TV in one interactive environment called
Enhanced TVTM, that is delivered to TV set-top boxes
as a component of the broadcast signal or via a regular
telephone line. The Liberate software architecture
includes extensions to HTML and JavaScript, making
it possible for TV-oriented application developers to
add advanced features. Also, using HTML and Java-
Script, developers can easily design their interfaces
and, taking advantage of the respect of Internet
standards, they can exploit all Web programming
tools.
Two important features of the TV NavigatorTM
platform are, on the one hand, its complete compat-
ibility with all possible hardware and, on the other
hand, the ability to receive secure software upgrades
automatically via the Internet. Adopters can select the
hardware solution that best meets their specific needs
and the risk of software obsolescence is reduced.
Liberate TV NavigatorTM is integrated by Liberate
ConnectTM server software that offers a solution for
deploying and managing information appliances.
ConnectTM software lets network operators deliver
cost-effective, branded, and centrally managed services
to information appliances, while at the same time
offering consumers level scalability, reliability and easy
integration with existing network infrastructures. The
main advantages of Liberate ConnectTM are (i)
customer ownership: such technology allows the
services autonomously defined and offered by each
provider to be protected; (ii) open and extensible
architecture: the technology is based on open Internet
standards and it is easily integrated with existing
infrastructures and applications and fully scalable and
extendible; (iii) secure subscriber management: each
information passing from customer to provider and
vice versa is fully protected, making it easier to develop
e-commerce applications; (iv) integrated solution: the
provider may manage its services centrally, but in a
customised way.
TV NavigatorTM is referred to the client side,
whereas ConnectTM is aimed at network operators.
Hence, together, they are able to offer a complete set of
software applications and services to all the partici-
pants of the information appliances sector.
The performance of a system, such as the one
proposed by Liberate, that aims to exploit the
possibility of making software available via the
Internet has to take into account the different
performance guaranteed by the infrastructures. From
# Blackwell Publishers Ltd 2002

a theoretical point of view such infrastructures can be
divided between fixed or mobile networks.
The main typologies of fixed networks are the
regular telephone networks or PSTNs (Public Switched
Telephone Networks) and the broad band networks.
PSTNs are characterised by reduced capacity and
performance, but they can boast a consolidated and
widespread distribution. Broad band networks offer a
greatly superior performance, but are characterised by
greater costs and by a less widespread distribution.
Mobile networks comprise all networks that allow
the communication between two or more users
independently from their location.
These networks can support Enhanced TVTM
differently and they also suffer for the great number
of different and incompatible standards that exist.
As seen, the choice of the infrastructure has a great
impact on the possibilities of Liberate’s technologies.
However, it seems clear that there are six main
services that can be offered (though with different
degrees of efficiency depending on the chosen infra-
structure):
* Web navigation: TV NavigatorTM aims to enable
Internet navigation through the television, also
helping in assisting the navigation of inexperienced
users;
* chat line: it is one of the most successful Internet
services and Liberate technologies allows it on
devices other than PCs;
* e-mail and newsgroups: they have an incredible
diffusion and they have to be offered by every
operator of the field;
* voice over IP (VoIP): actually NavigatorTM has
some difficulties in managing audio signals, but it is
working towards exploiting the great possibilities
offered by the Internet Protocol for voice transmis-
sion;
* e-commerce: Liberate offers customer driven solu-
tions for managing payment systems and other e-
commerce features;
* citizens services: potentially the technologies pro-
posed by Liberate can allow the Public Administra-
tion to deliver some services directly to the citizens.
5.2. The story
The idea leading to the development of network
computing was born in the 1996 when Oracle and
IBM decided to exploit the existing telecommunication
network infrastructure in order to provide interactive
services.
Notwithstanding the similar aim, the two companies
pursued this objective separately. In particular, Oracle,
together with other partners such as Netscape, founded
in 1996 a new company, Network Computer Inc.
(NCI) aimed at a single, specific, goal: making the
power of the Internet as commonplace as electricity.
# Blackwell Publishers Ltd 2002
Standard-setting processes
During its research NCI decided to model its
technology on the Internet’s chief strengths, open
standards and architecture, that cannot be owned by
anyone. It also recognised that to succeed, the
information appliances would have to be far simpler
and easier to use than a PC and highly specialised (i.e.
being able to perform only a few functions, but
excellently). The result of these considerations was a
universal software platform for connecting all types of
electronic devices to the Internet.
