i3 - July/August 2018 - 13

By Mike Bergman

Tech

PIPE LINE

Technical Standards, Revenue and Profit

Mohammed Haneefa Nizamudeen/Getty Images

tandardizing 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
C TA . t e c h / i 3

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.

JULY/AUGUST 2018

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i3 - July/August 2018

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