Network effects, standardisation and competitive strategy: how companies influence the emergence of dominant designs

Marcus Ehrhardt

1/01/2005
(Original Publish Date: 2004)

Network effects and standardisation are central to business success for many of today's high-technology companies. The ability of a firm to establish its technology as a dominant design or so-called de-facto standard is a critical determinant of its long-term competitive position. Which strategy a company should choose in a de-facto standardisation process, e.g. introducing a new technology as a proprietary standard or as a more or less open standard, depends on a variety of situative factors. This paper seeks to analyse the effectiveness of different strategic actions in standardisation processes. Utilising economic theories on network effects, the paper develops a framework for analysing strategic behaviours of companies in de-facto standardisation processes with a special focus on openness strategies. Several case studies illustrate different aspects of the framework.