Which Is More Important For Innovation: A Standard Platform Or Competition?

from the or-a-little-of-both? dept

There’s an interesting debate going on in the video game world over the question of whether or not the video game market would be better off if there were a standard console platform, rather than separate walled gardens (Xbox, Playstation, Nintendo). What the discussion is really about is what is more important for innovation: having a standard platform that everyone agrees on or having competition between platforms — and that debate extends well beyond the video game world. It also isn’t a question that has an easy answer — and, indeed, we’re clearly on the record advocating for more competition in some markets and standardization in others. So I thought it might be interesting to explore the arguments for each, and a basic framework for understanding what’s likely to make more sense in what situation.

The argument for standardization: A drawn out standards battle between different systems can often seriously harm a market. First off, it makes it that much more difficult to attract developers to build on your platform, because you have to convince them that it’s better than the alternatives. Standards battles can also scare off customers who are (reasonably) worried about buying into a standard that later loses and being stuck with mostly useless hardware. Having a standard clearly makes sense when the lack of a standard forces a serious delay in development and adoption. However, if a fragmented market can stand on its own, standardization doesn’t necessarily make as much sense. Generally, standardization only really makes sense when you have cases of natural monopolies, where the cost of duplicated efforts is quite high, such that it becomes quite wasteful and disruptive to allow that duplicated effort to occur. It’s worth noting there are some who believe there’s really no such thing as a natural monopoly, but cases such as railways, highways and laying fiber seem pretty convincing. It’s also worth pointing out that the process of agreeing to a single standard is often extremely acrimonious — as it becomes a “winner take all” market, and no one wants to be on the losing side. That means some standards battles get dragged out for years, harming everyone in the process.

The argument for competition: Most of you (hopefully) know this one already. You don’t have to be Adam Smith to recognize that competition tends to drive innovation, as firms compete to out-innovate each other and provide a better and better product that the market is willing to purchase. Competition is a key driver in innovation and economic growth. Preventing competition has been known to stifle growth. It’s worth noting, of course, that a fight for “standardization” isn’t “anti-competitive.” It’s just a question of shifting the competition from being between platforms to being on top of a single platform. For example, it’s good to have competition in who can sell you lamps, but it wouldn’t be good to have competition among different types of electric systems with different outlets. So, we standardize on a single electric system, and it allows all the competition on electric devices on top of it.

So how do the two square up? It helps to separate the market into different factors. First off, standards clearly only make sense when we’re talking about some kind of platform on which other applications/business/services are going to be built. Second, there’s the natural monopoly question: how big a disruption does it cause if there are multiple competitors and one fails? If we had competing highway systems and one had to shut down, leaving rotting highways everywhere, that’s a problem. The third factor is where the biggest economic contribution comes from: the platform or the applications on top of the platform. If it’s the platform, then competition makes sense. If it’s really the applications on top of the platform then it’s going to make sense for there to be a standard to let the competition occur on top of the standardized platform. Finally, it’s worth looking at the difficulty for those building the apps/businesses/services on top of platforms to port from and between competing standards. If it’s relatively easy to port from one to another, then there’s less of a reason to push for a single platform.

The video game market really comes down in the middle on some of these factors. However, in the end, I see little support for the idea of looking for a standardized platform. The disruption isn’t that great to their being multiple platforms out there (not much of a natural monopoly). The economic impact point may be up for debate, but so far, the two are more intertwined than most people realize, with many consoles sold at a loss with the hope of making it up in selling high margin games. That makes it difficult to determine how much money really goes towards software and how much is effectively paying for hardware. The final issue may be the most damning: while porting videogames does take time and effort, and isn’t always easy, the cost is relatively low compared to, say, the idea of ripping out your entire electric wiring and replacing it with a new standard.

In the end, competition is definitely a key component in driving innovation, but it’s important to question where that competition should be occurring, and where it’s mutually beneficial to have a standard. It’s reasonable that video game developers would favor a single platform to develop on, as it focuses their attention and efforts — but that doesn’t mean it’s necessarily best for the overall industry.

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Comments on “Which Is More Important For Innovation: A Standard Platform Or Competition?”

