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STEVEN W. USSELMAN

This article surveys firm behavior and competitive structure in American

computing during the past

5

years and places the industry within the con-

text

of

American political economy It argues thaf leading firms

such

as lBM

Apple and Microsoft have exhibited a capacity

to

strike compromises be-

tween innovation and stability Through selective enforcement of the anti-

trust

laws

government has tolerated and even encouraged such behavior

The computer industry has thus followed patterns established in other en-

deavors such as electric power and telephony

ction

he remarkable history of the American computer industry

can perhaps best be understood as

a

sustained drive toward

aturization punctuated by a series of technical compromises.

Even the most casual observer could likely identify the main

course of change. Sustained improvements in manufacturing

technology have enabled producers

of

solid state components to

cram ever more circuitry into smaller spaces for far less cost.

Riding the natural trajectory of this “revolution in miniature,”

computer designers and programmers have produced machines of

markedly increased capabilities and steadily diminishing expense

[ I ] . Less appreciated, it seems, are the pauses along the way. For

amid the ever advancing tide of miniaturization, the computer in-

dustry has periodically stabilized around a basic technological con-

figuration involving standard components, logical design, and oper-

ating software. Each of these interludes has necessa rily involved the

same basic compromise. The potential for more rapid and more

radical change at the technical frontiers of the industry has been

sacrificed in exchange for the perceived bene fits of standardization.

These critical compromises have typically been orchestrated

by powerful firms that dominated the market for computing. For

much of the industry’s history, giant International Business Ma-

(IBM) performed this vital function. Capital-

it had developed in the electromechanical era

of data processing, IBM quickly garnered over 80 of the mar-

ket for electronic computers, a position it held for over a quarter

century

[2].

With the advent

of

personal or desktop computing,

IBM

came to , share the role with Apple Compu ter, an upstart

that had introduced a measure

of

predictability into the chaotic

realm

of

individualistic hackers. More recently, the mantel has

passed to IBM’s former suppliers, Intel and Microsoft. All of

these businesses have consistently demonstrated an ability to

assert a degree of order over computing technology without

unduly stifling subsequent development. Their capacity to do

so

has made them and the American industry the envy of peoples

and nations around the world

Though this essential capacity for compromise has resided in

private firms operating in a competitive marketplace, the fedeial

government has had a significant hand in its creation and suste-

nance During the early phases of the industry, military pro-

curement programs helped foster a brand of competition that

rewarded firms such

as

IBM When the comm eicial market

blossomed during the 1 950s , the principal locus of government

activity shifted to the Antitrust Division of the Justice Depart-

ment Through

a

variety of well-publicized consent decrees,

lawsuits, and settlements, the Justice Department would, during

the next four decades, persistently leave industry leaders intact

while undoubtedly shading their subsequent behavior in more

competitive and innovative directions Meanwhile,

as

computer

technology increasingly converged with that of communica-

tions, the regulatory appdratus of the Federal Communications

Commission and its associated Congressional committees came

into play as well Using these three tools-procurement, anti-

trust, and regulation-the federal government established a

framework that tolerated and even encouraged the emergence of

dominant firms, so long as they exhibited a willingness to make

In highlighting the role of compromise, the following brief

survey makes no claims that the particular series of tradeoffs

struck by dominant firms and their watchdogs have produced the

single best possible outcome Compromises always com e at some

cost and never satisfy all interested parties They leave behind

many losers, who are left to ponder whether their alternative path

would not have proved the better course The recurrent antitrust

proceedings that have persistently hovered around the computer

industry give powerful testimony to their frustrations Thou gh

those proceedings have generally exonerated the dominant firms,

useful tradeoffs between stability and innovation

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they leave open to question whether industry leaders have truly

attained their positions through artful compromises embraced

broadly by the market. Perhaps on some occasions, at least, their

dominant market positions have enabled them

to

impose stability

rather than negotiate it.

Yet one advantage of a survey such s this is that it enables

us

to step back f rom the par t iculars and to see the computer

industry in a broader context . The modern history of innov a-

tion and enterpris e is littered with exa mple s of promising

technologies that languished because societ ies could not agree

on

the best course of action

[3].

Computing was cer tainly not

immune f rom this phenomenon. Indeed, the nature of com-

puter technology made the industry par t icular ly suscept ible.

