1.2. Why Standardize?

The simplest answer to this question is that standards expand markets and reduce the friction that impedes transactions. Standards allow businesses to focus on specific business problems rather than complex technical problems. They provide a lingua franca—a common language that allows any business, anywhere, at any time, to take part in the market.

Consistent, widely supported standards in enterprise computing are particularly important now that the Internet plays such a large role in new business development. Many students of the networked economy have noted a wide-scale move from economies of scale to economies of networks, where each new node adds value to the whole. In the past, transportation and communications markets have benefited most from network connections and standards. Today, however, industries across the board are able to tap the benefits of the network, thanks to standards such as the Internet and the World Wide Web. The more a company can use standards to effectively connect with its customers, suppliers, partners—and even competitors—the more effectively it will be able to participate in the market, and the more competitive it will be in the networked economy.

There's ample historical precedent for the role of standards in facilitating the growth of markets. For example, railroads became most effective at moving commercial traffic when they adopted a single gauge across whole continents. Adoption of wide scale AC power standards enabled a far-reaching power grid and created a commodity market for electrical goods, from light bulbs to power tools to household appliances. Development of a single telephone standard enhanced the ability of businesses to operate predictably and reliably both nationally and globally.

All these examples involved standardizing the underlying technology of the network to facilitate competition in goods and services delivered or made possible by the network. The standards exist in the medium of interaction and exchange, not in the specific goods and services exchanged. Standards serve the same purpose as money: They facilitate exchange by providing an agreed-upon medium of exchange by which to conduct business. This points out an interesting standards paradox: The more businesses standardize on network technical standards, the more flexible they can be in pursuing new business opportunities and responding to new business challenges.

For these reasons, wide-scale adoption of e-business standards helps create a large, diverse market for related goods and services. This, in turn, makes it easier for customers to solve business problems in a variety of ways.