Classroom Companion: Business

 
► Example 12.3 Avoiding and Creating Lock-In by Backward Compatibility
One important aspect of standardization is built-in backward compatibility. This means 
that a new version of equipment or software can operate smoothly together with earlier 
versions. In many protocols (e.g., IP), the first information element in the format is the 
version number, allowing the computer to switch to the appropriate software for reading 
remaining parameters (e.g., IPv4 or IPv6). Equipping computers with software for both 
IPv4 and IPv6, lock-in to a particular network technology is avoided.
Backward compatibility of mobile phones is beneficial both for network operators 
and users—network operators may smoothly build out the network with new technology, 
and the users need not buy new phones to continue using the network. Some backward 
compatibility in mobile systems is built into the specifications (e.g., offering GSM, 3G, 
4G, and 5G in the same network). Some backward compatibility is implemented by the 
manufacturers so that the same phone can be used in networks using different network 
technologies (e.g., 3G and the American CDMA standard and 2G, 3G, 4G, and 5G 
networks where the smartphone can attach to either of these technologies), hence mak-
ing roaming independent of network technology. Other examples of backward compat-
ibility are game consoles, reuse of fixed network technologies in mobile networks, and 
radios (DAB radios can receive both digital signals and analog FM signals). In these 
examples, backward compatibility does not cause lock-in; on the contrary, backward 
compatibility reduces or even eliminates switching costs.
Backward compatibility is also related to the “grandfather clause” where an existing 
standard (or system) continues to be in force after a new standard (or system) replacing 
 
Chapter 12 · Lock-In and Switching Costs

---

183
12
it has been put into operation. The “grandfather” of mobile communications, GSM, 
is still used together with 3G, 4G, and 5G mobile systems. The MARISAT system, 
owned by COMSAT General, for satellite communications to ships was adopted by the 
intergovernmental organization INMARSAT as its first satellite system in parallel with 
systems developed by the organization itself to allow smooth transition from one tech-
nology to another and to avoid unnecessary lock-in to the old technology.
Microsoft products (e.g., Windows, Word, PowerPoint, and Excel) support backward 
compatibility. The backward compatibility of Microsoft products is beneficial for users 
of computer systems because it guarantees that documents written several years ago can 
still be read and modified using the current standard. The motive is obviously to make 
the Microsoft products more attractive and to increase the lock-in of Microsoft users.
Backward compatibility may then in some cases cause lock-in (e.g., to Microsoft 
products), while in other cases, backward compatibility reduces the switching costs of 
the users and does not lead to lock-in (e.g., mobile communications networks).
◄