July/August 2018

More articles in this issue:

• Pay Dirt
• LiDAR Lights the Way
• Cryptocurrency Is Impacting Traditional Sports/Esports
• iRobot’s Colin Angle
• There’s No Place like a Smart Home

Standardizing technology can be a strategic marketing move. Intellectual property has value, so it isn't immediately obvious how a business can improve its position by offering technology up for standardization rather than holding it close and licensing it. But there was a battle in the high-speed consumer modem market a while back that illustrates how this works.

Back in the days of telephone line modems, getting 2400 bits-per-second (bps) was the hot ticket. Humanity went from the invention of fire to the wheel, forged metal and pyramids, then right into those blazing fast 2400 bps links. For reference, we might write it in today’s terms as “0.0024 Mbps.” Take a moment to compare that to your home internet speed and be grateful. 

Of course, people wanted more speed. At that time, a company called Microcom had a popular line of modems with built-in data compression. Microcom’s proprietary “MNP5” technology could make your 2400 bps connection seem to be two, three, even four times as fast. At that time, 9600 bps was considered good, although if you wanted to watch Beaches in Quarter Video Graphics Array, it would have taken days to download it. Plenty of time to get the tissues.

Since  MNP5 was proprietary, there was a catch: You needed a Microcom device on both ends of the link. This was suitable for enterprise use cases, but not the mainstream consumer market – exploding with IBM PC AT clones and (for the wellheeled) Macintosh IIx computers in their homes. Consumers couldn’t control the modem at the other end of the line. 

So Microcom decided to make their technology available to license for a relatively modest fee, so that competitors could make compatible devices. They even assisted competitors with interoperability testing.

At the start, Microcom completely owned the tiny MNP5 modem market. But by making their technology available to competitors, they hoped to own a majority share of a much larger market. The idea was that the overall market would convert over to Microcom technology, giving Microcom a significant market advantage. This strategy often works, so it wasn’t a bad idea. 

But in the meantime, British Telecom and others were submitting competing technology to an international standards body. Their version (“ITU-T V.42bis”) had the advantages of a standard over Microcom’s proprietary option. 

Because the international standard was not controlled by a competitor, companies were more open to using it. There were also certain technical advantages, although when the “international standard” factor starts pulling a market to standards and away from proprietary technologies, small technical differences have less influence.

When the Dust Settled

British Telecom was one of the main intellectual property holders for the international standard. As far as the revenue picture goes, Microcom’s leverage in negotiating proprietary licensing deals should have been strong but they had two disadvantages. First, MNP5 was up against V.42bis in the marketplace, so clearly there was a limit to what a competitor would pay to license it when there was an industry standard available too. And ultimately, MNP5 had a relatively short life in the face of V.42bis competition.

Meanwhile, BT licensed their V.42bis patents for many years under “reasonable and non-discriminatory” terms as is required by industry standards processes. The V.42bis industry standard was enhanced and extended into new, well-supported versions for years. The industry standard and its contributors, including BT, won out.