Standards and business models

You are currently viewing Standards and business models

Standards and business models

Introduction

Some could think that the title is an oxymoron. Indeed standards, certainly international ones, are published by not-for-profit organisations. How could they have a business model?

The answer is that around a standard there are quite a few entities, some of which are far from being not-for-profit.

Therefore, this article intends to analyse how business models can influence standards.

The actors of standardisation

Let’s first have a look at the actors of standardisation.

  1. The first actor is the organisation issuing standards. It may be an international organisation such as ISO, IEC or ETSI, or a trade association or an industry forum, but the organisation itself has not been designed to make money. A typical arrangement is a membership fee that allows an individual or a company employee to participate. Another is to make users of the standard pay to obtain the specification
  2. The second actor is the staff of the standards developing organisation. Depending of the type of organisation their role may be marginal of highly influential
  3. The third actor is the company who is a member of the organisation issuing standards.
  4. The fourth actor is the expert, typically the personnel sent by the company to contribute to the development of the standards.

From the interaction of these actors, the the standard is created, Then the standard creates an ecosystem. Companies become member of the ecosystem.

Why do companies participate in standard development?

Here is an initial list of motivations prompting companies to send their personnel to a standards committee.

  1. A company is interested in shaping the landscape of how a new technology will be used by concerned companies or industries. This is the case of Artificial Intelligence (AI), a technology that has recently matured and whose use has different sometimes unexpected implications. JTC 1/SC 42 has recently been formed to define AI architectures, frameworks, models etc. This kind of participation is not exclusive of companies. Universities find it useful to join this “exploratory” work because it may help them identify new research topics.
  2. A company is interested in developing a new product or launch a new service that requires a new standard technology.
  3. A company may be obliged by national regulations to participate in the development of a standard
  4. A company or, more and more often a university, owns technology it believes is useful or even required to draft a standard that a committee plans to develop. Again, a relevant case for this is MPEG where the number of Non-Performing Entities (NPE) is on the rise.
  5. A university or, not infrequently, a company wants to keep abreast of what is going on in a technology field or become aware as early as possible of the emergence of new standards that will affect its domain. MPEG is a typical case because it is a group open to new ideas and is attended by all relevant players.

Not all standards are born equal

The word “equal” in the title does not imply that there is a hierarchy of standards where some are more important than others. It simply means that the same name “standard” can be attached to quite different things.

The compact disc (CD) can be taken as the emblem of a traditional standard. Jointly developed by Philips and Sony, the CD quickly defeated the competing product by RCA and became the universal digital music distribution medium. The technical specification of the CD was originally defined in the Red Book and later became the IEC 60908 standard.

MPEG introduced a new process that replaced the development of a product, the marketplace success and the eventual ratification by a recognised standards organisation. This is how the process can be summarised:

  1. Identify the need of a new standard
  2. Develop requirements
  3. Issue call for proposals (CfP)
  4. Integrate technologies obtained from the CfP
  5. Draft the standard

In the early MPEG days, most participants were companies interested in developing new products or launch new services. They actively contributed to the standards because they needed it but also because they had relevant technologies developed in their laboratories.

Later the range of contributors to standard development got larger. The fact that in the mid- 1990’s a patent from Columbia University, clearly an NPE, had been declared essential in MPEG-2 video made headlines and prompted many to follow suit. The trend so initiated continues to this day.

After MPEG-2 the next step was to revive the old model represented by the CD. MPEG-4 became just one “product” but other companies developed other “products” some of which got a recognition as “standard” by a professional organisation. The creation of such standards implied the conversion of an internal company specification to the standard format of the professional organisation. The use of those “standards” was “free” in the sense that there no fees were charged for their use. However, other strings of less immediate comprehension to laymen were typically attached.

MPEG (formally WG 11) is about “coding of moving pictures and audio”, but a parallel group called JPEG (formally WG 1) is about “coding of digital representations of images”. The two groups operate based on different “business models”. Today the ubiquitous JPEG standard for image compression is royalty free because the 20-year validity of any patents has been largely overcome. However, even before the 20-year limit was crossed, the JPEG standard could be used freely with no charge. The same happened to the less famous but still quite important JPEG2000 standard used for movie distribution and to the less used JPEG XR standard.

More recently a consortium was formed to develop a royalty-free video compression specification. In rough, imperfect but sufficiently descriptive words, members of that consortium can freely use the specification in their products and services.

The business model of a standard is a serious matter

From the above we see that working for a standard has the basic motivation of creating a technology to enable a certain function in an ecosystem. The ecosystem can be anything from the ensemble of users of a product/service of a company, a country, an industry or the world at large. Beyond this common motivation, however, a company contributing to the development of a standard can have widely different motivations that I simplify as follows

  1. The common technology is encumbered because, by rewarding inventions, the ecosystem has embedded the means to constantly innovate its enabling technologies for new products and services. This is the basis of the MPEG business model that has ensured 30 years of development to the digital media industry. It has advantages and disadvantages
    1. The advantage of this model is that, once a licence for the standard has been defined, no one can hold the community hostage.
    2. The disadvantage is that getting agreement to the licence may prove difficult, thus disabling or hampering the business of the entire community.
  2. The common technology is “free” because the members of the ecosystem have assessed that they do not have interest in the technology per se but only in the technology as an enabler of other functions on which their business is built. This is the case of Linux/Android and most web technologies. Here, too, there are advantages and disadvantages
    1. The advantage of this model is that anybody can access the technology by accepting the “free” licence.
    2. The disadvantage is that a member of the ecosystem can be excluded for whatever reason and have its business ruined.

Parallel worlds

It is clear now that “standard” is a name that can be assigned to things that have the promotion of the creation of an ecosystem in common but may be very different otherwise. The way the members of the ecosystem operate is completely different depending on whether the standard is encumbered or free.

Let’s see the concrete cases of MPEG and JPEG. In the late 1980’s they started as two group with roughly the same size (30 people). Thirty years later MPEG has become a 600-member group and JPEG a 60-member group. In spite of handling similar technologies, less than 1% of MPEG members attend JPEG meetings. Why?

The answer is because MPEG decided (more correctly, was forced by the very complex IP environment of video and audio coding) to adopt the encumbered standard model while JPEG could decide to adopt the free standard model. In the last 30 years companies have heavily invested in MPEG standards because they have seen a return from that investment, and a host of new companies were created and are operating thanks to the reward coming from their inventions. JPEG developed less because fewer companies saw a return from the free standard business model.

A low number of common members exists between MPEG and JPEG because the MPEG and JPEG business models are antithetical.

Conclusions

I would like to apply the elements above to some current discussions where some people argue that, since JPEG and some MPEG experts have similar expertise, we should put them together to make “synergy”.

The simple answer to this argument is that it would be foolish to do that. JPEG people produce free standards because, those who have a business in mind, want to make money from something else that is enabled by the free standard. If JPEG people are mixed with MPEG people who want encumbered standards, the business of JPEG people is gone

People have better play the game they know, not improvise competences in things they don’t know. It is more or less the same story as in Einige Gespenster gehen um in der Welt – die Gespenster der Zauberlehrlinge.

The right solution is MPEGfuture.

Posts in this thread