The Handbook of Technology and Innovation Management

9.6. Long-Run Issues in Standardization

The discussion until now has treated standardization as a choice between exogenously available technologies. This abstracts from a number of long-run issues, the most important being that standards are the result of innovation. Thus, the interaction between standardization and innovation is strong.

Standardization may both encourage and discourage innovation. Because well-defined technical standards may provide component suppliers a more secure set of interfaces around which to design a product, they may encourage research and development into the design of new components for a network. Secure telecommunication transmission standards were important in hastening innovation in customer premises markets, such as facsimile machines and modems, and in other markets that interconnected with telephones, such as Internet Service Providers. Indeed, the success of third parties in US communications network comes partly from AT&T standardizing the technology of its network, as well as the Federal Communication Commission's intervention to standardize interconnection in places where AT&T could have done so, but did not.

On the other hand, an installed base of users may also create an unintended hindrance for innovation on a mature network. An existing substitute network may hinder the growth of a new network, because the technology embedded in much existing equipment may be inappropriate for a new application, raising its cost. In addition, minority ...