Standardization and the Competition between Standard Business Software and Framework Technology: Policy Implications for the Management and the Standardization Organizations

Bernd Reitwiesner, Stefan Volkert, and Melanie Frank

1/01/2005
(Original Publish Date: 2001)

From a technical point of view, frameworks appear to be a promising means to provide the industry with business management software quickly and in a cost effective manner. Nevertheless, apart from IBM's San Francisco Framework, there are not many initiatives by the software industry to develop application frameworks to compete with established standard business software vendors. When analyzing the economics of software development with or without frameworks, there are two particularities to be considered: the network effect and the effect of compatibility decisions. Our microeconomic model incorporates these two effects and allows deriving recommendations on the strategic positioning of a software vendor in this competition. We show how the results in the model change by introducing a standard. If it is possible to establish framework technology on the software market, social welfare will increase. Therefore, we re-commend the standardization organizations to support framework technology by establishing a standard.