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Scanning the Commons? Evidence on the Benefits to Startups Participating in Open Standards Development

Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742
Harvard Business School, Harvard University, Boston, Massachusetts 02163
dwaguesp{at}rhsmith.umd.edu
lfleming{at}hbs.edu

This paper contributes large-sample evidence to an emerging discussion on open innovation and firm strategy. We ask why a startup should participate in an open standards community. We propose four ways that participation might increase a startup's chances of a liquidity event: gaining endorsement of the startup's technology standard, openly developing the startup's technology within the community (but not necessarily gaining endorsement), simply attending physical meetings of the community, and having startup members elected to leadership positions. Examination of venture-funded startups in the networking/data communications industry sectors reveals that those startups that participate in an open standards community (the Internet Engineering Task Force (IETF)) have a greater likelihood of an initial public offering or acquisition. The strongest effects are due to attendance, and conditional on high levels of attendance, holding leadership positions within the IETF. Surprisingly, standards endorsement is insignificant when controlling for simple physical attendance. These results are robust to instrumental variable methods and alternative coding of variables. In two-stage models we also find that prominent venture capitalists might help their portfolio companies by steering them to effective technology strategies, in this case active participation in the IETF, and not simply by lending status.

Key Words: open innovation; standards; entrepreneurship
History: Received: October 23, 2006;