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Although we are living in a globalized and networked world, people seldom care about the necessary underlying communication infrastructure and standards. From an economic point of view, the diffusion of network-constitutive standards and their economic impacts are analyzed in countless publications, e.g., for allocation impacts and emerging market structures. Accordingly, the diffusion results of communication standards or standards with network effects in general (none or too many standards, monopolistic dominated markets, etc.) have considerable consequences for the individual but also overall welfare of network participants. However, the question of how such standards can overcome the start-up problem and critical diffusion phase between the market rollout and the critical mass remains unanswered. A fundamental problem of the diffusion of standards and at the same time the reason for the start-up problem is the existence of network externalities: the individually achievable benefit of a communication standard depends on the adoption decision of fur-ther potential network participants. Consequently, the individual benefit is hard to predict, in contrast to the individual costs of adopting a standard.

The diffusion of new goods or standards is an object of interest in innovation as well as diffusion theory. Both fields of research differ from each other by examining the genesis or formation of innovations until the first implementation and usage in the market entrance phase (Bierfelder 1994) in the first case while the research on diffusion analyzes the interplay between the adoption and penetration of innovations in a market regardless of the origin of an innovation (Witt 1987). A further difference exists based on a different understanding of the term innovation. While innovation theory regards an innovation as a process, in diffusion theory an innovation is an object or the result of technological progress.

There are several definitions for network effects in the economic literature which are more or less detailed or specific. Katz and Shapiro (Katz et al. 1985, p. 424) describe the source of positive consumption externalities as the “utility that a user derives from consumption of goods” which “increases with the number of other agents consuming the (same) good”. Another definition also provided by Katz and Shapiro defines network effects as “the value of (a) membership to one user (which) is positively affected when another user joins and enlarges the network” (Katz et al. 1994, p. 94). Church, Gandal and Krause (Church et al. 2002, p. 1) emphasize that “network effect exists if consumption benefits depend positively on the total number of consumers who purchase compatible products”. Economides introduces the term “network industries” where external effects in vertical industries play a crucial role (Economides 1996a). According to these definitions, it is easy to come up with many examples such as computer or telecommunication networks, but also automated teller machines (ATM), credit cards, VHS video systems, QWERTY keyboards and more. Such wide definitions would also include newspaper subscriptions, golf club memberships, or customer loyalty programs. Literally all kinds of consumption with positive feedbacks on the supply side, as well as on the consumer side could be subsumed under the terms of network effects and network externalities. Obviously, such a broad definition is not helpful to describe the unique constellation in communication networks, where each adopter is a “consumer” and (willingly or not) a “supplier” of an adopted standard at the same time.

Advances in information and communication technologies and standards offer new ways of interacting between humans and machines and machine-to-machine communication, thereby inducing intended and unintended business process changes in many areas. Consequently, new networked coordination forms utilizing these information infrastructures influence spatial and temporal restrictions and, e.g., make it increasingly difficult to identify an enterprise’s regional, temporal, and organizational boundaries. For example, the automation of inter- and intra-enterprise business processes is supposed to influence economic and social reality. Many phenomena witnessed in globally networked markets cannot sufficiently be explained since large parts of the underlying dynamics are not yet well understood. The challenges of a globally networked economy are to understand the governing dynamics in networks better and to conceive and implement strategies in order to take advantage of these new possibilities. A combination of a more positivistic approach towards information systems and network analysis and normativistic research into prototyping and simulation may offer a valuable path towards an improved understanding of the basic principles underlying networks. This dual mode of research may support the network diffusion theory in understanding the dynamics behind emerging network standards and adoption behavior, as well as the overall benefit or impact of e-business standards on the industry and the national level (Beck et al. 2005b).

Apart from studying the empirical diffusion of existing e-business standards on an industry and a country level, the two following e-business application models contribute to possible future research directions aimed at solving problems occurring on the way to a network economy. While the need for interorganizational systems is widely agreed in the literature to be necessary in order to benefit from communication standards (Chau et al. 2001; Peffers et al. 1998), the following questions remain unanswered:

The diffusion of communication standards such as traditional EDI standards, but also newer ones such as InternetEDI, WebEDI, or even XML-based data communication standards is lagging behind the expected degree of widespread use although the benefits accompanying with these standards were never in doubt. It is not only SMEs who have not completely adopted these standards, but also even large enterprises with massive communication traffic are often reluctant to adopt, and therefore do not use all possible electronic data communication standards. EDI standards and communication standards in general seem to be special and different from other products or goods that can be used without the necessity of being a product that is widely adopted among other market participants. Therefore, the diffusion of such network effect standards is difficult to predict and often remains below the expected degree of diffusion. Standards which are not able to overcome the early phase of diffusion (from the start-up until reaching critical mass or threshold) will never become accepted market standards. Apart from the diffusion of open, unsponsored EDI standards among firms this phenomenon is also observable for proprietary, sponsored standards in the telecommunication markets, such as for WAP, i-mode, or UMTS.

The importance of standards in communication networks cannot be emphasized enough in modern organizations, be it in bidirectional relations among mobile phone networks or in supply chains among enterprises. While technological communication standards are the backbone of machine-to-machine communications, application standards or more general, common agreements are strongly influenced by the social behavior and kind of trust among network participants. The speed of adoption, as well as the nature of the chosen standard depends on the economic efficiencies an adopter can achieve and benefit from. In the case of communication standards, it is mainly network effect benefits related utilities that can be achieved and they are therefore intensely discussed in this contribution. In addition, the internal benefits and impacts of communication standards are important for their adoption, as the empirical results of the application models have shown. Communication standards change the way business is conducted and therefore provide strong evidence of the importance of standards. In the light of network effect theory, the true nature of a communication standard and its characteristics in the form of being partly a public good reveal the nontrivial economic challenge of estimating the value of standards. Consequently, open standards are less diffused and implemented among potential network participants. The application models provided, the WebConverter solution and reputation-based process automation are just two alternative ways of lowering the entrance barrier for potential adopters who do not yet use such standards, or to increase the potential benefits accompanying communication standard.

Starting from the research results described so far, future research will still be focused on the competition between a new communication standard and an already existing standard (installed base). In contrast to the prior work, what were formerly completely incompatible standards will now be partly compatible. In this extension, we will be analyze how the new setting influences the start-up problem when communication standards are compatible with each other. Using the decentralized standardization model, as well as the network effect helix model, further real-world scenario extensions will be made, in order to explain and forecast the reasons for communication standards diffusion. In doing so, an empirical survey will be conducted in order to validate the simulation results for single markets.