Using standards as business development strategy

The text below is from an invited keynote talk I gave this morning to a seminar on innovation organised by the NSAI, the Irish national standards coordinating body.

I talked about how in the formative days of IONA, we used the OMG as a vehicle for promoting our technologies and products, and how critical our participation in a standards initiative was for our company.

——

Exactly twenty years ago, American Airlines and Hewlett-Packard Corporation took an initiative to develop new standards in the global software industry to interconnect distributed software applications. The initiative rapidly gained momentum, with all major software suppliers – with the sole exception of Microsoft – quickly joining. Yet by 1996, a small company from Ireland, IONA Technologies, was a widely recognised world leading – arguably the world leading – implementor and vendor of these new standards, ahead of such major vendors as IBM, Oracle, HP, Microsoft, Digital and Sun. As a result, IONA had major customer contracts with companies such as Motorola, Boeing, Goldman Sachs, Lufthansa and Hong Kong Telecom. How on earth did that all happen ?

Sean Baker, Annrai O’Toole and I co-founded IONA in early 1991, as a spin out from the TCD Computer Science Department. We had been working together on how best to interconnect distributed software applications for over a decade, in part using collaborative research funding through pan European R&D programmes made available by the European Community in Brussels. When in 1989, American Airlines and HP took their initiative which led to the formation of the new standards organisation, the Object Management Group, we followed the developments with interest. One of the first actions taken by the OMG was to issue a world wide call for proposals for technologies which could underpin the new standards. As a direct result of our participation in the European R&D programmes, the three of us started attending the OMG meetings to track the development and discussions about the definition of the new standards.

One of the interesting consequences of the culture of the global software industry is the frankness and openness of talented software engineers. Many experienced software engineers are quite prepared to exchange professional views on particular technologies and products, and even – perhaps especially – those upon which they themselves have worked or are currently working. Simply by engaging and discussing with such individuals who work for software vendors, a perspective can often be reached on the status of strategic initiatives being taken by their employers. Equally, the concerns and priorities for new technology adoption by large end user customers can often be discerned by chatting with experienced software professionals working for such organisations.

By our regular attendance at OMG meetings, we reasonably quickly came to a number of conclusions by late 1990. First, our research work over the prior decade was as advanced as anything that we could perceive amongst the teams working within the world’s leading software vendors. Second, those major software vendors who had publicly committed to the OMG were in fact several years away from releasing commercial implementations of the OMG standards, for various reasons. Third, the customers who would use the OMG standards were very keen to have product quality implementations as soon as possible, so as to solve specific business challenges they faced in their operations and markets.

By the summer of 1993, we released one of the first implementations in the world of the new OMG standards, at a major global tradeshow hosted by the OMG in San Francisco. As a direct result of that show, we gained our first commercial customer, SAIC, a major US systems integrator. By early 1994, we had been chosen by Motorola against competition from HP and others, as a key foundational product underpinning the entire ground control systems for their 4B$ Iridium global satellite telephony system. By 1995, we were chosen by Boeing against competition from IBM and others, as a key foundation for the complete re-building of almost all the software systems for the manufacture and assembly of all Boeing airliners, across 18 factories in the USA. By 1997, we completed the fifth largest IPO in the history of the Nasdaq exchange on the basis of our diversified blue chip global customer base, rapid revenue expansion and track record of 24 quarters of profitable growth.

What lessons are there from the IONA experience, particularly as regards Irish companies, and particularly as regards the role of standards ?

I have already alluded to one lesson: working within standards organisations can give you very valuable market intelligence about the strategy and status of your competitors, and of your potential customers.

Clearly, for IONA, standards were an absolutely critical catalyst. A new company can chose to play the standards game, or instead develop its own proprietary non-standard technology. Some companies, such as Tibco and one of our competitors, chose the proprietary route. Proprietary strategies are workable, and help insulate and define intellectual property of an organisation: on the other hand substantial effort is needed in marketing a proprietary technology in the face of standards, including convincing potential customers that re-training their technical staff on a proprietary technology is nevertheless worth the effort.

We chose the standards route. But with standards at the core of your strategy, how do you build intellectual property and barriers to entry against your competitors ?

One important direct consequence of playing the standards game was that our marketing strategy and necessary budget both became much less challenging. The OMG, and major global vendors, were already investing heavily in promoting the OMG standards. Qualification of sales leads became trivial: if the prospect already had an interest in the OMG standards, then we had an interesting offering for them. If the prospect had little or no interest in the OMG standards, we qualified them out of our prospects pipeline. Furthermore, simply by attending OMG events – standards meetings, seminars and trade shows – we had a pool of qualified prospective customers immediately in front of us.