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Eh, nonny moose says:


There have been previous attempts at console standardization, such as the Japanese MSX and the 3DO, but there is (arguably) one continuing gaming platform that is standardized: The PC

Regardless of the pros and cons, you wrote:
with many consoles sold at a loss with the hope of making it up in selling high margin games. That makes it difficult to determine how much money really goes towards software and how much is effectively paying for hardware

Would it be possible to work out a rough guess by the price difference between the PC and console versions? (It’s usually between $10 to $30 per game in the UK)

Gunnar says:

Re: Standardization

You could also argue that the consoles are standardized and the PC isn’t. The 360 is the standard for Internet play. The Wii is a fun box. The PS3 is… less defined.

Anyway, any PS3 is going to play a ps3 game, but I had to buy a new video card when Oblivion came out and a new computer to play Crysis or use Adobe CS2/3. And I could be playing many games through an emulator on a different OS. Or I could play a psX game on my PC via a different emulator.

Also, I don’t think we have that price difference in the U.S., or at most $10 for PS3 and 360 titles.

hegemon says:

Re: Standardization

Actually, no. While the PC may have a dominant operating system, it is not “standardized” at all when it comes to gaming. There are virtually endless hardware configurations, and software developers must design games so that they can be played on 5-year-old systems as well as cutting edge gaming machines in order to guarantee a large market. With the original Xbox, we can see just how far a 700MHz Celeron and a GeForce2 can be pushed. Given the hardware, many original Xbox games produce spectacular graphics that are significantly better than the graphics that existed for a PC when the same hardware configuration was cutting-edge. This is the result of a standardized hardware platform.

In response to the article, I see no reason why we cannot have multiple standards. The market will automatically trim it down to 2 or 3 dominant systems, which seems perfectly manageable to me. The system builders have an incentive to design consoles for which ports and development are easy, as that will add to the quantity and quality of third-party titles.

Duodave (user link) says:

Re: Standardization

No, the PC isn’t standard at all. I like XBox games because the graphics are amazing but to get the same quality on my PC I need a $400 video card. However, game publishers have to support older, crappier video cards too, which undoubtedly increases the cost of publication. And who knows what might be running concurrently with the game, or what OS is loaded.

But on my XBox, they are essentially publishing a game for one platform, and 99% of the time runs perfectly.

Verse says:


Regardless of which you prefer, how could this happen, there are too many platforms that would have to agree to come together, how you incorporate the different types of game consoles such as the Wii and the PsP? Also what happens to computer based MMO’s? Not to mention you have to convince the console giants to bind together

Just a thought.

Paul (user link) says:

Competition Wins in this Market

Its a love/hate relationship with platforms due to usually not being able to always purchase all the competing platforms, but people still look for innovation within the platform itself. If you had a standardized platform, would we see the likes of the Wii? Would we have Xbox Live? Would we have the powerhouse available in the PS3 (granted, if there was a standard, maybe we would have games actually available on the powerhouse available in the PS3)? Beyond that, would the costs be where they are now? Doubtful. With no competition on that field, the only thing to lower prices is waiting for the prices to naturally come down due to advancements in its production.

Honestly, I think its a no-brainer for there to be competition in the console field. Up until the PS2 & Xbox at least, there was even niche games that were normally available on each system (xbox tended to focus on FPS, whereas PS2 focused on RPGs), whether or not those systems were more suited for those types of games, they just all happened to congregate with their on individual systems.

The most blatant and current example of how competition between platforms though is the Wii.

mat says:

standards can be good but...the other downside

the thing is, I’m all for standards in many cases. I even work for a standards and testing company. But standards are not very volatile, and the bigger the community that creates a standard the slower changes come to the standard.

Video games consoles do follow some standards, say for the electricity, but they also choose their methods of competition. I don’t know honestly if one can say that it’d be logical for them all to use the same developer platform.

comboman says:

Cost of porting

The final issue may be the most damning: while porting videogames does take time and effort, and isn’t always easy, the cost is relatively low compared to, say, the idea of ripping out your entire electric wiring and replacing it with a new standard.

However, the cost of porting videogames is much higher than the cost of “porting” movies from HD-DVD to Bluray (or viseversa) and yet no one wants to support two standards in that retail space.

comboman says:

Standards for electricity

Ironically, your example of a useful standard (electrical distribution) was a result of the winner of the first big standards battle. Edison and his company supported DC distribution whereas Telsa and Westinghouse supported AC. Despite the fact that AC was technically superior (and eventually won); Edison had deep pockets and political friends and managed to drag the competition out for years.

