One Size Does Not Fit All for Standards Funding Models
We’re often asked questions about our funding model. For instance, “Why does X12 charge to license its published work? Why doesn’t X12 just rely on its membership dues to cover standards development and operating costs?” Likewise, some users or interested parties mistakenly assume X12 standards are “free,” with the entire body of X12’s standards work accessible via the public domain. In fact, standards aren’t ever “free,” though who pays for their use based on what criteria varies greatly.
This article aims to clarify some of these misconceptions, explaining why our funding model differs from other organizations and why we are committed to a mix of funding sources for X12’s long-term sustainability. The truth is that every U.S. standards development organization (SDO) has its own approach for covering maintenance and development costs. More to the point, the “one size fits all” financial model does not exist. Each voluntary, independent, and consensus based SDO, including X12, has a significantly different funding model to support its program mission, strategy, constituents, and member implementers.
What follows are brief descriptions of four common funding sources for SDOs, along with potential challenges to their sustainability, independent of each other.
- Membership fees. Some SDOs charge membership fees with tiers of up to $40,000 per year, and some have tangential initiatives requiring incremental participation fees in the tens if not hundreds of thousands of dollars. If an SDO’s revenue is driven primarily by membership fees, the organization might be impacted by a member company’s budget cuts, as membership renewals might wane. This could result in a subset of standards implementers, the members carrying most of the financial load.
- Government grants. Some SDOs rely on government grants, which are non-repayable taxpayer funds awarded by government agencies over multiple years. Since grants are subject to changing administrations and government priorities that can lead to budget cuts, ongoing maintenance of standards funded through this source may be compromised over time, creating a negative impact for implementers.
- Licensing use of intellectual property. Many nonprofits, including SDOs, operate successful licensing programs. This is an effective way to generate reoccurring revenue to cover operating, research, and development costs needed to sustain and expand a nonprofit’s mission and work. Depending on the cost, some implementers may look for alternatives or loopholes to avoid paying license fees, which can make enforcement difficult and potentially costly.
- Foundations, donations, and gifts. Some SDOs have a nonprofit charitable foundation, considered a separate corporate entity, that accepts donations to support research and projects that accelerate the adoption of standards. Foundations offer several advantages, such as asset protection, perpetuity, and tax benefits; however, they also may incur high setup costs, ongoing expenses, and a lack of flexibility.
Most of X12’s funding comes from membership dues and licensing program fees. We offer different membership categories based on the type of organization and individual.
We also offer four license categories that grant rights to published work explained in this article. X12 is the only organization, directly or through its publisher, authorized to grant permission for the use of X12 work. X12's goal is long-term sustainability that allows us to support the needs of our members and the implementers of our standards consistently over time. Our licensing model is designed to maintain this long-term sustainability by spreading operational costs more equitably across those who accrue value from using X12’s products.
X12 is committed to maintaining tried-and-true standards that have proven reliable, efficient and effective, and are used throughout many diverse industries. The data exchanged in X12 transactions is well-defined and has been use-tested in production systems for more than 40 years.
Billions of transactions based on X12 standards are utilized daily across finance, government, healthcare, insurance, supply chain, transportation, and other industry applications. Millions of entities worldwide have an established infrastructure supporting X12 transactions, representing a significant investment in a stable and effective business-to-business data exchange.
X12 distinguishes itself by staying the course, focusing on solving business-to-business data exchange challenges based on needs identified by our members and other interested parties. These needs are submitted through X12's open, consensus-based maintenance request process, which is accredited by the American National Standards Institute (ANSI) and supports input from all materially interested parties.
We welcome new members and invite you to contribute your expertise to our collaborative work that focuses on the greater good and in partnership with related standards bodies, industry groups, government agencies, and other member organizations.