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Strategic Maneuvering and Mass-Market Dynamics: The Triumph of VHS over Beta

  • Michael A. Cusumano (a1), Yiorgos Mylonadis (a2) and Richard S. Rosenbloom (a3)

Abstract

This article deals with the diffusion and standardization rivalry between two similar but incompatible formats for home videocassette recorders (VCRs): the Betamax, introduced in 1975 by the Sony Corporation, and the VHS (Video Home System), introduced in 1976 by the Victor Company of Japan (Japan Victor or JVC). Despite being first to the home market, the Beta format fell behind the VHS in market share during 1978 and declined thereafter. By the end of the 1980s, Sony and its partners had ceased producing Beta models. This study analyzes the history of this rivalry and examines its context—a mass consumer market with a dynamic standardization process subject to “bandwagon” effects that took years to unfold and that were largely shaped by the strategic maneuvering of the VHS producers.

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1 Dertouzos, Michael L., Lester, Richard K., and Solow, Robert M., Made in America: Regaining the Productivity Edge (Cambridge, Mass., 1989), 216–18.

2 Betamax is a trademark of the Sony Corporation. VHS is a trademark of the Victor Company of Japan (JVC).

3 In English see, for example, Lardner, James, Fast Forward: Hollywood, the Japanese, and the VCR Wars (New York, 1987); and Nayak, P. Ranganath and Ketteringham, John M., Breakthroughs! (New York, 1986); in Japanese see, for example, Shimbunsha, Nihon Keizai, ed., Gekitotsu: Soni tai Matsushita: bideo ni kakeru soryokusen [Crash! Sony versus Matsushita: the all–out war wagered on video] (Tokyo, 1978); and Hiroyuki, Itami, Nihon no VTR sangyo: naze sekai o seiha dekita no ka [Japan's VTR industry: why it was able to dominate the world] (Tokyo, 1989).

4 Lieberman, Marvin B. and Montgomery, David B., “First–Mover Advantages,” Strategic Management Journal 9 (1988): 4158; and Porter, Michael A., Competitive Advantage: Creating and Sustaining Superior Performance (New York, 1985), 186–89.

5 For discussions of these cases, see Rosenbloom, Richard S. and Freeze, Karen J., “Ampex Corporation and Video Innovation,” in Research on Technological Innovation, Management, and Policy, ed. Rosenbloom, R. S. (Greenwich, Conn., 1985), 2: 113–86; Fisher, Franklin M., McKie, James W., and Mancke, Richard B., IBM and the U.S. Data Processing Industry: An Economic History (New York, 1983); and Jacobson, Gary and Hilkirk, John, Xerox: American Samurai (New York, 1986).

6 This definition of “first movers” is used in Chandler, Alfred D. Jr, Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, Mass., 1990).

7 Rosenbloom, Richard S. and Cusumano, Michael A., “Technological Pioneering and Competitive Advantage: The Birth of the VCR Industry,” California Management Review 1, 4 (1987): 5176.

8 Teece, David J., “Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing, and Public Policy,” in The Competitive Challenge, ed. Teece, David J. (Cambridge, Mass., 1987), 185219.

9 Lieberman and Montgomery, “First–Mover Advantages”; Porter, Competitive Advantage; and Foster, Richard N., Innovation: The Attacker's Advantage (New York, 1986).

10 See, for example, Katz, M. L. and Shapiro, C., “Technology Adoption in the Presence of Network Externalities,” Journal of Political Economy 94 (1986): 822–41; Farrell, J. and Saloner, G., “Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation,” American Economics Review 76 (1986): 940–55; and W. Brian Arthur, “Positive Feedbacks in the Economy,” Scientific American, Feb. 1990, 92–99.

11 See Rosenbloom and Cusumano, “Technological Pioneering and Competitive Advantage,” and Rosenbloom and Freeze, “Ampex Corporation and Video Innovation.”

12 Useful discussions of the concept of a dominant design as well as “architectural” variations, which seem to describe VHS and Beta as refinements of the U–Matic, can be found in Clark, Kim B., “The Interaction of Design Hierarchies and Market Concepts in Technological Evolution,” Research Policy 14 (1985): 235–51; and Henderson, Rebecca M. and Clark, Kim B., “Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms,” Administrative Science Quarterly 35 (1990): 930.

13 Nihon Keizai Shimbunsha, ed., Gekitotsu; and Rosenbloom and Cusumano, ‘Technological Pioneering and Competitive Advantage.”

14 Nihon Keizai Shimbunsha, ed., Gekitotsu; Nomura Management School, “VTR Sangyo noto” [VTR industry note] (Tokyo, 1984); and Richard S. Rosenbloom interviews with Nobutoshi Kihara and Masaaki Morita, Senior Managing Directors, Sony Corporation, July 1980.

