Fifth Law: The technical standard is the coordination economy's most undervalued institution — the infrastructure that makes networks possible and the mechanism through which their value is distributed.
The Standard as Infrastructure
The fifth structural law of the coordination economy states that technical standards are the coordination infrastructure that makes network value possible — and that the governance of standards determines how the value that networks create is distributed. The standard that defines how email is transmitted, how web pages are formatted, or how mobile devices communicate enables the network effects that make these technologies valuable. Without the standard, each implementation is an island; with the standard, each implementation is a node in a network whose value grows with every additional node.
The governance of standards — who sets them, how they are set, and what interests they encode — is therefore a governance question with profound distributional consequences. The standard that is technically open, governed through a process with broad stakeholder participation, and designed for interoperability rather than vendor advantage creates value that is broadly distributed across the network. The standard that encodes the technical architecture of a specific vendor, is governed through a process that advantages that vendor's interests, and is designed to create switching costs that lock users into the vendor's ecosystem creates value that is concentrated in the standard-setter.
The Open Standard's Advantage
The historical evidence strongly favours open standards over proprietary standards in generating broad economic value: the open internet protocols generated more economic value than the proprietary online services that competed with them in the 1990s. The open USB standard generated more device ecosystem value than proprietary connector standards. The open web generated more value than the closed content distribution systems that competed with it. The open standard's advantage reflects the basic network economics: a network whose participation is unrestricted by proprietary access controls grows faster and generates more value than a network whose growth is constrained by the access policies of its owner.
The fifth law: the standard is the coordination economy's most productive institution. Its governance determines whether the value it enables is broadly shared or concentrated. Open standards generate more total value; closed standards concentrate more of the value they generate. The choice between them is a governance choice with distributional consequences that persist for decades.
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