Standardization in Vertical Industries: An Institutional Analysis of XML-Based Standards Infusion in Electricity Markets

Champions of XML have argued that the language has the potential to influence inter-business communications more than any other technology in recent history. The improved structure and efficiency of XML, compared to comma separated value or electronic data interchange transmissions, are difficult to negate. However, adoption of XML-based standards has been far less than anticipated. This study identifies some of the barriers or constraints to XML-based standards on a technological, administrative and institutional level. Our goal is to identify instances of sub-optimal XML-based standards and trace their origins to institutional forces, thereby placing institutions at the forefront of research related to standardization initiatives in vertical industries. We study an energy market that is undertaking bilateral trades of electricity using XML-based standards. Through our analysis, we identify key characteristics of institutional influence that have constrained the optimal infusion (i.e., adoption and use) of XML-based standards. These include: (a) principal–agent conflicts; (b) misalignment of standardization incentives; and (c) path dependencies and technological legacies. These factors are further mapped to intermediate level causes, including: (1) government regulation and deregulation; (2) contract/vendor solicitation requirements; (3) status and structure of competing and complementary markets; (4) path dependent adoptions of best practice; (5) political risk aversion; and (6) technological codification of domain knowledge. These institutional forces constrained XML-based standards infusion in the energy market. Based on these results, implications for XML standardization in other vertical industries are