The real options approach to standardization

An evaluation and selection framework for interoperability standards

“…It is reasonable to aim at accurate specifications by focusing on a given level, but standards should also complement each other and form integrated solutions which consider the different interoperability levels. This modularity of standards promotes scalability and innovation, as well as specialization where different parties develop different modules [13]. When an interoperability standard is evaluated, it is important to identify these relationships, in particular by identifying the references to other standards or models.…”

“…Surprisingly little attention has been paid to the systematic analysis of various aspects of application interoperability in relation to standards. Thus, and according to some authors ( [5,34,37,13]), a comprehensive but practical approach is needed for the evaluation of coverage, technical consequences and design implications of interoperability standards. The approach should also support the comparison of the underlying models, assumptions, coverage and possible overlap between different standards.…”

The real options approach to standards for building network-based services

“…This model is similar in nature to the option based approach by Baldwin and Clark [1] which explains the value of modularity in computer systems design. This model expands on our previous paper [2] about the advantages of modular design in protocol stacks showing how standards allowing flexibility in service architecture may increase the value of modularity.…”

“…The theory of financial options [3] has been expanded [4] into the theory of real options. This shows that non-linear gains are possible with investments in real world assets such as oil field expansion, investment in information infrastructure, modularity in computer hardware [1], and modularity in IT standards [2].…”

“…We create a model depicting the economic value of a network-based service to its provider as the service evolves in uncertain markets. Our model is based on real option theory by Baldwin and Clark [1] and builds on our previous paper [2] that placed the evolution of standards in the context of Complex Adaptive Systems (CAS) and shows with an options like model how modularity in protocols increase value. This paper expands our previous work, showing how to get the most from this modular structure.…”