One important factor leading to the decision of
realising a completely free architecture with software
updates via Internet was the quasi-monopoly of
Microsoft in the PC’s software market. In order to
compete effectively with Microsoft a different business
model was required. NCI thus decided to base its
strategy on simple devices that would not require an
installed software, but could use resources located on a
remote server and available to many users.
This idea was strengthened by the evidence that
actual PCs were far too complex and powerful in
respect of the needs of several applications (such as
navigating the Internet).
NCI allocated a lot of resources (political, techno-
logical, financial, ...) to build a consensus on its idea of
network computing. It signalled the possiblity of
troubles for Microsoft that was clearly aware of the
great risk that the affirmation of such a philosophy
could have created on its leadership.
Quite soon, Microsoft proposed an alternative
technology (Net PC), similar in concept to Network
Computer, but with different aims. Indeed, the Net PC
exploited the Web, but it maintained a completely
proprietary software. Microsoft chose this view coher-
ently with its traditional strategy and was able to
propose it because of the widespread distribution of its
software.
The struggle between NCI and Microsoft repre-
sented and represents even today the competition
between completely different concepts and the victory
of the one or the other could shape the market in
completely different ways.
As just noted, given the importance, the scope and
the difficulty of its aim, Oracle decided to create a new
company completely dedicated to network computing
instead of changing its internal organisation, believing
it a better way to accomplish the task. Hence, together
with some allies, Oracle founded in 1996 the Network
Computer Inc. that, from the beginning, was dedicated
to the realisation of a front-end platform to provide
enhanced content and application via the Internet
standards to a broad range of devices.
Unfortunately, notwithstanding the active care of
Oracle in helping NCI to pursue its aims and in
looking for new partners, the first results of NCI were
not satisfactory. One of the reasons for this difficult
start may be the wide range of applications available to
network computing that favoured a dispersion of
R&D Management 32, 5, 2002 443
Vittorio Chiesa, Raffaella Manzini and Giovanni Toletti
resources. Hence, in order to focus its activities, NCI
sold the license for its browser to IBM leaving the
business of Thin Client systems and increased its
efforts in consumer markets. This agreement with IBM
allowed NCI to save the huge resources dedicated to
corporate marketing, maintaining at the same time a
strong visibility in the ‘business’ market where IBM
products incorporate a component branded NCI. On
the other hand, with this agreement, NCI stepped back
from a market that a lot of market analysts judged less
interesting.
Another, perhaps more important, step towards
success was the acquisition, in May 1997, of Navio
Communicaton that ended in the merger between the
two companies. Navio was a leading company in the
consumer applications of network computing technol-
ogy and it also brought to NCI the partnership with its
original founders (among others: Sony, Acer, Ninten-
do, and Sega that were all leading actors of the
industry). NCI, on the one hand, instantly increased its
installed base favouring the diffusion of the network
computing idea and, on the other hand, increased the
credibility of the network computing project. Besides,
the merger was particularly useful for the exchange of
resources between the new partners:
* Netscape, leader of the browser market and fierce
competitor of Microsoft provided the large part of
the front-end system through an adapted version of
its Netscape NavigatorTM;
* Sony, Sega, and Nintendo provided their know-how
about the entertainment sector;
* Acer, an important OEM of consumer electronics,
provided the hardware support.
In 1997 Microsoft reacted to the initiatives of NCI
through the acquisition of WebTV, a company very
well positioned in Enhanced TV technology. Since this
acquisition, a new competition between the two
business models proposed by NCI’s TV NavigatorTM
and Microsoft’s WebTVTM started.
In the spring of 1998, in parallel with the competi-
tion on the market, Microsoft, NCI, and Intel started
to develop a Common Content Framework (CCF) that
was intended as a common platform for the construc-
tion of interactive applications for TV. The market
indeed demonstrated itself unable to sustain a lot of
different competing standards (among them there were
WebTVTM and TV NavigatorTM, but also Intercast,
NetChannelTV, WinkTV, OpenTV, and PowerTV).