Despi te the enorm ous potent ial inh erent in sol id state technol-

ogy, the Amer ican co mputer industry could easi ly have foun-

dered in a sea

of

conf l ict ing approaches

to

design and pro-

gramming. Br i t i sh comput ing, star t ing f rom a comparable

posi t ion, met wi th just such a pl ight. A mer icans fou nd a way

to skirt that danger, much as they had in fields such as rail-

roads, steel , e lectr ic power , and telecomm unicat ions [4]. Their

efforts at compromise may not have produced an optimal out-

come, but they certainly produced a distinctive and enviable one.

The Emergence of

IBM

For most of the history of computing,

no

one was more en-

vied than IBM. Electronic computers first made their appear-

ance at the end of World War 11 with completion of ENIAC. A

tumultuous period followed, as various design groups scrambled

to find a niche within a market heavily enriched by military

expenditures. To have any hope of succe ss, designers needed to

master the rapidly changing technology of electronic compo-

nents which, with discovery of the transistor in 1947, had just

embarked on the solid state revolution. Everything about this

situation pointed toward chaos, uncertainty, and fragmentation.

Yet remarkably, within a decade of the war’s end,

IBM

had

attained a position of leadership in each of the four major areas

of computer applications and design.’ Though its influence in

certain areas would subsequently wax and wane, the company

would maintain an astounding

80

to

85

percent of the market for

computing until well into the 1980s.

While it is tempting to interpret this startling performance as a

stunning display of entrepreneurship, the emergence of IBM in

fact provides an outstanding illustration of the evolutionary nature

of economic change common to advanced capitalistic societies.

The economies

of

such societies do not consist merely of count-

less isolated units competing freely in a broad marketplace, as

Adam Smith described in his analysis of eighteenth century Brit-

ain. Amid the many small producers of the twentieth century, one

finds elaborate organizations with highly developed capabilities.

Specialization and size often limit the flexibility of such institu-

1

Kenneth Flamm has noted that by

1950

one could clearly identify

four separate approaches to computing:

1)

large commercial machines

such as Eckert and Mauchly’s Univac;

2

large scientific machines such as

that designed by the mathematician John von Neumann for Princeton’s

Institute for advanced study; 3 computers for use in real-time control

applications, such as that under development at MIT

in

Project Whirlwind;

and 4) small machines that might appeal to cost-conscious consumers. See

Flamm,

Creating rh Computer 1988,p.

105

tions. But these same qualities can also give large firms and pub-

lic agencies the ability to accomplish certain tasks more readily

than anyone else. The market provides a selection mechanism,

matching tasks that may originate from shifting desires or from

technical novelties with those institutions best capable of per-

forming them [ 5 ] . This is precisely what happened in the early

computer industry. The task of building computers and placing

them in various corners of the market involved a mix of knowl-

edge and capabilities that matched those existing at IBM extraor-

dinarily w ell.’

By their very nature early computers

presented designers with an

extraordinary latitude that could easily

prove disabling.

The key to this marriage lay in the paramount importance of

striking technical compromises. By their very nature, early com-

puters presented designers with an extraordinary latitude that

could easily prove disabling. Part of the complexity came from

the fact that computers were hybrid assemblages of many compo-

nents. In this respect, it is true, computers did not differ entirely

from automobiles and many other products. But the number and

degree of potential variations were especially large in the case of

computing. A single installation involved not only choices of

different subassemblies (printers, processors, storage devices), but

also of different basic building blocks (resistors, tubes, semicon-

ductors) that were themselves undergoing rapid development.

Unlike virtually any other machine, moreover, computers had no

single specific use. They could be altered to perform different

tasks. Indeed, their expense made it essential that they possess

such flexibility.3 The tailoring process involved many things-the

logical arrangement of circuits and switches, instructions encoded

in language read by the machine’s memory, input devices, storage,

and printers. Over time, as innovations in magnetic and electronic

storage reduced the cost of memory, more and more of this pro-

gramming came to involve language [7]. But for many years

switches and circuitry remained important tools for designers

seeking to build flexibility into their systems. Peripherals have

figured prominently throughout.

No company was better positioned to perform these essential

balancing acts than IBM. Its long experience with building and

leasing electromechanical accounting equipment had not only

2. The task of manufacturing semiconductors proved so novel that it

fell outside the established expertise of any organization. Despite the

efforts of tube makers such as RCA and GE to master semiconductor

production, the industry was dominated by new start-up firms, at least

until IBM itself integrated backward into the component business during

the early six ties. See Lewin, “The Semiconductor Industry.”

