Provenance the Web Magazine ISSN 1203-8954 - Vol.1, No.3 - July 1996

Clock speed: A Provenance retrospective on two decades of personal computing

Part II: The Networked Society

Abstract

In Part II of Clock speed, Provenance contributor
Mark Brogan concludes his journey through two turbulent decades of microcomputing. This article sketches developments since the 1980s which have entrenched ideas such as open systems and networks in the trajectory of microcomputing . In little less than a decade,the microcomputer and advances in communications technologies have created the phenomenon of the 'networked society'. This article has as its focus on the adaptive behaviours displayed by companies in the quest to survive and the respective roles of new technology and market forces in shaping the industry.

The Networked Society

During the 1980s, the idea of network connectivity for microcomputers gained ground. However, computers were mostly connected in local area networks (LAN's) which facilitated the exchange of data between people working in the same organization. Wide area networks (WANs) had existed since the 1970s, but these were intra-organizational and mostly concerned with the sharing of data contained in corporate databases for business purposes. A mass market for connectivity required the development of global and regional networks offering a range of information and other services to private citizens and corporations. It also required a new mode of delivery, in which key features of communications technology (eg the capability of delivering video, sound and picture information in or near real time) are merged with the text delivery capability.

In the 1990s, improvements in telecommunications infrastructure and network technology made possible the expansion of regional and global networks to encompass the idea of delivering a range of electronic information services to citizens based on the multimedia concept. A key innovation which embedded connectivity into the technological trajectory of microcomputing was the rapid expansion after 1993 of World-Wide-Web (WWW), a hypertext document delivery system based on Internet.

World-Wide-Web(WWW) provides the means by which information may be organised, linked and accessed via a client-server protocol (http). As a distributed system, the WWW consists of data stored on thousands of WWW servers throughout the Internet. World-Wide-Web is therefore a way of broadcasting or publishing information on Internet. It is not the only way of publishing (USENET, gopher and other methods exist) but it has become the most popular. This popularity is based on the Web's capability to deliver hypermedia, functionality requiring very high data transfer rates based on improved network technology (eg in routers and fibre optic cables). World-Wide-Web (WWW) is an example of a so-called 'broadband' technology.

Broadband services have become synonymous with the convergence of computing, communications and broadcasting technologies. Over the next decade, this convergence will result in the so-called `third wave' of information and communications technologies- technologies which merge communications with interactive multimedia (eg interactive television). The success of the Web and developments in broadband services generally, have resulted in a substantial movement of R&D funds to interactive network applications and network connectivity. With the decline in hardware as an issue and increasing pervasiveness of open systems, firms have identified networks and convergence as a basis for product differentiation. Software has become the principal focus of development effort.

In summary, the new technological trajectory of microcomputing in the 90s has added the additional components of:

  • network connectivity;
  • open systems;
  • multimedia; and
  • convergence with communications technologies.
  • The odyssey reviewed: technology push v. demand pull?

    Reflecting upon two decades of microcomputing as a guide to future possibilities, what can be said of the respective roles of the market and technological change as driving forces in this dynamic industry?

    Technological trajectories have exercised considerable influence over the course of innovation in microcomputing. Microcomputing is substantially technologically driven because

  • technological change is extremely rapid (according to Moore's Law the power of microprocessors doubles every 18 months- to date this has proven a reliable prediction);
  • markets for hardware and software are not vertically integrated (because the exercise of market power is constrained in this way, cartel or oligopoly behaviour cannot be used to control the pace or direction of technological change observable in other markets);
  • the period of Schumpeterian type monopoly enjoyed by innovating firms is short lived (an outcome arising from the inability of firms to protect innovations from imitators. Consequently, firms must invest heavily in R&D to provide for higher rates of innovation compared with other industries ie increase the frequency of innovation to remain profitable. )
  • Technology push can be seen at work in changes brought about by increased CPU power and speed. For example, the change from 8 bit to 16 bit technology from 1980 made possible the development of business applications and the development of large business markets for machines and software, which transformed the microcomputer industry in the 1980s. But demand pull is also evident in some innovation. For example, the market demand for inter-operability in the 1980s, resulted in a decline in product differentiation (Apple/IBM OS becomes standard) and embedded inter-operability into the trajectory. As Rothwell and Zevgeld (1985, p.21) comment "the relationships between science, technology and the market place are complex, interactive and multi-directional, with the dominant driving force varying over time."

