GYAN:: Building (To?) Standards

Over a pleasant open air evening at the Madinat Jumeirah I had the pleasure of spending some time with the founders of one of new ‘hot’ VoIP companies in the U.S. What started off as a pleasant enough evening ended up in a pretty animated discussion about the relevance of standards in the IT industry. It was one of the few intellectual discussions I’ve had for a long time and I thought I should crystallize some of my thoughts and put them here for global scrutiny.

Firstly, a small observation. Every few months you have the IT and Telecom industries erupt with a new standard. The names of these are usually a mixture of the alphabet soup and the exotic with examples like WAP, EDGE, Bluetooth, SOA, J2ME etc. As soon as these are announced you have a range of start-ups coming up with technology built around these standards and hoping to change the world for the better. Is this the way to go?

Well my take on this is an emphatic NO. I donot believe there are businesses to be built on products that are standards compliant with no additional intellectual property of the company’s own.

Firstly, some examples. They are from companies run by entrepreneurs who I admire and who have played the standards game multiple times.

1. Microsoft outlook – On the face of it, Microsoft outlook is an email reader. It’s supposed functionality when it started was simple – connect over POP and fetch email which conformed to the standard email specification. Since then and over the years with gaining market share MSFT has built market share and simultaneously its own proprietary wall against a business that was supposed to be totally standards driven – from the storage (PST) to additional features (HTML email, Calendaring, Tasks) to collaboration (invites). Today how many of us can be effective in business without access to outlook.
2. iTunes – Again on the face of it iTunes seems simple. An Mp3 player. Very similar to winamp or lets say Windows media. It would play mp3s that users had on their PCs. From that Apple has evolved it into a total digital entertainment superstore based on its own proprietary digital rights management platform in effect becoming the biggest distributor of entertainment content In the world. The standards are closed to the extent that other Mp3 players cannot connect or synchronize with iTunes. Apple has further sabotaged other manufacturers by leveraging its scale to get the best deals from memory manufacturers to the extent that no other player manufacturer can produce at apple’s cost. Very smart indeed.

My take. I think smart entrepreneurs realize two main things:-

1. To build a long term sustainable business its important for your product to become the standard and thus effectively giving you effective industry domination. Ok maybe not a standard for the industry but for the end consumer i.e. your product should have at least a 60-70% market share.
2. Industry standards are to be viewed with wariness and exploited. It’s a delicate game to play where you support the standard to gain market share while always building proprietary intellectual property that end customers are accustomed to. Over time users are spending more time on your proprietary standard and lesser and lesser on the so-called industry standard.

Finally, this brings me back to blogging after a long time. Look forward to your views.