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The Evolution of the Digital Computation Industry
Abstract
All industries are based upon a core of knowledge. Economic evolution is the growth of this knowledge as an experimental and path-dependent process involving markets, firms, finance, entrepreneurship, and often substantial uncertainty. In the set of industries associated with information technology, the core of knowledge is programmable digital computation (PDC). In this paper, we outline the origins and development of PDC, and in particular the path from the mainframe industry to the PC. We tell this story in order to highlight a number of salient features about the relationship between competition and evolution. First, the predominant form of competition was not focused about competitive pricing in existing markets, but rather for the creation of new markets and therefore monopoly positions. Second, as the IBM story demonstrates, this involved leveraging competencies between markets, often deliberately destroying a market in order to create a new one. Third, as the hacker tradition illustrates, much of the entrepreneurial development of the industry came from the users, due to their close conception of the technological possibilities and opportunities. Fourth, we highlight the overarching importance of the setting of standards (by fiat, by self-organization, or by monopoly) and the role this has in reducing uncertainty. We offer some policy and management lessons based upon this analysis.
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