Tech on the Side: Lessons from HDDVD vs Blu-ray
Dec 18, 2013

Tech on the Side: Lessons from HDDVD vs Blu-ray

My first real foray into the world of following tech news came with the epic HDDVD vs Blu-ray fight. This was more than a little odd. At the time, I didn't even have an HDTV, and had no intention of getting a next gen optical media player let alone a DVD player. Even today, every movie I watch comes from the internet. So why was I so obsessively following every NPD numbers report and little twist and turn in the battle? What interested me about this battle was that the economics of the situation meant it was a zero sum battle to the death. One format would reach 100%, and the other would reach 0%. There was just such a massive loss in efficiency for both to exist that an eventual absolute winner was destined. This is very different from Apple vs Android where it is very unlikely either reaches 0% or 100%, but instead will both exist in the market for a long time to come.

I want to walk back down memory lane on the HDDVD vs Blu-ray fight, because I think it teaches some lessons about technology that are relevant today. In some subtle ways, Apple and Sony are similar and, in particular, I think there is some comparison between what went into that fight, and the development of the iPhone and iPad.

Apple and Sony: Similar but different.
In many ways Apple plays a similar role - although much more successful, these days - to Sony. Both companies have a storied history of introducing transformative technologies, but after these technologies start to mature they transition to being premium brands in established categories. They produce products that are (often only arguably) a little better than the competition, and charge premium prices for it. Of course, Sony's biggest technological innovations are further in the past where Apple has been hitting homers in the last half decade, but this might mean that Sony is useful case study for what may happen to Apple.

One of the biggest differences between Sony and Apple is that Sony produces an enormous number of products in a very large number of categories. It hits up every major consumer standard consumer electronic category (including the big gamble of phones), as well as having massive businesses in gaming, but also own the world's largest music production business and the world's largest movie production business. They are an enormous sprawling company, with their fingers in many jars, often struggling to perform financially. Apple, in contrast, only makes a rather small number of devices, and is enormously profitable at doing it.

The HDDVD vs Blu-ray battle:
One of the key ways that Sony won the HDDVD vs Blu-ray was to put to use their entire disparate company to use in the battle. Right out the gate, owning the movie studio allowed them to guarantee a large availability of exclusive Blu-ray titles. Their music studio also contributed to various Blu-ray titles (live concerts and the like). Sony laptops started shipping with Blu-ray players. Sony HDTVs started being bundled with Sony Blu-ray players. And the biggest of them all: the PS3 was not just a Blu-ray player, but arguably the best Blu-ray player for quite some time, and it was a trojan horse into the living rooms of millions. This was a perfect synergy in different technologies to win a single battle, and no other company could possibly match this level of support except for Sony. It wasn't the only reason they won in the end, but it was an important chunk of momentum that pushed Blu-ray into the winning camp.

Apple's model:
What about Apple? They sell laptops, phones, and tablets. At first glance there might not be the breadth to accomplish a similar feat of synergy where these very different types of businesses all worked together to help out Blu-ray. However, I think the similarity is actually quite close, we are just looking at it from too far away. Namely, the synergy is all the components that went into the creation of the iPhone and the iPad. Instead of a broad range of businesses working together, it is a broad range of components going into a single product.

Firstly, one of the things that makes Apple unique is that it does both hardware and software. Most companies do one or the other, they are either a software company like Microsoft or Google, or they are a hardware company like Sony, Samsung, etc. Or at least, this is how it used to be. With the acquisitions of Nokia and Motorolla by Microsoft and Google, and with Samsung investing tonnes into software, a lot of the companies are moving more into the dual model as per Apple, but the division was quite distinct at the time of the iPhone launch with Apple one of the few that straddled both sides. Breaking into these categories further, Apple is quite broadly skilled on both the hardware and software side. Take chip design, for instance. Most Android phones buy off the shelf processors, which is fine, because most don't have the economies of scale to justify the investment for the marginal increases. Apple however is able to do some crazy things with battery life precisely because of careful control over these particular hardware side of things combined with complete control over the OS. They were able to pull together their broad range of skills all working together to make these few different devices.

It is a general rule of thumb that in an established market, different components of a product can be commoditized off. Googles makes the OS, Qualcomm makes the chips, Sharp makes the screens, etc. When you are first to a market, however, you have to do it all yourself. It is easily forgotten now, but one of the hardest things for Apple on the original iPhone was simply making a multitouch display. They had to design a lot of the hardware themselves, find ways to manufacture them when there were no off-the-shelf components, do the OS themselves, and put it all together. As in, it takes precisely a company with a wide range of abilities to be able to integrate them all together to create something like the iPhone.

The point of all this is that both Sony and Apple were able to use the fact that they were both companies with a wide range of skills and abilities, and to bring all of those together to do something that most other companies can't. This is dependent on the product; having a movie studio wouldn't have helped Apple with the iPhone, and being able to make operating systems wouldn't have helped Blu-ray. But at certain points in the history of technology, large combinations of different skills come together to do something significant. That is what both Sony and Apple did.

What does this say for the future? Good things, I think. As I mentioned above, the trend recently has been to follow Apple in building out both the hardware and software capabilities. Google is going crazy buying eight robotics companies, as if buying Motorolla wasn't enough. This is a company that is moving so fast in so many categories that they already do and will continue to grow a very wide skill set. Potentially it will be the right combinations that lets them develop the "next big thing". Or perhaps it is another company. However, I think it is more likely a company that diversifies like this, than one that keeps a narrow focus.

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