The Transformational Potential of Software Standards

Let me first make a preamble of some importance to what I am about to say. The preamble is: the Internet is a software phenomenon. The extraordinary growth provided by the Internet platform is unmatched, think of companies, consumer products, networking sites, e-commerce solutions, or free speech.

“The Internet is fundamentally based on the existence of open, non-proprietary standards” says Vint Cerf, often called the Father of the Internet, who visited Brussels last week.

“The internet’s generative characteristics primed it for extraordinary success—and now position it for failure”, writes the academic Jonathan Zittrain in his book on The Future of the Internet and How to Stop It, Penguin, 2008.

“Dominant players may try to use proprietary standards to lock consumers into their products or to extract very high royalties, ultimately stifling innovation and foreclosing market entry by new players”, Commissioner Viviane Reding of DG Information Society and Media from the European Commission said in her speech at Lisbon Council, 2 Feb 2009. The costs of non-openness are great. They may account for large parts of a government's IT budget. In fact, industry analysts like AMR, Forrester, Gartner, & IDC agree that roughly 1/3 of an average IT budget is spent on integration.

In contrast, standards drastically reduce integration costs. “Opting for open standards is a very wise business decision indeed”, Competition Commissioner Neelie Kroes from DG MARKT said during her speech at the OFE Breakfast, 10 June 2008. In fact, she deserves to be quoted in the full context, to understand exactly how she believes this is so:

“if we are to include proprietary technology in a standard, then ex ante disclosure may help those involved make a properly informed decision. Competition law should not stand in the way.... This will almost always entail ex ante disclosure of the existence of essential patents. And it may increasingly entail ex ante disclosure of maximum royalty rates. Both can increase the effectiveness of the standard setting process, lead to more competitive solutions and reduce the risk of later antitrust problems. Standards bodies could very often require disclosure without fear of competition law intervention. Choosing open standards is a very smart business decision indeed”.

“A global recession is the time when the bold can help the innovations that will drive prosperity when the economic cycle turns, and where intelligent intervention from the Government can accelerate national competitive advantage”, said Lord Stephen Carter, UK Minister for Communications, Technology and Broadcasting in a media opinion piece published in The Times on November 7, 2008. So this resonates in the EU's Member States as well.

“The promotion by governments for the creation and adoption of open standards in public procurement policies is good for consumers”, said Anne-Catherine Lorrain, Intellectual Property Policy Expert at the TransAtlantic Consumer Dialogue (TACD) on Thursday 17 April 2008 at the European Parliament, Brussels.

“The Impact of interoperable ICT solutions on the internal market and the European economy are formidable and have not only brought us out of the recession but have spurred a new era of individual, regional and global growth”, said a Famous person from a Reputable institution, Somewhere in Europe, 2013. Wait. STOP. You realize this last one has not happened yet. Why? Because we have yet to unleash the potential of a completely open standards based IT environment in Europe. It would transform the world! Indeed!

The companies that are farthest along in their global initiatives tend to have a multiplicity of systems, few of which work seamlessly together, according to the briefing paper Leveraging the power of global innovation from February 2009, written by The Economist Intelligence Unit, and, full disclosure, sponsored by Oracle.

If we look at European governments in that regard the situation is dismal as well. While their policies might be good, no government has solved their interoperability challenges. The frameworks guiding them are seldom fully implemented, or seldom affect the huge portfolio of legacy systems that continue to be an obstacle to smooth operation. Interoperability of software is transformational if and only if it is not theoretical, but implemented, demonstrated, practiced. This is the next step, one which European countries, and particularly the European Institutions themselves now need to take.

The benefits of open standards are often spoken of in the abstract, that is, without quoting the $ impact and the € impact. Well, let's do that for a minute. But this time, with a structure. In fact, the benefits depend on who adopts them. Let me take an example, if the public sector adopts open standards, it makes public sector more effective, private sector more innovative, and citizens get more choice. A win-win for all, except the monopoly vendor.

How can open standards transform society? How long does it take? Where can I get that pill? You would think politicians were wondering. In fact, they should: standardization is a tool to grapple with globalization. No longer will global forces—flows of capital, technology, ideas, companies, products, and people seem uncontrollable. There is a self-organized and occasionally government sponsored self-governance going on. One in which agreements are reached without trading tomato quotas for languages (an anecdote I heard recently says the Portuguese agreed not to translate a key document into their language, saving time and money in exchange for larger tomato quotas. This supposedly happened sometime in the 90s). So, in that light, you could say that standardization sets you free, as SME, individual, government or vertical industry. How much for that? Can freedom even be monetized? Well, let me say that freedom for sure is worth more than € 1 Bn/year in Europe.

Even if we limit ourselves to more tangible effects, a recent British study estimates the annual contribution of standards to the economy of the United Kingdom at 3.6 thousand million Euro. In France, 13% of the growth in work productivity can be attributed to standards, according to figures quoted in the French Standardization Strategy 2006-2010. this was only figures for the value of formal standardization. In ICT, of course, fora/consortia are more important.

