IT Standards and Network Effects

Standards play a prominent role in many systems that are characterized by interaction or inter-relatedness. In information systems such as software environments or Intranets standards provide for compatibility and are a prerequisite for collaboration benefits. More generally speaking, standards can constitute networks. "Network" is increasingly used as a metaphor to describe a set of means of cooperation designs between agents aiming at exploiting common synergies or more precisely network effects. The semantics of networks are very vague and even limiting the scope to "information networks" still includes supply chains, the "network" of users of certain software products, corporate intra- and extranets or more generally information infrastructures. Expected benefits result from improved coordination designs and generally include - depending on the particular problem domain - optimized business processes, more advantageous allocations, enhanced availability of information and other resources as well as decreased information costs or increased revenues. Since networks are based upon standards, decisions about standards are a key factor in building information infrastructures (networks). Inherent in standards, the commonality property deriving from the need for compatibility implies coordination problems. From a theoretical perspective, the existence of network effects as a form of externality that is often associated with communication standards renders efficient neo-classical solutions improbable. The externality property deriving from network effects (and thus the multifaceted dynamics behind the diffusion processes of standards) makes standardization problems somewhat complex and interesting to solve. Goal of the project "IT standards and network effects - co-ordination of infrastructure decisions in communication networks and contributions to a theory of positive network effects" is to get a better understanding of the mechanisms underlying systems subject to network effects and to develop solution strategies to IT infrastructure problems. More information is available at the project's homepage. Its part within the research strategy of the Institute of Information Systems.