Project Network Effects: Wind River Systems (WRS; WIND) (Cont.)
Part III. B. WIND's Network Effects From Semiconductor Companies (Cont.)
Fourth, Centers of Excellence (CoEs). The process of pre-integration to individual embedded microprocessors is carried further still in Centers of Excellence, which are strategic alliances of Wind River with specific embedded semiconductor manufacturers that jointly optimize embedded system functioning. CoEs speed up application development by providing reference designs, simulation and prototyping tools, and road maps of future embedded systems. WIND's CoE partners distribute Tornado/VxWorks with their microprocessor, acting as a VAR, but this CoE relationship is more extensive because of the planned collaboration on new processors variants and families in the future. Four CoEs have opened, with Intel (2), Hitachi/ST Phillips, and MIPS Technologies.
In October, WRS purchased selected assets of Dragonfly Software Consulting, hiring all ten former employees. This acquisition strengthened WIND's commitment to it MIPS CoE since the Dragonfly team, who worked on the beta release of VxWorks AE, had already been designated as the MIPS team that was carrying out the architectural engineering of the MIPS CoE.
This September, one year after opening the first CoE for Pentium and Celeron architectures, Intel and WIND extended their earlier CoE agreement and added a new CoE for I/O and network processors based on Intel's StrongARM and XScale microarchitectures. Sharing a unified strategic approach, this cross-corporate development team of engineers implements and deploys new products with compatible hardware and application development software. Building on StrongARM technology, the Intel XScale microarchitecture is essential to processing large amounts of data quickly in I/O and network applications. WRS was the first to market with hardware-assisted tools for XScale. GM of Intel's I/O Product Division, Wendy Vittori, said, "Having reliable, high quality development tools that complement a particular processor can influence a developer's chip selection, which is obviously something that is very important to us."
Direct Network Effects with Semiconductor Companies. Indirect network effects based on compatible products become direct network effects when people influence one another to consider or adopt new technology. The three types of complementor relationships discussed above create social channels for communication between engineers at Wind River and semiconductor manufacturers. Not only that, within each corporation, interaction meets susceptibility because announced strategic relationships both increase the level of influence from above and decrease the threshold of susceptibility of those below. We are particularly susceptible to the influence of our leaders, who represent authority and provide social validation, particularly when they tell us that a strategic relationship with Wind River will make our jobs easier as it raises our profits.
Because porting is necessary and pre-integration optimizes performance and speeds time to market, these competitive advantages of WRS, which has the only hardware-assisted approach, as well as the COTS industry's only value chain of VARs and CoEs, extended and propelled Wind River's dominance in the COTS market
Moreover, the Rapid Logic acquisition strengthens their hand further at the end step of device management. The explosion in the size and value of the Internet requires upgradeable service and management in a growing world of what will become trillions of smart, connected devices. This exploding growth demands rock-solid, secure, and easy to use management features provided by the Rapid Logic Backplane's that unifies all management features into a single, robust, and integrated Wind River framework.
For example, take security. RL provides privacy and security through Open SSL. Using the SSL record protocol, one can encapsulate higher-level protocols, like the Handshake Protocol that allows the server and client to authenticate each other and to negotiate an encryption algorithm and cryptographic keys before sending or receiving the first byte of data. A major advantage of the transparency of Open SSL is that it is application protocol independent. Think of it as a two-way, multiple language dictionary that permits cross-protocol translation. Being Open means that programmers can read, redistribute, and modify the code for a piece of software, that programmers can improve it by fixing bugs or by adapting it to serve new purposes regardless of its external interface. As noted above, Rapid Logic already possessed a significant network of users and had been a WindLink partner; now it will be pre-integrated into the WRS software solution. This integration into Wind River solidifies the management and serviceability end of WIND's end-to-end solution, an indirect network effect. Also, it leverages the value of both RL's and WRS's existing networks of users, and will attract a growing network of new users who also must manage exactly how the connected smart devices they sell think and re-think, which is a direct network effect.
These multiple networks of WIND's users interact through social communication channels; they influence members within their home groups; the small world effect extends their range of influence to members of other social groups within the company. The VARs and CoEs and their OEM customers are all in this small world of embedded systems. Susceptibility to adoption is increased by the superior features of Wind River's total solution, which create indirect network effects from integrated building block compatibility. The adoption threshold is reached when interaction tips the balance of favorable influence away from competing options toward Wind River. The growing popularity that comes from more ports, VARs, and CoE's choosing Wind River inflects the S-Curve skyward, potentially transforming WRS into the "next big thing," the must-have embedded software solution, the mark of quality. If its RTOS were to become the common solution to insure connectivity across wired and wireless communication protocols, then it becomes the standard enabler of communication and managed service. If so, it becomes a necessary link among all smart devices.
The competitive advantages created by indirect network effects build momentum through influential interpersonal interactions through channels of communication in social systems, producing strong direct network effects that reach critical mass, producing strong and sustainable network effects. If you need RASS, you are locked in; if time to market is critical, you are locked in; if management of connected smart devices is necessary, you are locked in; if you want to compete with others who are using the WRS solution, you need to lock in. After it VARs and other hardware customers are locked in, WRS has a sustainable competitive advantage.
Because complexity and Web-based communication requirements are increasing, it becomes the easiest and best business practice to standardize on the end-to-end leader. This does not create a monopoly that restricts trade, because any software company can pay, say, Intel to let it port its embedded RTOS to one IC or to a family of Intel microprocessors. Nonetheless, standard business practices tend to create a natural monopoly through the bandwagon direct network effect. Everyone wants to ride with the popular leader. At the same time, an indirect network effect based on WIND-compatibility is created across diverse embedded microprocessors that are all using WIND embedded software in diverse applications. This may prove to be increasingly useful in the Internet era of connectivity as WIND links millions of smart devices, becoming a valuable real option in Wind River's future. |