Steve R. (profile) says:

False Choice

Competition and unified standards can work in harmony. They are not mutually exclusive. I will also acknowledge that a standard can become obsolete and needs to be tossed. Even though a standard may become obsolete, competitors developing the next generation of technology can still work together to develop a new unified standard.

The HD-DVD versus the Blue Ray DVD format war, I believe, represents the downside of “competition” as the solution for implementing the next level of technology. True, the consumer is being given a “choice”, but the consumer has been slow to adopt the technology, and bickering amongst the developers of the technologies concerning DRM schemes has delayed the introduction of the new technology into the marketplace.

Finally, what about the loser in a format war? All the equipment becomes junk. This can a significant cost to both the individual and society.

A unified standard, can offer improved competition since it would allow many manufacturers to produce products based on the unified standard and will probably encourage incremental innovation.

Anonymous Coward says:

Good article Mike. I agree that the creation (or the waiting period) of standards really do put a drag on innovation. Look at electronic medical records. No one wanted to do anything for the longest time because they didn’t want to go to the wrong format or platform. Hell, even electronic signature requirements were held up because no one knew what the standards (or laws) would be.

That being said, I think that once the standards are set, then innovation leaps forward, as everyone works and develops based on those standards. Then I think innovation slows down as you have to stick with the standards. Then I think you go back into someone looking for new standards. Kind of like watching someone learning to drive a stick shift.

Trevlac says:

If we standardize console gaming I’ll just have to kill everybody and be done with it. The Nintendo Wii, XBOX 360, and PS3 have provided the largest competition in years for the videogame industry. The reason is the stark contrast between all three, not because they were standardized. Maybe one generation before when we had Xbox/Gamecube/PS2 the lines were blurrier. But now we have the Wii with interactive technology we’ve never seen before in console gaming as well as the ability to play our favorite childhood titles from yesteryear. We have the Xbox 360 with absurdly rich graphical detail and a notable library of games all of which have a nice online play. And we have the PS3 (which seems to try to compete with its predecessor the PS2 more than the other consoles) with a slim library but much larger media capabilities such as Blu-Ray disc playing and being a media station.

Each one is totally unique and serves its own purpose. Even the new handhelds, the DS and PSP are completely different. I admit I purchased both just so I could get the full experience. If we standardize now then what we’re doing is stifling all this wonderful new innovation that has come about in recent years.

DA says:

...but even more

Mike Masnick comes out on the right side but not FAR enough on the right side. With standardization in the console space, we would miss the next XBOX Live or Wiimote. Competition = Innovation, even in the platform space.

I think the same could be said just about anywhere in the tech industry–if we all standardized on, say, Symbian, there would be no iPhone, etc. etc.

Aaron Martin-Colby (profile) says:


I don’t think the argument applies to video game systems. The systems themselves are incredibly complex, ever-evolving objects in their own right. Fiber optic systems and roadways are, fundamentally, much simpler. The inherent limitations of the video game platform also makes it impossible (if the system is not modded) to actually build other businesses off it.

The system isn’t really a platform. It exists in a symbiotic relationship with the accessories and games. It is a product based on the standards of connectivity like digital audio and RCA inputs. Since it’s not really a platform, and the limits of the games are based on the system, competition among systems equals competition in games.

Anonymous Coward says:

You know, I always thought that one of the big compelling ideas behind COMPUTERS is that you gain the possibility of of taking a (software) product across platforms (via emulators or other means).

Of course, the whole point of DRM is to prevent this from happening.

So, get rid of DRM and stop worrying about standard platforms? Just let 3rd party ports and emulators work it out?

Steven Bell (profile) says:

You missed something

In choosing platform vs competition you have to look at the added value to the consumer. Lets look at the examples. In the HD-DVD vs Blue-Ray battle we have very little to differentiate the two in the eyes of the general consumer (despite the efforts of both camps to highlight their great features). With consoles their are some real differentiating features between the consoles. The X-Box 360 and PS3 are pushing high end graphics and online play, while the Wii presents a new and novel interface and puts more focus on family style games.

This may also be an indication of the room in the market for new and innovative ideas to add value to the product over a platform. In the realm of movies the primary driver is the actual movie, all the add on features of DVD’s/HD-DVD’s/Blue-Ray’s seem to have little demand in the market.