Hence, the development of a common standard was
considered necessary for the success of Enhanced TV.
The aim of the CCF was to integrate the most
important features of the proprietary technologies of
the three corporations collaborating in its definition.
Particularly, it considered:
* the WebTVTM icons system allowing the crossover-
links among different services and contents;
444 R&D Management 32, 5, 2002
* the IntercastTM technology of Intel able to maximise
the web performance in the expedition of interactive
data;
* the TV NavigatorTM browser and the NCI Con-
nectTM server technology.
The CCF project gained the favour of important
firms (as Sun Microsystems), but it was only the
starting point of a more important initiative: the
constitution of the Advanced Television Enhancement
Forum (ATVEF).
The ATVEF was born in July 1998 as a private
consortium founded by 14 international groups. The
Forum did not aim to promulgate directly a common
standard for network computing, but, to this purpose,
it collaborated with several SDOs such as OpenCable,
Digital Video Broadcasting (DVB), Advanced Televi-
sion Systems Committee (ATSC), World Wide Web
Consortium (W3C), and Society of Motion Picture and
Television Engineers (SMPTE).
Notwithstanding the creation of the ATVEF, the
main competitors in the network computing arena
continued to compete on the final market trying to
increase their market share and market power in order
to strengthen their power in the Forum. The competi-
tion was particularly high in the European market that,
being well behind that of the USA, offered many more
opportunities to the producers of network computing
technologies.
However, the ATVEF soon started to get the first
results. Indeed, since September 1998 a Common Draft
Specification Version 1.0 was created and in the course
of 1999 it was confirmed with some improvements.
Actually the ATVEF provides specification for en-
hanced television programming using existing Internet
technologies. It delivers enhanced TV programming
over both analog and digital video systems using
terrestrial, cable, satellite, and Internet networks. The
specification can be used in both one-way broadcast
and two way video systems and is designed to be
compatible with all international standards for both
analog and digital video systems.
The ratification of the ATVEF specification may be
considered a great success for Oracle and Netscape
because all the proposals of NCI concerning the
characteristics of the browser were accepted. Even
Microsoft decided to fit its browser technology to the
ATVEF specification maintaining only one proprie-
tary component (Windows Ce) in its network comput-
ing system.
On 18 May 1999, Network Computer Inc. changed
its name to Liberate Technologies. The name Liberate
derives from the company’s goal of expanding outlets
for the Internet, as well as from the company’s role as
the standard-bearer of a movement aiming to create
and support information appliances with a platform
based on open standards.
# Blackwell Publishers Ltd 2002

The change in the name did not change the strategy
of the firm. Indeed, Liberate continued to pursue its
double strategy of competition against Microsoft on
the final market and participation in the ATVEF.
Actually the competition on the network computing
market goes on and the situation cannot yet be
considered stabilised even if the work of the ATVEF
has just ripened its first fruits.
5.3. The strategy
The key elements of the strategy of Liberate Technol-
ogies can be highlighted.
Timing. The choice of the timing was one of the most
characterising elements of NCI’s strategy. NCI was
able to introduce its technology on the market about
one year before its main competitor (Microsoft).
During that period NCI was able to pile up a great
know-how and to develop important experience in the
sector. However, the early introduction of the technol-
ogy on the market did not seem a winning choice.
Indeed, ex post, it appeared clear that the market was
not prepared to accept the novelty of the technology
nor the risks related to the uncertainty of future
developments. Hence, the installed base did not grow
quickly enough, allowing in turn Microsoft to enter the
market without having to overcome important entry
barriers.
Particularly, the impossibility of creating the market
with a novel technology as standard increased ex-
ponentially the inertia of the market retarding the
development of the demand.
In order to resolve this problem NCI (and then
Liberate) decided to co-operate with its competitors in
the creation of a Forum (the ATVEF) that could help
to reduce the length of time needed to reach an ex post
standardisation. This solution, even if rather tardy,
helped a common definition of standard to be reached
and favoured the development of the market.
