OStatic

By Senthil Swamy on Sep. 21, 2009

As history has shown many times in the past, the Best Product Doesn't Always Win. Just having a better product is not enough. You have to let your customers know about it and why it's better. Then you have to convince them it is better.

The following article that I've blatantly copied the following excerpt from NYT (http://www.nytimes.com/1996/05/05/magazine/why-the-best-doesn-t-always-w...) should shed more light on this:

APPLE COMPUTER, THE COMPANY THAT BROUGHT YOU THE idiot-friendly Macintosh, is staring at bankruptcy. Meanwhile, the great army of technocrats at Microsoft, which only last year managed to reproduce the look and feel of a 1980's Mac, lumbers on, invincible.

A bad break for Apple? A rare exception to the Darwinian rules in which the best products win the hearts and dollars of consumers? No. Economists are finally beginning to acknowledge what others have long suspected: the best doesn't always win. Just as biologists are challenging the idea that natural selection drives evolution along "efficient" and predictable paths, economists are discovering the disorder that lurks in the shadows of their simple, elegant models of capitalist progress. Adam Smith's invisible hand, it seems, does not always assure that superior technology will survive the rough-and-tumble of the free market.

Recent wisdom on this subject dates back to 1985. That's the year Paul David, an economic historian at Stanford University, published an article about QWERTY in The American Economic Review. Q-W-E-R-T-Y, of course, are the first six letters on the upper left of the typewriter keyboard -- the universal standard since the 1890's. But why these? Why not one of half a dozen other keyboard layouts that are said to permit faster typing?

David's answer is that QWERTY was the solution to a fleeting technological problem, an arrangement that would minimize the jamming of keys in primitive typewriters. While this explanation has since been challenged, what matters is that one keyboard, chosen for reasons long irrelevant, remains the standard. For all their ingenuity, competing designs have made about as much headway against QWERTY as Esperanto has made against English. That's because a standardized layout allows typists to learn just one keyboard in order to use all. Once thousands of people had learned to type using QWERTY's merely adequate layout, the technology was effectively locked in. Keyboard design is thus the classic example of "path dependence," the idea that small, random events at critical moments can determine choices in technology that are extremely difficult and expensive to change.

In the typical path-dependence scenario, producers or consumers see one technology as slightly superior. This edge quickly snowballs into clear economic advantage: production costs fall with greater experience in manufacturing, and consumer acceptance grows with greater familiarity. And along the way, the weight of numbers makes the leading product more valuable than one based on competing technologies. With more MS-DOS computers around, it pays to write software to the Microsoft standard, which in turn makes it more useful to own an MS-DOS computer.

The most familiar example of path dependence is the triumph of Matsushita's VHS standard for videocassette recorders over Sony's Betamax. Betamax was first and, by most accounts, better. But Sony made two strategic marketing errors. To get the product out the door faster, it initially sold Betamax machines that played one-hour tapes -- too short for an entire movie. And to sell more Sony machines, the company chose not to license Betamax to competitors.

VHS, introduced a year later, in 1976, played two-hour tapes. And since Matsushita freely licensed the technology, half a dozen other brand-name VHS players hit the stores in a matter of months. Sony soon countered with a two-hour machine, but it was too late.

While VHS versus Betamax makes great fodder for business school seminars, the outcome hardly made the earth move. The stakes have been much higher in technologies that are now so entrenched it's hard to imagine the world without them. Take the automobile engine. At the turn of the century, gasoline was locked in a three-way race with steam and electric power. The Stanley Steamer was a technological marvel, setting a world speed record of 122 miles an hour in 1909. But the manufacturer priced the car as a luxury, never trying to achieve the economies of mass production and of "learning by doing" that might have made it the people's car.

More @ http://www.nytimes.com/1996/05/05/magazine/why-the-best-doesn-t-always-w...