The actor who sets the standard that others must adopt has power that persists long after the standard is set.
What Standards Do
A technical standard is a specification that defines how a technology should work in ways that allow interoperability between products from different manufacturers, applications from different developers, or services from different providers. Standards create the coordination infrastructure that enables the network effects that make technologies valuable at scale: the value of the telephone network depends on the standard that allows all telephones to connect; the value of the internet depends on the protocols that allow all connected devices to communicate; the value of the USB port depends on the standard that allows all devices with USB ports to connect to all USB devices. Without the standard, the network effect cannot propagate, and the technology is a collection of incompatible islands rather than an integrated system.
The actor who sets the standard that others adopt has power that is not captured in the usual metrics of market power. Market power is measured in market share, in pricing power, in the ability to exclude competitors. The standard-setter's power is different: it is the power to define the technical constraints within which all other actors must operate, to shape the trajectory of technological development toward the standard-setter's advantages, and to extract rents from all actors who must comply with the standard in order to participate in the network it enables.
The Politics of Standards
The governance of technical standards — the processes through which standards are set, who participates in those processes, and how competing proposals are resolved — is a political contest with economic consequences that extend far beyond the technical specifications being debated. The company whose technical approach becomes the standard has its development costs recovered by everyone who adopts the standard; the company whose approach is rejected must either adopt the winning standard or remain outside the network it defines. Standards bodies and consortia are the arenas in which these contests are conducted — and understanding them requires understanding the political economy of standardisation, not just its technical dimensions.
The standard-setter's power is the power to define the rules that everyone else must play by. It is acquired through technical and political skill in the standards-setting process and maintained through the switching costs that adoption creates. It is among the most durable forms of competitive advantage in technology markets.
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