Tactics. NCI=Liberate adopted different tactics in
order to favour its technology. Particularly, the firm
decided to focus on the market of telecommunication
companies, ISPs, and Media Operators adopting the
tactics more likely to attract such users. This choice
was an attempt to exploit one of the main strengths of
the firm: the strong leadership of Oracle in the
database sector and its relations with telecommunica-
tions companies. The choice was also a way of coping
with some weaknesses. Indeed, in comparison to
Microsoft, NCI has far less vertical integration
restricting direct contact with the final user and it has
smaller financial reserves preventing it from investing
in projects with a too late payback time.
On the basis of these considerations NCI=Liberate
decided to bet on the quality of the product and on the
more demanding market of the media industry.
# Blackwell Publishers Ltd 2002
Standard-setting processes
In particular the tactics adopted by NCI=Liberate
can be summarised as follows:
Attracting suppliers of complements. NCI=Liberate
was particularly concerned with this tactic continu-
ously implementing new collaborations with telecom-
munication companies, media companies, software
developing firms, producers of information appliances,
and other firms related to the business of network
computing.
Product preannouncement. Oracle adopted such
tactics from the moment the network computing idea
was revealed at the Conference of 1996. Since then
NCI=Liberate continued to preannounce new features
connected to the Network Computer even when their
implementation was some distance in the future.
Influencing forecasts of future sales. Even if, explicitly,
NCI did not try to influence the forecasts about the
possible expansion of network computing, its lobbying
action (strengthened by the analogous, but independent
action of Microsoft) with market analysts favoured the
diffusion of statistics promoting the whole business
(though not directly its own technology).
Building an early lead. Trying to exploit its earlier
arrival on the market NCI=Liberate aimed for a fast
increase of the installed base even though the excess of
inertia of the market prevented its realisation. After the
creation of the ATVEF however the adoption of this
tactic was strengthened in order to improve the
bargaining position of Liberate in the Forum.
Form of co-operation. NCI=Liberate was strongly
active in the research of collaborations, particularly
on account of the inertia of the market. Notwithstand-
ing this main objective, several collaborations were
also intended, at least partially, to access different
competencies as in the case of the co-operation with
NEC Corporation, PACE, or Scientific Atlanta.
Given the novelty of the technology and the
difficulties faced in creating the market, NCI was
compelled to form both collaborations to develop the
technology and collaborations to sponsor its definition
as the standard for the market. These collaborations
were also widely differentiated from a contractual
point of view, going from licensing to acquisition. In
Table 5 some examples of the collaborations formed
by NCI are reported.
From a strategic point of view the agreement
between NCI=Liberate and NEC Corporation can be
considered particularly important because it opened
the Japanese market to NCI that thus became the first
provider of ad hoc services of Enhanced TV in Japan.
However, all the collaborations formed by
NCI=Liberate contributed to improve the technology
(still not yet fully developed) and to increase the
market power of the rather informal coalition of
sponsors. Market power is very important not only for
the competition on the market, but also for the
possibility of influencing the decisions of the ATVEF.
R&D Management 32, 5, 2002 445
Vittorio Chiesa, Raffaella Manzini and Giovanni Toletti

Table 5. Some collaborations of NCI=Liberate.

Partner Business Form of collaboration

Boca Research Inc. Producer of analog communication
systems (modems, ...).
Cable & Wireless Important telecommunication company
leader in the UK.
DLT Producer of hardware and software for
huge institutional customers.
Fujitsu Firm leader in the production of
hardware systems (devices, cameras, ...). through the licensing.
Funai Producer of electronic devices (CD-
ROM drives, monitors, televisions, and
VCRs).
IBM World leader in the production of
computer hardware.
NEC Corporation Producer of electronic devices, telecom
company, and Internet provider.
Neoware Producer of hardware and software for
the ‘business’ market.
PACE Producer of digital decoders.
Pioneer Digital Producer of electronic devices.
Technologies (PDT)
Scientific Atlanta Producer of decoders and set top boxes. Scientific Atlanta has a co-design partnership with NCI.
Tektronix Producer of various devices (printers,
videos, and net components).
Wind River World leader in the production of tools
for real-time applications in different
environments.
Boca realised set top boxes and other communication
devices respecting the standard of TV NavigatorTM.
C&W represents one of the leader customers of
NCI=Liberate and they collaborate in several ways going
farther on than the simple licensing of TV NavigatorTM.
