The Logic of Lock-In

HD DVD and Blu-ray are set to battle for your bucks. It won’t be pretty.

Just like out-of-touch dictators who don’t realize a people’s revolution is afoot, consumer-electronics companies continue to believe in the logic of lock-in. While buyers rally around openness and choice, most technology purveyors prefer to shackle them with limited options, incompatible standards, and the ever-looming threat of obsolescence.


So goes the jousting over high-definition DVDs. At the Consumer Electronics Show in Las Vegas, Dell Computer’s Michael Dell plugged the new Blu-ray format; a few blocks away, Access Hollywood cohost Nancy O’Dell gushed that she couldn’t wait to buy friends HD DVD players, another technology that produces virtually the same images.

Thirty years after Betamax battled VHS, why are tech companies still promoting two incompatible and essentially indistinguishable standards side by side? Consumers, whether they realize it or not, are the targets of lock-in with many new products: Buy music from Apple’s iTunes Music Store, and it won’t play on any device other than an iPod; buy a satellite radio from XM, and you won’t be able to hear Howard Stern; get a new HD DVD player as a gift from O’Dell, and you won’t be watching any movies from Disney or Pixar, which plan to support only the Blu-ray format. While the pricing may be different–or there may be a few distinctive features–the offerings are fundamentally the same. The only real difference is which company you’re handcuffed to.

Companies pursue lock-in because they think they can prevail–not because they plan to surrender. In Las Vegas, Yoshihide Fujii, chairman of the HD DVD promotion group, boasted, “HD DVD may be the only fighter in the ring for some time.” (HD DVD players from Toshiba began appearing in stores in March–months before the first Blu-ray players–at half the price.) “A game-theory analysis would tell you that [standards fights] aren’t pointless,” says Ted Schadler, an analyst at Forrester Research. “Someone has got to win.”

Allowing several standards to duke it out in the free market seems like the American way. But there are drawbacks for companies–even those that win–and their customers. “You can cripple market development,” confusing consumers and causing them to delay purchase, says Roger Kay, founder of the analyst firm Endpoint Technologies Associates. One reason that the original DVDs penetrated 50% of U.S. households in just five years–faster than any previous technology–was the existence of a single standard: Its supporters could communicate the same message about DVDs’ superiority to videotapes.

Working with a single standard gets competitive juices flowing in a much more productive way. Companies can focus on marketing and pricing strategy, adding useful features, good interface design, and securing the best distribution channels. Instead, when spats like Blu-ray versus HD DVD happen, rivals spend a lot of energy trying to woo partners who’ll join their side (not to mention overpaying for content deals). Meantime, if HD DVD prevails, consumers who commit to Blu-ray may soon discover that they can’t get any new discs for their players–or vice versa. They might also end up paying more down the line for hardware that supports both formats (unless online distribution makes the question moot).

After one of two competing parties in Vegas, Warren Lieberfarb, the former Warner Bros. executive known universally as the “father of the DVD,” seemed to feel as if the whole squabble was rather pointless. “The [movie] studios should’ve banded together,” he said. “They made a mistake by allowing two formats to move forward.” But even Lieberfarb had chosen sides, signing on as a consultant for Microsoft, which is part of the HD DVD alliance. Let the needless battle begin.