I know what it is like to be on the losing side of a technology format war.
When I was young, my family owned a Betamax video recorder. The sales clerk persuaded my parents that this “technologically superior” Sony machine would outperform its VHS rivals. And the sales clerk was right: our VCR held up for many years. The problem was that all my friends had VHS players, which was a big deal because at the time, my family lived abroad where there were very few English-language TV channels, so kids at my American school would trade and watch videotapes of popular movies and TV shows. Since VHS and Betamax are incompatible, I could not participate. For this, I held a long grudge against my parents. (Concededly, as a result, I watched less TV and spent more time outdoors, so maybe this was all just a clever parenting scheme.)
We’ve since witnessed several other major battles over technology formats – Mac vs. PC, Nintendo vs. PlayStation, HD-DVD vs. Blu-Ray – but these pale in comparison to what is brewing in the Internet of Things (IoT).
The IoT industry is a bouillabaisse of competing open source and proprietary standards. There are competing wireless network standards, such as Thread, WeMo, ZigBee and Z-Wave. There are rival standards setting groups, like the Open Interconnect Consortium, the AllSeen Alliance and the Industrial Internet Consortium. And then there are different operating systems. Microsoft has announced that Windows 10 will support AllJoyn, the open-source standard developed by the AllSeen Alliance. Google is developing Brillo, an Android-based operating system for IoT. Apple has HomeKit, its home automation platform, which works with iOS.
The stakes are high because of the powerful economics of network effects. As an example, consider the telephone. A single telephone is not very useful – there is no one else to call. But once there is a critical mass of telephone owners, a tipping point is reached, and adoption becomes widespread.
The key to the network effect, says Professor Marshall Van Alstyne of Boston University’s School of Management (See http://www.technologyreview.com/news/527361/the-economics-of-the-internet-of-things/), is that each new user of a platform makes that platform more valuable. A self-perpetuating momentum ensues. Think of the major credit card companies (more cardholders attracts more merchants, which attracts even more cardholders), Uber (more riders attracts more drivers, which attracts even more riders) and Amazon (more buyers attracts more sellers, which attracts even more buyers).
The same is true in the Internet of Things. Like the telephone, the more connected devices on an IoT platform, the more valuable that platform becomes. The network effect permeates. More users attracts more developers, leading to more connected devices, attracting still more users. Increasingly, platforms, not individuals products, will drive consumer purchase decisions. Or as Van Alstyne puts it: platform beats product every time. It was well and good that my family’s Betamax recorder was “technologically superior”, but 10-year-old me would have swapped for a VHS player in a heartbeat!
Because of the network effect, those who influence or control IoT platforms will shape the industry for years to come. Thread, WeMo, ZigBee, Z-Wave, AllJoyn, Brillo and HomeKit – these are just the early salvos in the new technology format war, a war that will be fought in the months and years ahead.