DLT co-operates with NCI=Liberate in the realisation of
products and services dedicated to corporate customers,
public institutions, education, and health institutes.
Fujitsu adopted TV NavigatorTM co-operating with NCI
Funai co-operates with NCI in the development of hardware
systems as set top boxes.
IBM co-operated with NCI particularly in the first phases of
the launch of the technology, whereas actually the relations
between the two firms are limited to the use of the Liberate
browser on the IBM’s Network Stations.
Nec co-operates with NCI in different areas, from the
licensing of TV NavigatorTM to the co-design of electronic
devices.
Neoware developed many products based on the Liberate
technology.
PACE co-operated with NCI for the realisation of the APIs
(Application Program Interfaces) software and hardware.
PDT co-operates with NCI=Liberate in realising enhanced
and interactive applications for cable television.
Tektronix co-operates with NCI in the development of the
hardware components of the network computer.
WR Systems incorporates the Liberate technologies in its
products.

5.4. The evolution of the standard-setting
strategy
The standardisation process of the network computing
technologies suggests very well the difficulties that can
be encountered by a de facto standardisation and the
ever increasing importance of the involvement of
SDOs.
Initially NCI pursued a strategy aimed at a de facto
standardisation of the Network Computer trying to
impose a new business model of non-proprietary
software. However, the novelty of the technology and
the market weakness of the firm contributed to a great
inertia in the market. Such inertia favoured the
entrance on the network computing business of
Microsoft whose action quickly made the achievement
of a de facto standard-setting impossible. Indeed, the
two competing companies did not have the strength to
impose their own technology, and the presence of more
than one alternative contributed to increase the inertia
of the market.
In order to bridge the gap between market needs and
technologies available NCI=Liberate was required to
modify its standardisation strategy. Particularly the
firm was persuaded of the necessity of involving an
SDO that could mediate among the different interests
involved.
When the ATVEF was formed however the compe-
tition did not end because all the competitors
continued to struggle on the market in order to
improve their bargaining position in the ATVEF.
In Figure 4 and Table 6 the evolution of the
standard-setting collaborations undertaken by
NCI=Liberate and Microsoft are described and the
main environmental events marking the collaboration
shifts are enlightened.

446 R&D Management 32, 5, 2002 # Blackwell Publishers Ltd 2002


Developing Alliances
Figure 4. Dynamic of the alliances in the case of Information Appliances=Enhanced TV.
Table 6. Main phases of Information Appliances-Enhanced TV standard-setting.
Environmental changes
(0) 1996: It becomes always stronger
the need of the market to limit the
monopolistic power of Microsoft
software products.
(1) 1997: The idea of interactive TV is
born.
(2) 1997– 98: The expectations of the
market towards interactive TV starts
to increase and, among firms, there is
the need of forming stronger
collaborations.
(3) July 1998: analysts revise their
forecast about the market possibilities
of interactive TV. The first standards
of digital TV are finally defined.
(4) 1999– on: The expectation about
the possible results achievable by
ATVEF starts to raise and the first
important standards are defined
# Blackwell Publishers Ltd 2002
Stand Alone
1
SDO
3
3
2 4 4
1 Sponsoring Alliances
NCI=Liberate
It announces together with IBM the
beginning of the development process of a
technology aimed at exploiting the
existent telecommunication network
infrastructure in order to provide
interactive services.
It sells to IBM the thin client part of the
business. It acquires Navio (created by
Sony, Acer, and Netscape) hence
beginning the development of the
enhanced TV. Besides, it starts to find
sponsoring partners among network
providers (AOL).
It forms new technological alliances with
important network providers and
electronic companies. It forms with AOL,
Sun, IBM, and Netscape an anti-Wintel
axle. It contributes to form the CCF
(Common Content Framework).
It forms the Advanced Television
Enhancement Forum (ATVEF) in which
involves also Microsoft and its allies. At
the same time it finds new sponsoring
partners particularly in Europe.
It gains the support of the industrial
market and continues to form sponsoring
alliances.
Standard-setting processes
NCI/Liberate
Microsoft
Microsoft
It starts a press campaign aimed at
playing down the potential importance
of NC, but, at the same time, it starts to
think to the NetPC project.
It acquires WebTV and it announces a
new thin operating system: Windows Ce.
