U.S. Industry in 2000 Studies in Competitive Performance (1999) / Chapter Skim
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9 Computing
9 Computing
Pages 215-244
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From page 215... ...
At the moment, the "Silicon Valley" system of organizing innovation is on the ascent, and the "IBM" system appears to be fading. The change is so radical that one can speak of an old computer industry and a new one (Grove, 1996~.
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From page 216... ...
The new computer industry rewards different kinds of technological skills, company organization, and inno iIt would be useful but extremely difficult to turn these anecdotes about the persistence of rents in the United States into a systematic measure. A wide variety of sources, including the financial performance of U.S.
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From page 217... ...
Clearly the joint and mutually reinforcing development of technology, market structure, firms, and institutions is a source of national competitive advantage. In the computer industry, invention by users is very important.
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From page 218... ...
Once again, computing is undergoing a revolution in its technical basis, firm and industry organization, and major applications. Networked computing involves transitions such as commercialization of Internet technologies and creation of electronic commerce transitions that will certainly change the structure of firms and markets and may even mean the end of the vertically disintegrated Silicon Valley system.
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From page 219... ...
As with many general purpose technologies, investments in this capital lead only indirectly to valuable outputs. Without complementary innovations in other inputs or the complementary invention of new computer-based services, computers are useless.6 At a minimum, to understand innovation in the computer industry, one must examine both invention by sellers of information technology and co-invention by buyers.
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From page 220... ...
Applications software (accounts payable, computer aided design) Coordination institutions for invention Vertical Integration | Interface Standards | Coordination institutions for commercialization Vendor field sales and service Systems integrator Custom software house Consultant, VAR Co-invention technologies (examples)
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From page 221... ...
Now there are several important applications software markets in which software inventors sell their wares to user companies. The largest, in unit sales, are individual productivity applications (spreadsheets and word processors)
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Co-invention is harder to measure. The most objective part of it is programming personnel expenditures in computing departments, and this is the figure in Table 2.~2 The commercializa iiThis follows International Data Corporation (IDC)
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Co-invention 7. Applications software (credit card 310+ fraud detection system, spreadsheet macro)
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From page 224... ...
All these approaches reveal substantial costs of inventing the business side of computer applications.~5 The last column in Table 2 offers a view of the rate of technical progress in the different portions of computer industry invention. As one reads down the column, the measured rates of technical progress fall.
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From page 225... ...
Interface standards, cross-company communication, and markets have been used when supply is by a group of vertically disintegrated specialty technology firms. i6 The emergence of applications software markets with independent "packaged" software vendors acting as suppliers was not merely a technological event.~7 It involved changes in industry structure and business models to be effective.
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From page 226... ...
Computer networks have also changed business computing. Interorganizational computing links together firms or workers in distinct organizations.
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The newest demand, interorganizational computing, involves both a blurring of the boundaries between the clusters and another set of reasons for American dominance, so current developments are treated in later sections. ORGANIZATIONAL COMPUTING The oldest part of the computer industry, mainframe computers, consolidated around a dominant firm (IBM)
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As a result three distinct types of firms entered the early computer industry: office equipment producers, electronics firms, and new firms. Computers were a new electronics good that attracted several producers already active in other electronics fields.
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Advantage in Organizational Computing As the IBM experience illustrates, firm-level sources of national advantage have proved very important in organizational computing.24 Of course, a wide variety of institutions and policies supported the emergence of IBM as the world market leader. Universities Universities in both the United States and Europe were active at the scientific and prototype levels before computers were commercialized.25 In the United States, universities were less important for their scientific and engineering contributions that would be useful in computing than for their participation in computer projects for military and commercial sponsors.
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From page 230... ...
The Defense Department spread a good deal of money around and let the supplying industry structure emerge in the marketplace.27 Antitrust Policy U.S. antitrust policy worked actively to prevent IBM from emerging as the dominant firm in the fledgling computer industry.
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And it increased the variety and flexibility of hardware supply in the United States. Competition from Other Countries During the long period of IBM's hegemony, other companies sought a share of the worldwide market for organizational computing.
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Entrepreneurs entered not only computers, but also other hardware components and software. Positive feedback among these different entrepreneurs led not only to their success, but also to a pronounced regional advantage for the western United States, and the available support institutions for entrepreneurship in that region, such as venture capital, both rein 30The boundary between organizational and technical computing is unclear.
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From page 233... ...
Applications software makers such as Lotus, WordPerfect, and Ashton This divided technical leadership is striking for two reasons. First, it was remarkably effective at advancing the PC platform.
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Why is there vertical competition? First, vertical disintegration provides a source of competitors that is not available when a vertically integrated firm supplies the complements.
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Experts push each technology. Divided technical leadership that becomes vertical competition not only permits speed, it also forces a wide variety of competitive races.
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From page 236... ...
but have not been effective competitors in worldwide markets. NETWORKED COMPUTING AND CONVERGENCE The structure of the overall computer industry has changed dramatically in the 1990s.
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From page 237... ...
Competition in Networked Computing The divided technical leadership of networked computing, the uncertainty about invention in it and co-invention in interorganizational computing, and the likely large size of these new segments are a recipe for vertical competition. The rents associated with the control of future standards and technologies will be large, so there is a very large return to moving to control them now.
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From page 238... ...
As a result of all this maneuvering, there is widespread speculation that one or a few of the firms controlling key interfaces for connecting modular products will come to dominate networked computing, but no single firm has so far been able to govern change and coordinate platform standards. Clearly vertical integration will increase in the next few years, but substantial vertical competition will also continue.
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U.S. ADVANTAGE LIKELY TO CONTINUE The uncertainties of networked computing notwithstanding, the United States seems likely to continue to dominate the worldwide computer industry.
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Applications software companies for organizational computing, systems integrators, and customs software houses are all worth mentioning here. Many of these firms are American, but there is a healthy international supply in this area.39 Commercialization, unlike technology, has a strongly local flavor.
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The 1990s have seen three linked changes in computer industry structure and the workings of competition. The process of vertical disintegration, which had been historically confined to making each new market segment less integrated than the last, spread to all the segments.
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From page 242... ...
In microcomputing, and even more so in computer networks, there has been a regional shift from areas in the eastern part of the United States westward toward Silicon Valley. This shift implies the need to consider carefully the unit of analysis of competitive advantages the division or department, the firm, the region, or the country (Saxenian, 1994~.
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From page 243... ...
. "Industrial Dynamics and the Evolution of Firms' and Nations' Competitive Capabilities in the World Computer Industry," forthcoming in The Sources of Industrial Leadership, D
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From page 244... ...
. "Creating External Capabilities: Innovation and Vertical Disintegration in the Microcomputer Industry," Business and Economic History 19:93-102.
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