Two years ago, I previewed the battle of consumer electronic formats.  Sony and Toshiba offered competing systems for high definition video discs.  I offered a wager on Toshiba and lost the bet.  Last month, the company announced that it would cease production of HD-DVD players, leaving the field clear for Sony’s Blu-ray.

The war of the video cassette recorders is a classic of business history.  Philips was quickly eliminated but Sony and JVC slugged it out until the latter company’s VHS system emerged triumphant. The wars have continued.  The current DVD standard is the ostensible product of an agreement between Sony and Toshiba, but the reality of that agreement left Toshiba dominant.

Whenever compatibility standards are critical – as with hardware and software – one system is likely to dominate, because both consumers and producers see advantages in the market leading product.  Product quality is rarely decisive:  what matters is to be the first to secure wide use of your equipment.  Sony’s error with Betamax was to believe their success in appealing to a professional market would be precursor to similar success with consumers.  JVC’s correct judgment was that by open licensing they would quickly create a mass market.

First mover advantages are less common in business than many believe.  Even with compatibility standards, what matters is not being first, but launching at the right time.  The video cassette recorder was not new, nor was Matsushita (JVC’s parent) the first manufacturer.  But JVC was the company with the relevant technology, production capabilities and marketing skills in the mid 1970s when the consumer market was about to take off.  

These historic lessons – the importance of the installed base, the unpredictability of consumer markets – proved equally relevant in the latest battle. If the judgment were that of the technical press, Toshiba’s HD-DVD would have won.  You can today buy an excellent HD-DVD machine for £50, though now you will probably find yourself playing a small selection of 2007 discs over and over again.

Sony realised the significance of content years ago: the company’s acquisition of Columbia was one response to its Betamax failure. Toshiba also lined up studios in its support.  But Sony’s success wasn’t the result of its better connections, rather of having the right product at the crucial moment.

But not the one everyone expected.  While demand for video cassette recorders grew explosively during the format war, high definition video has been only modestly successful.  Perhaps this was a result of the format war itself.  Consumers have held back, waiting to see how the market would evolve.  Perhaps there isn’t really much demand for a high definition product.  The films remain expensive, and while they bring cinema quality pictures into the home, a new generation of players offers high fidelity from conventional discs.  Perhaps the battle over high definition formats misses the point altogether. Consumers tend to give overriding priority to convenience, not quality. The big news in mass home entertainment is the substitution of downloaded content for discs.

The companies are not very forthcoming about their sales of high definition DVD players, which tells us something, if not what we would like to know.  But the evidence that blu-ray discs have outsold Toshiba’s format is clear. Not because of better sales of stand alone players,  which have been weak for both contenders, but because Sony’s Playstation 3 video console incorporates blu-ray capabilities.  Most people who buy blu-ray discs play them on their games consoles.  

My error was to believe that the market would develop much more quickly than it did, and hence that Toshiba’s position, with rapid production of good, inexpensive equipment, gave it a chance of establishing an early, and unassailable, lead.   Yet I don’t feel very apologetic.  The history of consumer electronics shows that no one – certainly not the engineers, and not the marketing people or the consumers themselves – really knows what consumers will want.  The only way to find out is to put products into stores.  Everyone but chairman Akio Morita regarded the Sony Walkman as ridiculous, but it proved a runaway success.  The company hoped to regain the initiative in audio products with its mini-disc format.  Has anyone seen one recently?