So, what is the fuzz about? Who in their right mind can possibly be against an increased focus on standards and against putting money and resources towards this honorable pursuit? Frankly, only monopolists with little to gain from competition, innovation, and consumer welfare. I would rest my case here. But I think the analysis deserves to be taken further. The situation in Europe is—and this is not easy to talk about—that there are established players in adjacent markets—such as telecommunications, electronics, hardware and embedded software—who are afraid that the convergence of technologies will mean they will have to play by software's rules. And they simply do not want to.

Furthermore, Europe has strong companies in vertical sectors who by 2009 for all practical purposes are software players as well. What oil or energy company does not have a software focus in their drive for efficiency and profits? All of them do. Some even have their own software units. But they seldom appear in the statistics, and their voice is never heard when talking about the software industry. They speak on behalf of what they see as their industry—a vertical.

Clearly, policy makers have so far been very sensitive to what their own industrial powerhouses have had to say. And so they should. The challenge is, that precisely following the path of protecting dinosaurs, even well performing dinosaurs, will not improve the software market. So, Europe has a choice. Take a chance on creating a new industry, knowing that it faces resistance among their own, or patch up the current situation, letting the existing logic prevail. Let me remind you, a logic where Europe is a software midget, a continent of lost opportunity, but still an enormous software market on the receiving end. To any market economist this is a quite striking phenomenon. The Americans would call it a no-brainer. The striking thing is that nobody has proven the telecoms right; there is no evidence to suggest they would go under if Europe played up its software hand. On the contrary, it might create a new markets for telecommunications players as well.

Actually, I will say one more thing: the fact that open standards makes business sense does not mean it is easy to create them. Standards take time, they mean intense negotiations, technical literacy, money to travel, and diplomatic skills and stamina. There should be a prize to people who develop standards, probably the most silent engine of growth of the information economy.

So what is the call to arms? It is easy. We need to adjust the current standardization and IPR regime in Europe to better facilitate innovation—and we need to do it before the opportunity is lost. The previous decade has shown that the software industry does not ask for permission to innovate. It does not wait for anyone. Innovation will happen wherever creative minds have the space to grow and where the markets are open for business. Europe could be that haven of openness. China will not be. The model in the US is open—as regards letting business concerns permeate standardization policy. But Europe could go further. A Europe transformed by software openness would potentially be the most competitive economy in the world. Maybe not by 2010, but more realistically by 2020. Rome was not built in one day. Building it took leadership, tough decisions, and sacrifice. Openness—by open standards and a sound standardization system entails very little sacrifice—and will make Europe more than a good place for a software technology museum.

Open standards are the best way to achieve interoperability. However, almost all software standardization happens outside the formal channels (ISO, CEN, BSI), and that this is a challenge that governments (and industry) must grapple with. While fora/consortia like W3C and OASIS are not (yet) formalized, they do have international reach and allow access and transparency.

How to create bridges between the formal and informal world? If governments signaled very clearly that they are open to good, open standards wherever they come from (as long as they fit your requirements as a customer...or as a custodian of the common good), that would give legitimacy to the right fora/consortia, and would de-legitimize other, less worthy ones. The net effect would be to simplify the system.

A draft report report of an industry expert group on a European software strategy, initiated by the European Commission's DG Information Society and Media, but with independent conclusions, called Software 2.0: rebooting Europe's software industry from April 2009, Version 3.0, calls the Internet the global network of the 21st century. If it is, that has profound consequences for the way we have to view the transformational potential of software. We are talking about a utility in the same vein as water, gas, electricity, and telephone access. The difference is—this particular utility determines life chances, and company and country balance sheets. And it is more difficult than putting the cables in the ground and switching it on. There is content, skills, and maintenance to think of from day one. Cloud computing, despite all of its possible merits, is currently forking the Internet into dozens of paths. This is not smart, certainly unless each path follows established open standards, and is a challenge that must be addressed in 2009, not later.

The transformational potential of software standards cannot remain invisible. The most silent engine of growth of the information economy must now make some noise. The only force that could enable a sustainable energy future of Europe by making other industries more efficient must now step out on its own. But it cannot, will not do it alone. Software is what it is—soft—until its effects are known. Hard facts. Policy drive. The power of such ideas must now be apparent. Whatever choice European policy makers make, 2009 will be remembered as a turning point, not only in the history of the Internet, the history of the financial markets, and the history of sustainability, but also in the history of Europe. There are two paths—towards the past and towards the future. Europe has always had elements of both, but 2009 may not afford her the choice anymore.

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Trond Undheim, Ph.D, Director of Standards Strategy and Policy at the Oracle Corporation, speaker, entrepreneur, blogger, and author, is one of the world’s leading experts on technology and society. LinkedIn profile

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