There are two complementary approaches to playing the standards game as a vendor. The first is to ensure that your product conforms to a specific standard. In my view, this is a “me-too” approach: your product conforms to the standard, as most likely do your competitors’ products. Conformance to the standard becomes merely just one hurdle for your product value proposition: you will only beat your competition if your product then implements the standard in some sense “better” than anyone else – faster, smaller, lower cost, whatever.

The second approach is to establish, or to play a very strong industry lead in establishing, a new standard. In this way, your own product becomes one of the very first, if not the first, implementation of the new standard. If there are customers out there interested in the potential of the new standard – those attending the standards events and tradeshows and seminars – you can then quickly gain momentum over your competitors who have yet to ship a standards conformant product. Further, your potential customers become more comfortable in working with you as a relatively small supplier and early market entrant, since they know the more established vendors in due course will bring out their own implementations of the standard. However this is not a danger to your business but an opportunity: get a toe hold in a customer account, and show how good your company, your team and your products are.

We took both approaches. We had a very good implementation – both from the technical perspective and business proposition – indeed of the emerging standards; and also we also took a very strong lead in helping evolve the standards. Because we had early adopters – customers who started using our product because it was an early implementation of a new emerging standards – we were able to directly influence the standards with a number of key feedbacks and proposed modifications to improve the standards based on pragmatic field experience. In turn this meant that some competitors who had yet to ship a product implementing the standards, either eventually shipped product which did not implement the latest version of the standards, or delayed their product ship dates while they busily re-engineered their work to chase a set of evolving standards. Furthermore, we encouraged our customers to contribute to the debate: by having customers actually turn up themselves at the OMG standards meetings, OMG began to accelerate the switch from a vendor driven push for a new set of standards, to a customer driven pull, whilst all the time keeping IONA at a focal point. Thus in turn created further obstacles and challenges for our competitors racing to stay current with the latest influences on the evolving standards.

Let me attempt to summarise for you. You can play the proprietary game, and face the marketing challenge of finding customers prepared to invest in non standard products. Or, you can play the standards game, gain market insights and quickly find interested customers. You have then to play the standards game better than your competitors, either by a “better” implementation or by using your technology to define a new standard, or just possibly both. Innovating and building a new standard around that innovation creates an interesting opportunity for you and simultaneously a dilemma for your competitors, as they try to catch up with the adoption of the standard in the market by your customers.

Our experience in IONA shows that it is possible to build a global technology player out of Ireland. Standards were an absolutely critical part of our strategy. I very much welcome the NSAI’s excellent guide on good practice in innovation and product development. To paraphrase: yes, Ireland can.

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About chrisjhorn

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6 Responses to Using standards as business development strategy

  1. Anonymous says:

    This is a strategy which my firm is considering and the NSAI , so far, have been very positive and helpful.

    Setting a standard can create a new industry. We are attempting to do this, i.e. setting a new international standard and using this to create a ‘blue ocean’ (see Kim and Renee Mauborgne HBR, “Blue Ocean Strategy”, 2004). It is reassuring to see that it has been done previously with such great success.

  2. Steve Trythall says:

    Chris,
    I loved your account of Iona’s rise and the role of open standards in this. I’ve worked in open standards a few times in my career and I’m firmly convinced that it creates a market disruption that cracks open opporunities for the small players and presents as a threat to the larger, slow moving incumbant suppliers who are eager to preserve their positions.

    I’d love to see you also write on why Iona did not continue to grow and dominate. I was once an Iona shareholder and benefitted from the growth period on the back of implementations of OMG standards. But as the thinking on distributed technology moved on, Iona seemed to lose out. What happened?

  3. chris horn says:

    Thanks Steve.

    What happened ? Its a long long story and perhaps worthy of a book sometime.

    I think part of the story was the industry move from a portfolio of different software technologies interworked by the OMG and CORBA; to a single major technology for the web, ie Java; then back again to multiple different technologies interworked by web standards and SOA; to the more dynamic and reflective approaches today.

    But part of it too was the personalities involved, not least of course myself.

    And part of it was serving an international customer base and international investor base from Ireland. And associated with that, in my view weak Irish government policy at the time.

    And part of it was the openness of the international software industry, and the challenges of sustainably establishing scale. We were for a short period one of the top ten largest software companies in the world. But sustaining that position was quite a challenge 🙂

    Sometime maybe I will write the book. And maybe others will write theirs too!

  4. Monty says:

    I chanced upon to view your blog and found it very interesting. Great … Keep it up!

  5. Pingback: Digital Strategy – the role of feedback « Chrisjhorn's Blog

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