    Markets and market power

    The idea that markets and market power function as important determinants of direction in the microcomputing industry may seem alien because of the intensely technological character of the industry. But history shows that technology push exercised a dominant role to the exclusion of the market place only in relation to the period of industry immaturity before the arrival of the PC when the market for personal computers was mostly built around hobbyists and electronic enthusiasts.[1]. Consumer preferences favoured hardware and software based product differentiation and the culture was distinctly non-utilitarian. In an interview (Allison, 1993) recently recorded for the Smithsonian, Bill Gates said of consumer reaction to the first microcomputer "people bought the Altair 8800 because they thought it would be neat to build and own a computer"[2] .

    Personal computers required improved technology in the form of more powerful processors and memory chips and new input/output devices before they could be used for business and other applications which would substantially expand the market. Between 1975 and 1980, the limitations of available technology substantially determined the market for personal computers. Innovation was significantly technology driven, which generated few problems in a market which placed a premium on new technology, rather than reliability and available, useful applications. Product differentiation at a hardware level was seen as the key to market share.

    With the introduction of the PC in 1981, the market power exercised by IBM and its decision not to protect its BIOS from imitation, elevated the PC to the status of a de-facto hardware and systems software standard. In the wake of the PC, hardware became less differentiated and price competitiveness significantly determined market share as the market flooded with PC clones. Companies which pursued different hardware/software architectures, or were unable to cut production costs, disappeared rapidly from the market place after 1983. The outstanding survivor was Apple, which created and secured Schumpeterian monopoly with innovations in desktop publishing and an object oriented OS (since eroded).

    Innovation overload

    Markets for microcomputer products can also be influenced by what Herbig and Kramer (1992, p.292) refer to as 'innovation overload' where
    "innovation evolves so rapidly and the alternatives multiply so quickly that the customer finds it difficult to manage the variety and make direct comparisons between the choices available."
    Herbig and Kramer's view correlates well with rationalisation of the industry and the long term trend away from hardware based differentiation beginning in the 1980s. High rates of innovation in the microcomputer industry directly translate into deferred buying behaviour, through the mechanism of consumer expectations. The expectation that `The machine I buy today, will be obsolete six months from now' suggests risk. Coupled with information externalities, the evidence suggests that innovation overload has operated as a significant factor in industry slumps.

    Knowledge and imitation

    Reminiscing oncemore, Gates (Allison,1993) describes an attitude to intellectual property which characterised the 'golden age" before the arrival of the PC-

    "There was no secrecy at all, at least as far as I could detect. Everybody in the industry would be at shows like the West Coast Computer Fair. And there was so much to do -- we were overlapping each other some. There was some good rivalry, but not in a sense that people were keeping lots of secrets about what they were up to."
    In the 1970s, the culture of microcomputing was rooted in an antipathy to big business and in the ideals of grass roots democracy, a movement which emphasised the importance of `openness'. The entrepreneurs of microcomputing saw themselves in the quasi heroic role of delivering transformative technology to ordinary people.

    Division of the industry into software and hardware also made the protection of intellectual property problematic. Software developers required access to CPU design detail to develop programs. An important part of the market consisted of end users who were technologically sophisticated and required public domain access to design detail to `hack' solutions to particular problems.

    These early features of the knowledge environment of the microcomputer industry meant that companies enjoyed very brief periods of Schumpeterian monopoly for the innovations they produced, before imitation and knowledge diffusion eroded the monopoly. In the long run, these factors made re-structuring of the industry inevitable. This began with the arrival of the IBM PC in late 1981. However, the short duration of innovation monopoly remains a characteristic of the microcomputing industry.

    Conclusion

    The inability of firms to secure temporary monopoly has resulted in an industry long run trend toward less differentiation at a hardware level, in favour of price competition and differentiation at a software level.