15 Rosenbloom and Freeze, “Ampex Corporation and Video Innovation.”

16 Katz and Shapiro, “Technology Adoption in the Presence of Network Externalities.”

17 Arthur, “Positive Feedbacks in the Economy.”

18 Nihon Keizai Shimbunsha, ed., Gekitotsu, 151–54.

19 Morita, Akio, Made in Japan (New York, 1986).

20 Lyons, Nick, The Sony Vision (New York, 1976).

21 Lardner, Fast Forward, 84; and TV Digest, 21 April 1975.

22 Nihon Keizai Shimbunsha, ed., Gekitotsu, 13–17.

23 Nayak and Ketteringham, Breakthroughs! 37–38.

24 Nihon Keizai Shimbunsha, ed., Gekitotsu, 33–34; Lardner, Fast Forward, 156.

25 Quoted in TV Digest, 16 Feb. 1976.

26 Yoichi Yokomizo, “VCR Industry and Sony” (MS Thesis, MIT, Sloan School of Management, 1986), 79–80.

27 Nihon Keizai Shimbunsha, ed., Gekitotsu, 59–72.

28 See Appendix A and Tables 5, 6, and 3; Nayak and Ketteringham, Breakthroughs! 42; Nomura Management School, “VTR Sangyo noto”; and “Innovations Spur Boom in VCR Sales,” The New York Times, 11 Dec. 1984, D1.

29 Nihon Keizai Shimbunsha, ed., Gekitotsu, 54.

30 JVC committed to supplying Hitachi on an OEM basis although this entailed that a large portion of its production capacity of about 2,000–3,000 units per month would be diverted to that end. This portion would have been significantly smaller for Sony, which, at the time, had a production capacity of more than 7,000 units per month. See Nomura Management School, “VTR Sangyo noto”; and TV Digest, 21 April 1975 and 13 Dec. 1976.

31 Nayak and Ketteringham, Breakthroughs! 46.

32 Michael A. Cusumano interview with Susumu Gozu, Manager, Domestic Sales Dept., Video Products Division, Victor Company of Japan, July 1989.

33 Kokichi Matsuno, message to employees in taking over as JVC President in 1975, and Shizuo Takano, JVC's Video Department manager, both quoted in Nayak and Ketteringham, Breakthroughs! 41. Susumu Gozu, in his interview with Cusumano, gave a similar account of JVC's approach.

34 Nayak and Ketteringham, Breakthroughs! 32–33; also, Gozu interview.

35 Lardner, Fast Forward, 148–49.

36 Cawson, Alan et al., Hostile Brothers: Competition and Closure in the European Electronics Industry (New York, 1990).

37 “VCRs: Coming on Strong,” Time, 24 Dec. 1984, 48; “Selecting the First VCR—Some Questions to Keep in Mind,” The New York Times, 18 Dec. 1983, H38; Tony Hoffman, “How to Buy a VCR,” Home Video, April 1981, 48–55.

38 Nihon Keizai Shimbunsha, ed., Gekitotsu; Yanagida Kunio, “VHS kaihatsu dokyumento” [Documentation of VHS development], Shukan gendo, May 1980; Richard S. Rosenbloom interviews with Nobutoshi Kihara and Masaaki Morita, Senior Managing Directors, Masaru Ibuka, Honorary Chairman, and Akio Morita, Chairman, Sony Corporation, July 1980.

39 Rosenbloom and Cusumano, “Technological Pioneering and Competitive Advantage”; Rosenbloom and Freeze, “Ampex Corporation and Video Innovation”; and Margaret Graham, B. W., RCA & the VideoDisc: The Business of Research (New York, 1986).

40 Nomura Management School, “VTR Sangyo noto,” 4.

41 Rosenbloom and Cusumano, “Technological Pioneering and Competitive Advantage”; Yanagida Kunio, “VHS kaihatsu dokyumento”; Michael A. Cusumano interview with Gozu of JVC as well as with Tak Matsumura, Assistant Director, Video Recorder Division, Matsushita Electric, July 1989.

42 Nihon Keizai Shimbunsha, ed., Gekitotsu, 21–24, 54; Lardner, Fast Forward, 159.

43 Yokomizo, “VCR Industry and Sony,” 39–40.

44 TV Digest, 4 April 1977.

45 Itami, Nihon no VTR sangyo.

46 Lardner, Fast Forward, 161–63; Nayak and Ketteringham, Breakthroughs! 47.

47 TV Digest, 11 July 1979.

48 Ibid., 29 Aug. 1977.

49 Ibid., 30 May, 27 June, 7 Nov. 1977.

50 Ibid., 4 April 1977.

51 Ibid., 29 Aug., 3, 31 Oct., 7 Nov. 1977.

52 Klopfenstein, Bruce C., “Forecasting the Market for Home Video Players: A Retrospective Analysis” (Ph.D. diss., Ohio State University, 1985).

53 TV Digest, 9 Sept., 16 Oct. 1978, 12 April 1979.

54 Klopfenstein, “Forecasting the Market for Home Video Players,” 141.

55 Richard S. Rosenbloom, personal interviews at RCA, 1982.

56 TV Digest, 6 Oct. 1980.

57 Ibid., 8 Dec. 1980.

58 The Wall Street Journal, 21 April 1986, 20D.

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