Drivers of Organizational Participation in XML-Based Industry Standardization Efforts

Introduction

Standards play a major role in a firm’s competitive position, often making the difference between success and failure (Mitchell, 1994). Compatibility standards define physical and technical interfaces between products and information systems (David, 1987) and are developed in various ways, of which committee-led efforts are most desirable when coordination, not competition, is the primary concern (Farrell & Saloner, 1988). A new class of compatibility standards known as vertical standards has emerged in the last decade. Vertical standards focus on business processes and data formats specific to individual industries (Markus et al., 2003), and are generally implemented using the eXtensible Markup Language (XML) due to its flexibility and extensibility. XML-based vertical standards are incomplete products, in a constant state of evolution and growth, which permits firms to continually add functionality to reflect changing business processes and data formats not originally included in the standard. While some adopters may be satisfied with the initial version of an XML-based vertical standard, others will continue to participate in further development and push for increased functionality. XML-based vertical standards exhibit public goods (Olson, 1971) properties, since they can be obtained free of cost from the sponsoring consortium or standards-developing organization (SDO) without having to invest resources in their development. This gives rise to two linked collective action dilemmas at the development and diffusion stages (Markus et al., 2006) which consortia must identify and solve in their specific industries. At the development stage, firms must be persuaded to invest in XML-based vertical standards development even when copyright policies of the sponsoring consortium or SDO typically prevent the commercial appropriation of the results of the development process by any participant. At the diffusion stage, a commitment from enough potential adopters is crucial to ensuring an XML-based vertical standard’s success (Markus et al., 2003). Thus, developers must make a potentially irrecoverable investment, and a critical mass of adopters must be recruited from firms without a stake in the success of the standard. This paper adds to the growing literature on vertical standards by exploring the motivation for participation in the development of vertical standards for supply- and demand-side organizations, i.e., vendors and end-user firms, in the face of these linked dilemmas. We test two linear regression models using constructs that explore the effect of resource and interest heterogeneity in the participation of demand- and supply-side firms in XML-based vertical standards development activities