Tuesday, February 23, 2010

Standards and rent seeking behavior

Rent-seeking behavior is defined by economists as behavior intending to gain competitive advantage by manipulating the environment to your benefit, rather than through profiting from production of goods and services. An example of this would be if a company X managed to get a law passed specifying that all goods purchased by the government must comply with ISO standard 3.052345.32431, where company X happens to hold a critical patent on the technology in that ISO standard. In this case company X is profiting not because they produced goods and services, but, rather, because they manipulated the environment (got a law passed) which says that everybody wanting to do business with the government must pay rent (patent fees) to company X.

William Vambenepe complains that cloud standards are being created in a secretive manner. He complains that this means that those of us actually implementing cloud computing software are being locked out of the process. And this is true. Yet this is not unusual. Why? Well, because there are certain large corporations who, for some reason, still believe that rent-seeking behavior is useful when it comes to the standards process -- i.e., that, as with creating a law dictating that everybody pay rent to them, that they can set a standard that dictates that everybody pays rent to them.

Let me explain: The more complex the standard (and the more BigCorp-patented technologies included in it of course!), the more resources it will take to fully implement it. The goal is to make the resources and patent licenses needed to fully implement the standard so onerously huge that only large organizations will have the resources to do so, meaning they are the only ones who are “standards-compliant” and they can slam any potential upstart competitors as not being “standards-compliant”. Not going to name names here, but I’ll just point out that simpler standards tend to drive out the more complex standards, thereby leaving the big companies high and dry with a product that nobody wants to buy. Has anybody here used the complex X.25 protocol lately? What, you’re using the simpler TCP/IP protocol instead? Exactly.

Which points out why rent-seeking behavior is invariably self-defeating when it comes to standards. Unlike compliance with the law, compliance with standards is generally voluntary. If a standard is too complex or too expensive to implement, people simply won't use it, and a “standard” that nobody uses — or that only customers of a few large corporations use — is hardly a real standard. And keeping the standards discussions secretive is hardly in the best interests of anybody also, it means that real problems with “standards” will be overlooked until the “standard” is actually published, at which point all the effort used to produce the “standard” is useless because nobody will create products that implement the “standard” (thus rendering it *not* a standard). Yet we still see this sort of rent-seeking behavior on the part of certain large corporations that seem convinced that it actually works. Inexplicable…


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