Transcript W.E. Steinmueller - Deep Blue

Technical Compatibility Standards and
Co-Ordination of the Industrial and International Division of Labour
W. Edward Steinmueller
SPRU – Science and Technology Policy Research
University of Sussex, United Kingdom
Prepared for the Conference:
Advancing Knowledge and the Knowledge Economy
Sponsored by:
U.S. National Science Foundation
Organisation for Economic Cooperation and Development
Research Directorate-General, European Commission
Information Society Directorate-General, European Commission
U.S. Interagency Working Group on IT R&D
University of Michigan
Platforms – What are they?
Platforms are systems comprised of component products
and/or services that must be integrated to become useful.
Platform integrators are companies that have the
knowledge to perform the integration when the final user is
not willing or able to do so.
Component suppliers are the companies with the
knowledge to produce the components integrated into the
system.
Knowledge is required to integrate components into
platforms – in particular, reliable knowledge of the interface
between components
Technical Compatibility Standards
Technical compatibility standards are the specifications for the
integration of components into a platform – they are a form of
knowledge
These standards may be the familiar standards published by
standards organisations (IEEE, ISO, CCITT, SAE, etc.)
organisations that generally insist on non-discriminatory access
Second, these standards may be controlled by individual
companies (a kind of sponsored standard)
Or these standards may be negotiated between a platform
producer and related component suppliers
Published, sponsored, and negotiated standards define
possible technical divisions of labour between companies (that
may be located in different countries)
Examples
The Generic Personal Computer Platform
Source: Microsoft Encarta
A Leading Food Processor Platform
Source: Cuisinart
Multi-Supplier Stereo Component Platform
Source: Tampa Cabinets
Creating a Platform
Platforms are a kind of innovation
• Their acceptance by the market is uncertain
• First implementations will later appear crude
• Their success often involves adoption network externalities
Each type of standardisation process has advantages and
disadvantages in the design of a platform
Sponsored – faster to market
Negotiated – greater commitment of suppliers
Emergent or published – more likely to engage adoption
externalities
Ideally, one might move in the ‘early years’ from sponsored
to emergent/published standards, but ‘breaking up’ is hard
to do
Why is system ‘decomposition’ becoming easier?
Information and communication technologies help in two
ways:
1. Organisational interfaces for co-ordination are
facilitated by the spread of ERP (enterprise resource
planning systems) and related software
2. Technical specification and communication are aided
by computer aided design and engineering
These technologies have, however, not proven to be a
panacea.
Problems of representation and negotiation of
knowledge still limit their technological potential
In essence, the question is…
What prevents this jet engine from being based on published
standards?
Source: Aircraft Magazine, 1958
Individual sub-assemblies can certainly be represented
precisely by computer aided design and engineering…
Source: Northern Ireland Technology Centre
MSc Computer Aide Design Project
Physical prototyping is rapidly advancing…
Source: Roland Modela Example: Toto
However, a series of problems remain…
1. Uncertainties of platform ‘take off’ means designs
start as proprietary and controlled – breaking up is
then harder to do
2. In distributing design, interfaces have to work or
finger pointing occurs – knowledge is not easily
distributed or agreed
3. Product liability matters
4. Technologies for modelling and simulating the
platform are still being developed
5. There are difficult problems of market power between
the platform producer and the component supplier
6. Standards can be sticky due to user adoption
With this platform, the industry is still trying to get rid of the
Centronics parallel printer and RS-232 serial ports.
Old standards ‘stick’ to platforms…
And we all know how
easy it is to integrate
new pieces of kit to
this platform…
Right!
The Economic Issues
Successful platforms create market power
In the first instance, this is more of a problem for
component producers than for social welfare
Producing a commodity product is not the most
desirable of careers
Ultimately, however, market power can become a social
welfare problem
In both Europe and the US, we are trying to grapple
with the limits of Microsoft’s platform control
The traditional approach to these issues is platform
competition…
Every attachment for this platform is controlled by Cuisinart
We think this is ok because there are several food processor
platform producers and competition between them has
created substantial variety in both quality and price
Not all platforms may
support this amount of
platform variety
Adoption externalities may
favour design convergence
or a ‘dominant design’
This has value because it
allows the reuse of
knowledge
Is competition between platforms becoming less effective?
Business strategy is adapting to the platform idea
Platform producers attempt to recruit families of companies
supplying components for the platform to increase adoption
externalities (or, more prosaically, ‘buy-in’ to the platform)
Adoption externalities may be increasing due to
improvements in information (e.g. trade promotion)
As markets become larger through internationalisation, the
ability of buyers to co-ordinate pro-active efforts to increase
platform competition becomes more difficult
The attainability and value of ‘open standards’
Attainable when market growth aligns incentives of both
components and platform producers
Alternatively, buyers may resist ‘closed standards’
Note, however, open standards can still be controlled by a
dominant platform or component producers whose next
generation design choices define the standard…
Value stems from
• Increase long run competition among component producers
• Possibility of enabling competition in platforms
• Platform components can be individually improved (division
of labour in knowledge production)
• International division of labour supporting growth and
income distribution
When ‘open standards’ can’t be achieved or maintained
--Market power issues may create social welfare loss
--Intellectual property seems to have an indefinite lifetime
--Market power can be extended
Remedy: We don’t have one.
• ‘Essential facility’ arguments have not been able to
generate political consensus.
• Antitrust rules often encounter market definition
problems, particularly when markets for unbundled
components exist
Only user-activism seems effective – and this requires
difficult mobilisation issues
We need better tools for analysing the nature and extent of
market power in distributed or networked knowledge
industries
Pro-competitive policies
are not straightforward…
Interventions can
1. Support research to improve ‘anticipation’ to reduce
the need for competitive search for best implementation
[This allows users to be pro-active.]
2. Provide a strong market (government procurement) for
more ‘open’ standards (with risks of premature standards)
3. Support research on modelling and simulation that
would reduce co-ordination costs of making more
open or ‘modular’ systems
Signs of progress…
Europe, and then the US, have made it possible to ‘reverse
engineer’ software interfaces to achieve more ‘open’
systems
Companies attempting to do this may still be discouraged
by litigation related to strong IPR
Internationalisation of markets has followed the rule, ‘the
division of labour is limited by the extent of the market’
making more components available for constructing
competing platforms
However, branding and the maintenance and support
services available from incumbent platform producers
(e.g. Otis Elevator) have countered this tendency
The ‘open source’ movement is encouraging – its limits and
problems are worth even more research
Frontiers
Service platforms involving ‘soft interfaces’ are expanding
and need a ‘standards process’ – XML discussions are a
symptom
Mixed platforms involving both physical components and
service bundles are a major business opportunity
Many specialised system solutions involve building on
open source software and open standard framework
Solving cognitive and co-ordination problems in research is
a lead-user activity with potential spill-overs to other
activities
Learning activities (in training and education) similarly
provide a lead-user context for exploring co-ordination and
negotiation of cognitive problems
Conclusions
Regulation of platform dominance needs policy innovation –
so far policy has been a blunt instrument
Reducing dependence on proprietary standards (and
intellectual property protection) as a source of ‘wealth
creation’ would create a more competitive and perhaps a
more innovative economy
Pro-competitive policies are available and can be
implemented (many involve improving quality of information
to users)
Research tracing the contribution of ‘open standards’ and
their value to the economy is a partial antidote to claims
about the innovative contribution of IPR-based proprietary
standards