It starts to look for sponsoring partners
among the broadcasters. It focuses on
the retail market even if it forms
important commercial collaborations
with numerous firms as for instance TCI
and NBC. It involves Intel and Compaq
in the hardware development and it also
participate in the CCF.
It has been involved in the ATVEF, even
if with moderate interest. It starts to lose
some important customer as Belgacom.
It reduces its involvement in ATVEF. It
increases the number of sponsoring
partners among retailers and packagers,
but it fails to attract industrial
customers.
R&D Management 32, 5, 2002 447
Vittorio Chiesa, Raffaella Manzini and Giovanni Toletti
Table 7. Main characteristics of the standardisation strategy of NCI=Liberate Technologies.
Timing Main Tactics adopted
Ex post * Attracting suppliers of
complements;
* Product preannouncement;
* Influencing forecasts of
future sales;
* Building an early lead.
6. Conclusions
In the past decades several processes of standardisation
have been conducted on a great variety of markets,
particularly in those industries that have more recently
converged in the multimedia business. Many firms
were involved and many strategies were experienced.
The processes of standardisation in the past were
often characterised by ex post attempts of imposing a
standard and by loose forms of collaboration (i.e.
stand-alone or sponsoring alliances). An enlightened
case is that of Microsoft that succeeded in an ex post
stand-alone standardisation of its PC’s software, but
also the attempt of Netscape of standardising its
Navigator Internet browser offers some evidence of
this consideration. Many other examples of successful
or unsuccessful ex post standardisation processes may
be mentioned. For instance: the sponsoring alliance
between Matsushita and JVC that led to the standar-
disation of the VHS technology for video-recorders
and the contemporary failure of Sony’s stand-alone
attempt of imposing its Betamax; the standardisation
of MS-DOS sponsored by Microsoft and IBM; the
disjointed attempts of Matsushita and Sony on the one
hand and of Philips on the other hand of standardising
two incompatible technologies (DCC and Minidisc).
More recently, however it seems that standardisation
processes have undergone some changes. Indeed, often,
one of the implications of the ex post standardisation is
the clear distinction between winners and losers. Thus,
eventually, standardisation wars always being more
costly and difficult, many firms tried to limit the risks
and costs with an ex ante standardisation. It is not
possible to show an unambiguous path from ex post to
ex ante standardisation, but it is a matter of fact that
attempts at the latter started to grow in recent years.
Indeed, in cases like those of CD, DVD, and also
mobile telephones some or all the competitors involved
tried to achieve an ex ante agreement on the standard,
though not always successfully.
In this paper we have proposed an interpretative
framework for standard-setting processes that models
the standardisation strategy as the whole of three
dimensions: tactics, timing, and form of co-operation.
The definition of these dimensions has to be con-
temporary and their evolution in the course of the
standard-setting has to be considered. However, it is
particularly important to note that, always more
448 R&D Management 32, 5, 2002
Form of co-operation
* Main developing alliances:
– Boca Research Inc.; DLT; Funai; IBM; NEC; PACE;
PDT; Scientific Atlanta; Tektronix;
* Main sponsoring alliances:
– Cable & Wireless; Fujitsu; Neoware; Wind River;
* Participation in a SDO: ATVEF.
frequently, firms are induced to co-operate in order
to achieve standardisation and that the ‘form of co-
operation’ dimension assumes an ever increasing
predominance over the other two dimensions.
Such interpretative framework has been verified
analysing in depth two processes of standard-setting
(Modem 56k and Information Appliances – Enhanced
TV) that offer some new evidence of the standardisa-
tion process.
Particularly, these two cases show that the degree of
freedom with which companies may define the
standardisation strategy on their own is reducing.
Indeed, an inter-firm co-operation seems increasingly
necessary for a successful standardisation. Such co-
operation is more frequently assuming the form of an
SDO that involves all, or the majority, of the actors of
the market with the aim to define a common standard
on which everybody could agree.
This does not mean that competition on the market is
doomed to decrease. On the contrary, firms need to
strengthen the competition on the final market even if
an SDO is working for the definition of a common
standard. Indeed, SDOs usually try to mediate among
conflicting interests setting as standard a compromise
between the technologies actually competing on the
market. Hence, competition on the final market, on the
one hand, aims to increase the installed base of one’s
own technology hence improving in turn the bargaining
position of the developer=sponsor towards the SDO
committees, and, on the other hand, it develops a better
understanding of the needs of the customers and helps
to develop and improve the technology proposed.