It seems to me that the decision is where there is little demand added features from the market a standard is more beneficial. Where products still have room to push new, incompatible, features, the market is demanding a departure from standards or no standard.

KEvin says:

life should imitate art.

Would artists be better off if we standardized all art to one medium? I think that question parallels the initial question for this posting. I think that a standard hardward platform stifles competition for evolving hardware standards. And stifling that evolution could only have bad consequences for software(games) developers seeking to exploit that software. If the gaming experience is going to evolve then the hardware running those games has to evolve too. The only way for that to happen on a scale that can meets the demands of games like crysis is for open competition from many sources.

Alimas says:

Too Extreme

I think your question of competition vs. standardization implies too much of a necessity for one extreme or the other.
I think our system of competition currently makes the best possible of use of the option of standardizing.
That is, the market generates different forms of technologies that end in the same goal (Beta vs. VHS and Blu-Ray vs. HD-DVD) for example. The only ones that can choose the winner and thus are the winners regardless are the consumers.
Like any struggle of any nature some energy/resources are lost, but the loss of the losers shouldn’t be a concern for the winners (consumers).
Unless some of them were dumb enough to have spent large quantities of money on either side before the fight was over. (like buying a BETA player) Gambling large quantities of your resources is stupid.
I would point to PCs as an excellent example of how the relationship between standardization and competition works out for the best.

Alimas says:

I Meant To Add...

Typically, its just the fight over the base medium for the grounds for further innovative competition. For example, as Blu-Ray succeeds, we’ll start seeing all the companies produce all sorts of blu-ray products (blu-ray DVRs, blue-ray camcorders, etc, etc) and once that mediums been sold in every possible way they’ll fight over another one, and it’ll get sold in every possible manner, etc, etc..
For the companies its not about innovation – its about sales.
And reguardless of whether Beta was better than VHS or not – they were still both better than anything prior.
The consumers win.
I think there shouldn’t be a press either way, the market should be allowed to work it out as they do. They will fight to innovate to get more sales and sometimes they’ll have to make agreement in order to allow for any of them to stay above water at all.

Joe Strummer says:

Creative destruction

Not so much Adam Smith as Joseph Schumpeter.

And the two concepts are not necessarily mutually exclusive. Some standards can boost consumer adoption and grow the market (usually supplanting the prior generation of goods), but competitors are not required to adhere to these standards and probably won’t in the long run (i.e., as soon as they have something way cooler).

Blaise Alleyne (profile) says:

What about freeing up the software/games?

I think there’s another option that allows for competition, but still addresses the issue of “openness” that standards address.

If video game consoles were made to be more open and freed up (e.g. no DRM on the games) that would allow for more portability/flexibility while still allowing for more competition (companies could still design their own consoles).

For example, my brother plays Rock Band a lot. When he downloads songs for Rock Band, he can’t transfer them to his computer or digital audio player. I understand there are a lot of legal concerns and such, but opening up that sort of thing ought to add a competitive edge for companies while locking consumers in less.

I mean, I’m not articulating this very well here… but if you look at the GNU/Linux word, companies like Novell, Canonical and Red Hat all offer free as in freedom software, but they still compete intensely.

In other words, competition does not require things to be proprietary, non-free or locked down with DRM.

Just a thought…

Lawrence D'Oliveiro says:

Standards vs Competition 1

I don’t think you can easy generalize. Certainly standard technology becomes commodity technology. For instance, IPv4 (the set of network protocols on which the entire Internet is based) won out over the ISO-OSI stack partly because of politics, partly because of technical reasons. Nowadays IPv4 support is a commodity–just about everything has it built-in. Its pervasiveness helped popularize the Internet.

But now, the limitations of IPv4 are holding us back–its limited address space is going to run out sooner or later. We should all move to IPv6, but the trouble is the very pervasiveness of IPv4 is weakening the incentive to change.

Lawrence D'Oliveiro says:

Standards vs Competition 2

Another example is operating systems. For over two decades, Microsoft’s MS-DOS and its successor, Windows, became so pervasive that they were the de facto standard computing platform, at least on the desktop.

However, because they were proprietary software, their owner could never quite allow them to become a commodity, as should be inevitable for any standard technology, because that would hurt its profit margins. So now we have Free Software operating systems based on Linux, that really are a commodity. And they are starting to eat away at Windows’ market share.

