The Business of Standards, Part 1

Andrew S. Tenenbaum, professor of computer science at Vrije University in Amsterdam once said:  “The nice thing about standards is that you have so many to choose from.”

I like this quote because it, like so many trite sayings, covers a rather more complex issue that most in the Information and Communications Technology  (ICT) arena prefer to ignore. The issue is, simply, why are there so many standards?  Beyond this, where do these standards come from and who pays for them?

The answers are simple – standards don’t appear magically, and are often created by the very industries that criticize their proliferation.  Industry members invest a lot of time, resources, and energy in creating standards. Case in point, Andy Updegrove  – a lawyer who helps create consortia – lists 887 ICT consortia in his tracking guide.  All of these consortia are funded by companies and individuals who are busily engaged in writing standards.

So why do these companies support such a vast standards industry? Because the act of standardization, if properly managed, can confer competitive advantage.  Basic to this idea is that a standard is a change agent – its only function is to change the market in some way or another.

Most often, standards are described as being used to “level the playing field.” This is true only in a commodity arena, such as standard wheat or standard cotton. Nearly everything in the ICT industry that is “standardized” has associated differentiators (from performance to speed to cost) that are vital for market share retention and growth.

However, occasionally, a company or other entity may find creating a differentiator to the current standard difficult due to extenuating business reasons, such as IPR (intellectual property rights) payments, lack of technical expertise, or even possibly owning significant competing technology. In this case, the organization can try to create a competing product that incorporates the (newer/better/more open/other) technology. All the organization needs are enough allies and/or market share to either support and embrace this competing offering.   If it wants to do this more openly, it can create an organization to help.

This scenario has been played out at least 887 times. Every time it is repeated, at least one new Standards Setting Organization (SSO) is created, which in turn sets about creating standards.

Companies find it to their benefit to claim that their product conforms to a standard – it reassures buyers, builds confidence, and allows markets to be opened. However, this also creates a morass of conflicting standards and standards organizations, thereby limiting the value of all standards – both the good and the bad.

One question is what is the legal basis of  this proliferation of standards setting organizations (SSOs)? Well, it turns out that the doctrine of “unanticipated consequences” is to blame.

The next post will examine the roots for this proliferation and how the business of standards started.

Carl Cargill
Principal Scientist

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