Does TMCC/DCS Licensing hurt Lionel/MTH?

[cbojanower]

I have been reading some of the different threads on OGR forum today about the upcoming TMCC2 and whether or not Lionel may change their relationship with the various licensees of TMCC. Also there is Tony’s note (which might just be Tony stirring the pot again) that hints MTH might finally license DCS to another company.

While this is a great thing for consumers, it is a bad thing for the companies. I can see why both are reluctant to license their product out, or are re-evaluating their relationships with their licensees.

Many compare this to the Apple/Microsoft saga, and advocate whichever train company licenses it’s control system out to all the others will win. But there is one crucial difference that applies to this debate (and is absent from the O-scale model train industry). Microsoft makes only the software (OS, applications), Apple makes both hardware/software. Every Windows compatible PC sold lines Microsoft’s pockets and takes nothing away from their bottom line.

For Apple (when they did allow their OS to be licensed) every clone machine sold was money out of their pocket. After a year or two of licensing Apple learned what Microsoft knew, you can’t make money from hardware sales when you provide your software to your competition. (Notice how Microsoft has not licensed the X-Box OS to Nintendo or Sega, they are making the entire system like Apple does with their machines) Apple also found that having others use your system did not drive sales to your company, it just allows someone to buy your technology on a different (cheaper) piece of hardware and get the same benefits.

In our O- gauge world we have two train manufacturers who both make hardware/software like Apple does. There is not a independent creator of train control software like Microsoft is in the PC industry.

When the train buyer purchases a TMCC enhanced product from a company other than Lionel, Lionel loses money from their bottom line. Sure Lionel licenses TMCC and sells control boards to the various other manufacturers, but I would venture a guess that both the dollars and profit margin is higher on an engine than what they are making on the various TMCC components they sell.

In MTH’s case DCS is a MTH only item. If the consumer wants the bells and whistles (not to mention 4 Chuffs per revolution) of the DCS system, then they have only one source to buy it from. All the work MTH did to enhance their product via DCS benefits only MTH, not the competition.

The irony of this (long) posting is that I do not care at all for MTH or Microsoft (I’m a Lionel/K-Line/Apple type of guy), but in my opinion MTH/Microsoft has the better idea of how to make money off their investment in R&D. If 10 years ago, Lionel (or Kughn/Young) set up a separate company to concentrate only on O-Gauge control systems and licensed it to the other manufacturers without trying to make the trains themselves, then they would be in Microsoft’s position today . They could sit back and watch the money roll in, but since Lionel has control of TMCC they have become like Apple did back in the clone days, Lionel has to evaluate the affect that every non-Lionel TMCC item has on their bottom line and decided if the licensing revenue outweighs the loss of revenue from train sales.

(Originally I posted this over at OGR, but it was deleted) [?]

[nblum]

Complex topic, but your points are well taken. The situation in O gauge is complicated by the fact that MTH's system is not clearly superior or better value than Lionel's and came to market six to eight years later. Plus it's much more expensive to get started with up front, and the other system has been licensed. One of Lionel's goals was to marginalize MTH, their main competitor, and this has successfully occurred to some extent. The question is did they cannibalize as many of their own sales as MTH's which wouldn't be a good thing. Without knowing the exact sales figures it's mostly speculation on our part. Nonetheless, they may need to charge more for their TMCC and RS equipment if Atlas and K-Line sales continue to grow and eat into their bottom line. Obviously if they cannot make some money off their licensees, that is a problem.

[GPJ68]

IMHO, it seems to me that Lionel has alot more to lose if they restrict, or worse terminate, licensing and/or 3rd party enhancement of TMCC/TMCC II than MTH has to gain from licensing DCS (maybe that's a glaringly obvious statement). If the popularity/usage #'s that CTT has presented are reasonably accurate, Lionel holds a seriously commanding (pun intended) lead over MTH in the battle between systems. Lionel needs to decide what is more important to the bottom line and their continued dominance in that segment of O guage trains - maintaining and improving that lead in overall system use (via licensing and multiple manufacturers of rolling stock/accessories), or reverting to MTH's short-sighted (IMHO only, not a flame) route of an entirely proprietary system.