Lawrence D'Oliveiro says:

Standards vs Competition 3

The game consoles are an interesting one. As you point out, the actual consoles are sold at a loss, while all the profit comes from the games. In order for this to work, the platforms need to be tightly controlled, so that no-one can develop titles for them without the platform owner getting a percentage. Otherwise the business model collapses.

In this case, Sony and Microsoft took development in one direction–towards more powerful and complex technology–while Nintendo went in a completely different direction. Lacking the capital resources to produce a highly advanced console, they concentrated instead on gameplay. Which after all is the point of games. As a result, they have managed to completely outmaneouvre the other platforms and take the market lead.

I think, by the very nature of the tightly-controlled business model, these console platforms, as they are currently conceived, can never become standardized. Because to become a standard is to become a commodity, and their owners cannot allow that to happen.

Twinrova says:

Gaming is TOO competitive, leaving losers all arou

I’ve been a gamer since the Atari 2600 days and if anyone here thinks competition is a good thing when it comes to gaming, you need to wake up and really take a look around.

The PS2 is the best selling console of all time. It has surpassed what no other console could do. Was this due to its “powerhouse graphics”? No. It was due to the fact Sony changed the rules on how developers coded for its system.

Thus, its library exploded overnight, giving gamers what they wanted. If anyone remembers the NES, it was introduced in the same manner, especially since there was no competition.

The PS3 has proven beyond any scope that new technology doesn’t make a console. It never, ever has. It’s about the games. The Nintendo Wii, selling for hundreds less than its competitors, has simply slapped the competition into a “WTF” moment, forcing them to slash console prices to keep up.

Since the Atari 2600 days, the only thing consoles provide today are stellar graphics. I don’t doubt that more memory gives these games additional features, such as inventories, etc., but the actual core of the game itself has not changed.

Nintendo owners will never, ever get the chance to play Halo on their systems. For obvious reasons, but this “competition” leaves the consumers hurt, not the industry. They’re the ones who have to shell out the extra hundreds to buy a console to play exclusive games. They’re the ones who have to determine how in the hell 3 separate consoles, along with DVD, DVR, and other devices, will hook up to their TVs which rarely house enough input.

In time, only one console is favored by these gamers. Polls have indicated that those who one more than one console, one generally gets more play time than the other. In this day of the “Wii60”, more than 70% of Wii owners rarely turn the console on.

I believe that one console is not only necessary, but will open competition in ways that gaming’s never seen before. Developers will take a “least common denominator” approach to developing games, seeking the weaker console when developing. It is only when we get console exclusives that we really see what these machines can do.

If the console was designed with the notion it can be easily upgraded, then I see no reason why the industry shouldn’t get together and make one. In addition, by allowing companies to focus on software, this is a win-win situation for everyone. Console makers do NOT make tons of money, even on the notion of software sales. Microsoft probably hasn’t even returned an investment of its hardware, even with the record-breaking sales of Halo 3.

But with Guitar Hero, a cross-platform game, the revenue generated by this SINGLE developer has helped spur console sales, especially since it just surpassed the $1 BILLION mark, a first for the gaming industry.

Heck, we live in a world where HD DVDs are at a “format war” , forcing consumers to choose one. With the victor, the other fails into history.

Yes, it is most definitely time for a single console and let the software duke it out for the revenue.

Because a console can be the best, most powerful thing a consumer can buy but it’s absolutely useless without games.

Isn’t that right, Sony?

It’s the consumer who gets hurt trying to decide which console to buy: $250, $599, or $499 (launch prices).

Only dedicated gamers buy all 3, and those consumers barely make up 20% of the market. Of the record-breaking sales generated in 2007, most of these sales were recorded based on games sold on ONE specific console…

… The PS2.

Duodave (user link) says:

Effort toward this...

I’d like to point out that Nintendo’s Wii has a virtual console emulator built in. In addition to Wii and GameCube titles, the Virtual Console adds seven gaming systems to the Wii, including consoles by Nintendo, Sega Genesis, Turbo Grafix, the Neo Geo and MSX (Japan only).

Sony, however, seems to be going backwards. They are removing their PS2 hardware support in the PS3 in favor of a software emulator, which will not provide 100% emulation for all PS2 games.

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