    In the absence of sustainable monopoly based on proprietary innovation, firms have exhibited a variety of adaptive behaviours to ensure survival. For example, they have

  • exploited weaknesses in intellectual property and patent law enabling imitation of competitors products;
  • strived to increase the rate of innovation (sustained through large R&D budgets);
  • formed (Howarth, 1994) strategic alliances to spread risk and enhance market power (the Apple/IBM alliance is an example from recent history);
  • participated in (DeBresson,1991) innovative networks (various open systems forums are a well known example); and
  • been involved in market distortionary practices (mergers and acquisitions, predatory pricing, exclusive dealing etc.-all aimed at eliminating or reducing the influence of rivals).
  • Market distortionary practices are the subject of regular trade practices law suits and regulatory investigations. When successfully applied, distortionary practices in markets have at times resulted in market domination by inferior technologies. Market failure has also arisen from information externalities (the uncritical nature of many industry journals is a visible demonstration) and marginal cost issues unique to some markets (software is a good example where the marginal cost of producing an additonal unit can be extremely low).

    However, the entrenchment of inferior technology has been less common than in other industries and mostly unsustainable in the long run. History also shows that the exercise of market leadership by firms has been mostly short lived and in microcomputing, firms must innovate more frequently to secure profits and market share. They must innovative pre-emptively, based on expectations of the actions of rivals. In brief, the competitive environment within which firms operate is one of

    "struggle and motion. It is a dynamic selection environment, not an equilibrium one. The essential forces of growth are innovation and selection, with augmentation of capital stocks more or less tied to these processes."[3]
    Because market leadership is short lived and uncommon, the expectation of market leadership furnishes a less plausible explanation of innovative behaviour, than for example the idea of behavioural rules.

    During the 1980s the locus of market power moved from hardware to software and since the middle 1980s the availablility of applications has mostly determined the success of machine types. The vertical integration of hardware and software offers firms an avenue out of the applications dilemma, but poses a problem for regulators who must make public interest determinations about the implications of such practices for competitive markets.

    As the microcomputer celebrates two decades of turbulent history, the trajectory and industry battleground has switched firmly to network connectivity, multimedia and convergence with communications. Reflecting the dominance of software, the key players in the looming battle for supremacy are Microsoft and Netscape Communications.

    In principle, Netscape's foundation in communications places it in the box seat to seize the market opportunities offered by the networked society and the new trajectory. Its opponent, Microsoft, jumped belatedly on the connectivity bandwagon and has only recently wholeheartedly embraced Internet. But not everything is weighted in Netwscape's favour. For its part, Microsoft brings to the browser war a President who studied economics at Harvard and is adept at the use of market power.

    The underlying reality, however, is that this is not just a war for control of the browser market. If the network computer or NC can be delivered with an information super highway large enough and fast enough,the requirement for increasing power and intelligence which has been central to the trajectory of microcomputing for two decades may be at stake. Up for grabs also could be market share in a re-shaped market place, transformed by a shake out every bit as dramatic and far reaching as that which followed the introduction of the PC in 1981.

    ENDNOTES:

    [1] For a description of this period vide Brogan, M. (1996) Clock speed: A Provenance retrospective on two decades of personal computing. Part I From Altair-Apple. The Provenance: Electronic Magazine for Information Professionals. vol.1 no.2, March, 1996

    [2] Allison, David (1993). Bill Gates Interview. [Transcript of a Video History Interview with Mr.William "Bill" Gates for the National Museum of American History, Smithsonian Institution].

    [3] Vide Nelson & Winter,1974, p.7.

    REFERENCES:

    DeBresson, C. (1991) Networks of Innovators: A Review and Introduction to the Issue. In Research Policy, vol. 20, pp.363-379

    Herbig, P. and Kramer, H. (1992). The Phenomenon of Innovation Overload. In Technology in Society, vol.14, pp. 441-461.

    Howarth, C. (1994) The Role of Strategic Alliances in the Development of Technology. In Technovation vol. 14 no 4 pp. 243-257

    Rothwell, R., Zevgeld, W. (1985) The Process of Technological Innovation. In Reindustrialization and Technology. Longman, Essex. pp.47-82


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    Last update July 26, 1996, Dec. 06, 1997