However, the double role played by the firms as
competitors on the market and as partners in a SDO
makes the definition and the implementation of a
coherent standardisation strategy more difficult. In-
deed, firms have to proceed at two different levels. On
the one hand, they have to define a strategy that can
maximise their results on the final market improving
their installed base. On the other hand, they have to
accurately manage their relations with the SDO’s
partners, trying to avoid conflicts and address the
SDO towards the standard specifics they desire. Of
course these two levels are not unrelated, but, on the
contrary, they are strongly connected because actions
on the market have an effect at the SDO level, whereas
the decisions of the SDO may bind the firms’
behaviour on the market.
# Blackwell Publishers Ltd 2002

Table 8. Motivations pressing towards collaborations and elements to evaluate when choosing a partner.
Typologies of
collaborations Motivations pressing towards collaboration
Developing * They may reduce the risks and costs of
collaborations standardisation;
* they may increase and complement the
available skills and competencies;
* they may increase the market power
favouring the introduction of the technology
on the market.
Sponsoring * They may increase the installed base and
collaborations hence the probabilities of the
standardisation’s success;
* they may improve the technology credibility
in the eyes of customers.
SDOs * They lead to enlarge the installed base;
* they guarantee the presence on the market of
several competitors reducing the risk of
opportunistic behaviours;
* they reduce the risks and cost of the standard-
setting process;
* they allow also to small and medium
enterprises to participate actively in the
process.
Managers’ key decisions concern: whether and how
they can pursue a stand-alone attempt at standardisation;
when collaborations become necessary; which are the
right partners to involve in the standard-setting process;
when an SDO is required; and also how to behave in the
market to increase the firm’s lobbying power versus the
SDO. Managers have to continuously evaluate trade-offs
between collaborating and not collaborating.
Two key problems managers have to face are: the
choice of the typology of collaboration to form, and
the choice of the partners with which to co-operate.
The two case studies we analysed offer some evidence
of the motivations that could influence the choice
between one form or another of collaboration and of
the elements that should be taken into account when
choosing partners for a specific form of co-operation.
Such evidence is summarised in Table 8.
Concluding, the two case studies analysed offer
some evidence of the characteristics of the standardisa-
tion process and of the growing importance of super
partes organisations (SDOs) able to mediate among
different interests and technologies imposing a com-
mon standard on the market, but, of course, they do
not allow for wide generalisation. We think this work
may help to resolve managerial problems connected
with the standard-setting process, however further
research in this area is needed.
Acknowledgement
The authors desire to thank Ing. Giovanni Ricci for his
precious help in the development and in the analysis of
the case studies.
# Blackwell Publishers Ltd 2002
Standard-setting processes
Relevant factors in the choice of the partners
* Level of complementarity of the shared resources
(the higher the better);
* level of trust between partners (the higher the
better);
* market power of the coalition (the higher the
better).
* Market power of the coalition (the higher the
better);
* degree of compatibility of the sponsors’
technologies (the higher the better);
* rivalry among partners (the lower the better).
* Commitment of partners (the higher the better);
* compatibility of existing technologies (the higher
the better);
* distribution of the bargaining power among
partners (should be well distributed, but not so
balanced to lead to a stalemate).
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Notes
1. The paper is due to the joint work of the authors, however
Giovanni Toletti wrote Sections 2, 3, 4, and 5, Vittorio
Chiesa wrote Section 6 and Raffaella Manzini wrote
Section 1.
1. It is particularly true in the multimedia sector that is
characterised by a high turbulence and a long and difficult
standard-setting process.
2. Hence in the two cases we will assume the point of view
first of US Robotics=3Com and then of NCI=Liberate
Technologies.
3. Rockwell had to pay to US Robotics 3$ for each modem
sold. However, when a common standard for the market
arose, this penalty was commuted in paying a high, but
all-in figure.
4. However, a few exceptions, like the collaboration with
Texas Instruments, do exist.
# Blackwell Publishers Ltd 2002