Technological lockout

Technology markets tend to be extremely path dependent and such path dependency implies a significant exposure to random events that might lead both, to the success or the failure of a given technology. Nevertheless, there might be a set of factors and firm strategies that could be outlined and that can influence the adoption of a certain technology.
There’s a natural trend in technology markets in adopting a standard or a dominant design (e.g. a product configuration or certain platform architecture). However, the adoption of a dominant design increases the risk of a technological lockout if there’s a change in the market to a different standard or a different technology solution. Good examples of such changes could be observed in the battles between VHS and Beta standards, or the Blue-ray and HD DVD standards. In both cases the companies whose standards were rejected were still able to rejoin the market, but in some cases firms might end up having a double technological lockout (e.g. when the standard they are trying to rejoin is patent protected).

So what is a technological lockout?

Some scholars in academia that have closely studied this phenomena (Schilling, 1998) define technological lockout as “a situation in which a firm finds itself unable to develop or competitively sell products to a particular market because of technology standards.”
Therefore, understanding the phenomena of technological lockout becomes specially critical for fast-cycle industries, where product life cycles might be less than 2 years because falling behind might drive a firm directly out of business. Nevertheless, when looking back and observing some of the most representative technology disruptions – it is not always that the technically most advanced solutions become the most successful ones. Other factors, such as timing, adoption speed and even a promising future use of a certain technology can become even more important than the technological improvement itself.

What might lead to technological lockout?

The most common answer would be “a mixture of several factors”, but as some scholars suggested (Schilling, 1998) the main three reasons could be:

1. The suggested standards do not meet customer’s expectations in terms of quality, features or price.
2. There’s not enough critical installed base for the technology or there’s a lack of complementary goods.
3. Inappropriate market entry timing (e.g. introducing a technology in an emerging market or into an already established market).

How to mitigate the risks of a technological lockout?

Beyond understanding more in detail the reasons why first of all a firm might end up in a technological lockout, from digital platforms’ perspective looking at such concepts as platform modularity might provide some hints. Moreover, certain platform architecture design principles might help to approach some specific issues as how to have more chances in successfully overcoming the bootstrapping phase of a platform. Observing the three main reasons on why a technological lockout might happen it’s possible to argue that probably focusing on solving the second of them – achiving a critial installed base, might indirectly contribute to approach the other two reasons that might lead to a technological lockout. Therefore – a further discussion on the link between technological lockout and platform architecture design principles might shed some more light on this topic.