The rise of MP3 as the market standard: How data compression formats came to dominate the music industry

Previous research has shown how various technologies became the market standard. This paper presents some refined models and applies them to the case of audio compression formats. We provide an analysis of the rise of MP3 as the market standard and identify several key factors that contributed to the success of the format. First, a process of formal standardization resulted in a reduced level of competition at an early stage. Enabling technologies, in particular the rise of the Internet, had a huge contribution to the success of audio compression formats. The timing of market entry was key in the sense that when the rise of the Internet took place, MP3 was one of the few fully developed codecs. MP3 offered technological superiority (high fidelity at low data rate) versus its initial competitors. The technology also benefitted from dedicated sponsors that promoted market adoption. Due to the weak regime of appropriability audio files in the MP3 format managed to spread quickly over the Internet. Lastly, the availability of complementary assets for MP3 fuelled its market adoption and strengthend network externalities on both sides of the two-sided network.