Standards Fragmentation in Electronic Markets: An Institutional Analysis of XML Innovation Deployment

Champions of XML have argued that the standard has the potential to influence interbusiness communications more than any other protocol 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, diffusion of XML has been far less than anticipated. This study attempts to identify some of the barriers or constraints to XML adoption on a technological, administrative and institutional level. Our goal is to identify instances of sub-optimal XML deployment and trace their origins to institutional forces, thereby placing institutions at the forefront of technology innovation and diffusion research. We study an energy market that is undertaking the bilateral trades of electricity using XML. Through an analysis of industry trends and operational data, we identify several characteristics that have constrained the optimal adoption and use of XML, i.e., XML infusion. These include agency conflicts, misalignment of standardization incentives, path dependencies and technological legacies. These factors are mapped to institutional origins such as government regulation and deregulation, contract/vendor solicitation requirements, status and structure of competing and complementary markets, path dependent adoptions of best practice, political risk aversion, and technological codification of domain knowledge. These institutional forces map as key constraints of XML infusion. Implications for other industries and the diffusion of XML are explored.