Seems to me that it is better to at least get a small piece of the pie whenever a competitor sells an item containing licensed Lionel hardware, than to get what MTH currently does when competing products are bought instead of their own - a fat goose egg. While the arguement can be made that Lionel is losing more money per unit sold than they make on the license when an "insert-your-favorite-TMCC-equipped-manufacturer" locomotive is bought instead of a Lionel, they are at least getting something, and they are winning the system war by maintaining/increasing demand for TMCC. Maybe that should be "failing to make more money" rather than "losing more money". Anyhow, keep the popularity and use of TMCC going up and they keep the potential for additional sales of Lionel branded TMCC product going up. Terminate or severely restrict licensing/enhancement and they risk turning more folks away to DCS, or even the development and production of a third (and potentially more popular and even more affordable) command system.

What would I do (regarding TMCC) if I were so fortunate to be raking in the mega-bucks as Lionel's CEO?
- continue licensing TMCC use to any 3rd party manufacturer/developer interested, except the one's (ok, one) with competing command control systems.
- encourage 3rd party enhancement of TMCC (but keep the base system components required to tie it all together proprietary), with the requirement that Lionel gets an increasing share of the pie (for developing the base system); pre-approval of all enhancements as well, to ensure compatibility, past, present and future.
- swift and aggressive defense of all TMCC patents and intellectual rights against all unlicensed and unauthorized use, copying, modifications, etc.
- develop some enhancements/options to keep in-house for Lionel product only (at least for a time), to keep Lionel as close to the cutting edge of TMCC as possible, and to attract sales to the techno-geeks (no offense intended) wanting "the latest and greatest".
- ensure competive product pricing with TMCC licensees and non alike.
- ensure backwards compatibility, but if at all possible, prevent competing systems from controlling future releases.

Maybe I'd be the company savior, or maybe I'd tank the company in six months - hey, I don't have a business degree, so what do I really know...

And maybe I'm just suggesting the blatantly obvious.....

Oh, and regarding MTH licensing DCS - I'm skeptical that will ever happen, at least in any widespread way like TMCC has been, and not without MTH enforcing draconian measures (ala Union Pacific's licensing policy) to control licensee use (and get deep into their pockets). While I like MTH products - got a Z-4000, few accessories, and fair amount of rolling stock, but no engines (and don't plan on any in the future) - and will continue to purchase MTH of interest, I'd be REAL cautious about any business arrangement with "The Wolf".

Just my opinions......

[Anonymous]

I was wondering what happened to my reply to this thread on the other forum.

I won't rehash all that I said, but I see no way, in my case, that has harmed Lionel's bottom line.

Whether I bought K-Line, 3rd Rail or Weaver those purchases were IN ADDITION TO my Lionel purchases. I cannot remember ever buying a particular steam loco from any of the other importers in lieu of a similar Lionel model.

I bought two K-Line Trainmasters last year from their Club but at that time I believe Lionel offered theirs only thru the CC, which I do not belong to.

My purchases from TAS and DD were to upgrade my PS-1 stuff. In each of these cases Lionel profited from the sale of the TMCC boards for the MTH locos.

I buy what I like with the majority being TMCC. I like the additional performance that the EOB boards deliver and wish Lionel had been more progressive in improving their TMCC. I feel that Lionel might be miffed at the other licensees only because they have been derelict in upgrading TMCC before now.

Possibly, if Lionel had been more progressive in the electronics field the success that DD and TAS have experienced would not have been possible.

As much as I like K-Line products I am not in favor of them coming out with yet another control system. I have two. That is one too many, really.

[jimhaleyscomet]

Microsoft licenses and never made hardware. What hardware they make they do not licencse the software on (XBox). IBM made hardware AND software and licensed out software. IBM is no longer a player in the PC business. Lionel is walking a fine tigh rope. IBM fell off off when they tried. I wish Lionel well but rarely buy their expensive products (Just like I never bought an IBM computer, just clones. MTH invested heavily to go it alone. That takes guts and I hope it works out for them. I purchase their lower priced sets and a few products. I think K-line has it made selling Lionel's control system without the heavy R&D expense.

I don't mind one bit having two control systems. TMCC is great for ease of use and moving from layout to layout. MTH costs a bundle up front but the you can get full featured sets for the cost of a TMCC engine. As long as I don't have to pay to upgrade two separate platforms (think windows, win3.1, win95, win98, winXP and all the software for each new OS) and both work on the same layout at the same time, I like the current systems.

I have faith in the free market system. If either MTH or Lionel gets too greedy some third party will come in and eat their lunch. It may take a while but it will happen sooner or later.

Finally I think anyone that "collects" electronics driven trains is going to pay dearly. Most of this stuff is not collector quality, unlike the trains of old. The electronics are very fragile (unlike the trains of old). Maybe some day more reliable boards can be swapped in but then the train will no longer be "original". I sure am glad I never purchased PS1 stuff!

Jim H