Death Knell for HD-DVD?

WalMart's decision to stop selling Toshiba's HD-DVD format may well be the sounding of the death knell for the technology.

This just goes on to show that there is so much more to making a business success of a technology than the technology itself. When one buys a product, one buys more than just that - one buys the whole constellation of capabilities and services that surround the product. One buys intangibles like service support, available accessories, and reliability. One buys expansion capabilities and potential for future development. And often one buys a product that is recognizable by all.

Network effects (the phenomenon whereby a product or a service becomes more valuable the more people use it - think of mobile phone services and same-network call rates, which encourages friends and associates to stay on the same network) are also often vastly more important than the product itself. Just look at one of the most hotly contested battles in recent times - that of Microsoft Vs Apple. It isn't that Microsoft's products are superior to Apple's. If anything, it is the other way round. Yet Apple has never succeeded in threatening Microsoft to any significant extent.

Sony had learned this the hard way when its Betamax video players lost out to VHS in the late Seventies and early Eighties. Sony missed a trick by sharing some details of the format with Matsushita (Panasonic) and JVC, expecting all other players to accept Betamax as the industry standard 'for the good of all'. However Matsushita and JVC had plans of their own and developed the VHS format (some say with some help from their newly gained knowledge of the Betamax format). This started the format wars.

Though Betamax was arguably the better format (from a purely technological viewpoint), there were other reasons for its demise. The recording duration on Betamax was only 60 minutes, while VHS could record up to 3 hrs on one tape. This meant that initially Betamax could not be used to record movies. Two, Betamax lost out on the rental market - even after recording duration was enhanced, a much larger number of movies were available on VHS than on Betamax. By the time Betamax became aggressive on this front, it was too late to recover. So, VHS offered a greater and cheaper range of hardware, the tapes were cheaper and more easily available, and there were a much larger number of movies to rent. How much of this true and how much urban legend is actually irrelevant.What matters is that what probably killed Betamax were network and external effects.

Now, the situation with Blu-Ray and HD-DVD is not very dissimilar. Blu-Ray has recently gone on to become the preferred format of most major Hollywood studios. And with the largest DVD seller in the world - WalMart - also opting out of HD-DVD, it won't be long before Toshiba and the HD-DVD format concede defeat.



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