Frankly Speaking: Pick a winner

[ Frankly Speaking for February 25, 2008 ]

Well, that was quick. Last week, consumer electronics giant Toshiba announced it was pulling the plug on its high-definition video disc format, HD DVD. Within days, Toshiba's partners announced that they were now Blu-ray shops, and HD DVD players and movies were reduced to fire-sale prices.

In corporate IT, at least vendors pretend they'll support loyal customers for a while.

Not so in the murderously competitive consumer market. Blu-ray backers Sony and Pioneer and HD DVD supporters Toshiba and Microsoft paid movie studios to choose their formats and used promotions and discounts to keep products moving through retailers. But just weeks after one studio walked away from HD DVD, whole product lines from multiple vendors were gone.

Whew!

Of course, we in IT pick technologies all the time. We have some good rules of thumb for choosing winners. We'd never have been fooled by a loser like HD DVD, right?

Well ... maybe. But consider:

HD DVD was first to market. Blu-ray was developed first, and Sony showed prototypes in 2000. But Toshiba got its first products out in April 2006, whereas the first Blu-ray discs weren't available until June.

HD DVD players and movies outsold Blu-ray right out of the gate. In fact, HD DVD sold more discs than Blu-ray every month for the first six months the two formats were both available.

HD DVDs were more compatible with regular DVDs. They used the same file systems as regular DVDs and could be produced by manufacturers with the same equipment used to make regular DVDs. Blu-ray discs didn't and couldn't.

HD DVD players were cheaper — at the low end, less than half the price of Blu-ray players. Discs cost about the same for both formats.

HD DVD was backed by Microsoft, which offered an HD DVD drive as an option for its Xbox 360 game console.

Blu-ray looked like Betamax all over again. In the videotape format wars of the 1970s, the cheaper VHS format stomped all over Sony's technically superior Betamax. And past failure is a good indicator of future catastrophe, isn't it?

Not this time. Somehow, all those rules of thumb didn't point to a winner.

What made the difference for Blu-ray? Two words: installed base. Sony built a Blu-ray player into every PlayStation 3 it sold, starting in November 2006.

Sony shipped three times as many Blu-ray-equipped consoles as Microsoft shipped HD DVD drives. For Blu-ray, the game machine was its killer application.

In December 2006, Blu-ray movies outsold HD DVD for the first time. HD DVD was never ahead again. Despite big financial incentives (HD DVD backers reportedly paid $150 million to convince Paramount and DreamWorks to go HD DVD-only), movie studios and retailers began shifting to Blu-ray.

And when Warner Home Video made a surprise announcement at this year's Consumer Electronics Show that it was going exclusively Blu-ray, Toshiba canceled its HD DVD press conference at the show. Within weeks, it was all over for HD DVD.

Would you have seen that coming? If you just counted up the rules of thumb on each side, HD DVD should have won hands down.

So next time you pull out your rules of thumb to evaluate technology, remember: First-to-market is good. So are strong early sales, legacy compatibility, lower price and a big wet kiss from Microsoft.

But a killer app with a bigger installed base? That's what Blu them all away.