3. Admittedly, those tasks initially did not seem all that diverse. Most

involved complex calculations based on differential equations. Code-

breaking represented a different application with important im-

plications, but it

was

done

in

secret by the same sorts of people-

mathematicians-using simila r thought processes . It took a truly bril-

liant and prescient individual, such as Alan Turing, to recognize that

those methods

of

reasoning could be used to resolve all sorts of prob-

lems. Even when a pplied to calculations, however, the com puter had to

be tailored or programmed to receive certain information, manipulate it

in particular ways, and print out or store the results in a specific format.

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Fos t e r i ng a C apac i t y f o r C omprom i se : Bus i ness G ove rnmen t and S t ages

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I n n o v a t i o n

made the firm familiar with the most sophisticated calculating

techniques of the day; it had also fostered a set of abilities that

ideally suited the challenges of computing. IBM salesmen worked

continually to build their “installed base” of leased machines,

which each month earned them and IBM rental income. Salesmen

could of course increase their base by attracting new customers.

but they could also do so by persuading existing customers to use

novel arrangements of IBM equipment to perform new tasks. The

production facility in Endicott, New York operated as a mechani-

cal job shop, responding to requests from the field for solutions to

particular problems. It constantly took gears, ratchets, and relays,

obtained from outside suppliers, and produced novel machines.

and it devised numerous ways of joining counters, printers, and

other machines in complex installations. Naturally, the mechanics

at Endicott routinely looked for opportunities to reduce the varia-

tions and build in volume. Sales statistics and education programs

helped the cpmpany strike a balance between novelty, which gen-

erated revenue, and standardization, which produced economy.

The production facility also worked in close collaboration with engi-

neers wh o installed and m aintained the e quipment in the field [8].

In sum, IBM w as an organization whose business had naturally

fostered these qualities: salesmanship that required close attention

both to technology and to the particular requirements of each

customer, regular exchange of information between the field and

the plant, flexibility in production’, and a willingness to compro-

mise. These qualities put IBM in an excellent position

to

adapt to

the electronic computer and the solid-state revolution. Some ob-

servers, reflecting

on

this situation, have argued that IBM behaved

in a highly unusual (and remarkably enlightened) fashion in

making this transition because the electronic computer ultimately

made the company’s installed base of electromechanical account-

ing equipment obsolete. I believe this argument represents a pro-

found misreading of the situation-one which fails to comp rehend

the nature o? technical know ledge in the data processing business,

overlooks the importance of existing organizational capabilities,

and neglects market conditions. A brief synopsis of IBM’s history

during the forties and fifties will bear this

IBM made the transition from electromechanical accounting

equipment to electronic computers by pursuing two paths. One

was to go after the emerging market for large, scientific machines,

which was funded largely through defense contracts. The other

was to begin to convert some of its established electromechanical

equipment to electronics and to build some degree of electronic

programmability into it. Through much of the 1950s, these efforts

remained conspicuously separate. The former was centered in

Poughkeepsie in a new facility built during the war, the latter

remained anchored in the original plant at Endicott. But despite

this separation, which many at Poughkeepsie actively tried to

4. .In stressing this essential continuity and th e passive selection mecha-

nisms of evolutionary change, I d o not wish to dim inish entirely the

role

of

IBM’s managers or its workforce. Management could easily have resisted

change or missed opportunities, and success depended on countless heroic

efforts by employees throughout the firm. But when viewed from the

broad comparative perspective of business history, what appears most

striking aboyt IBM is how its managers and employees did almost reflex-

ively tasks that virtually all other firms found new a nd difficult. Its ability

to respond in such a fashion, isof course testimony to the talents of its peo-

ple. For the organizational traits IBM exhibited-flexibility and compro-

mise-are ones that require initiative and communications up and down the

corporate hierarchy.

32 IEEEAnnals

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foster at the time and which many observers have subsequently

exaggerated, the

two

facilities shared important traits Each took

basic components and arranged them in complex machines that

were leased to customers and maintained by IBM in the field

Working in collaboration with their customers and then assem-

blers,

the field force tailored the machines to peiform a variety of

specialized tasks Com puters, in other words, called forth many of

the same qualities as the older technology

The more significant diffeiences between the activities at

Poughkeepsie and Endicott during the early fifties had

to

do with

the market Most of Poughkeepsie’s customers were sophisticated

scientific and engineering organizations which leased their ma-

chines with defense funds These consum ers dif€ered considerably

from those in IBM’s traditional business accounting market, and

one might reasonably ask why IB M pursued them Several factors

help explain this move

First, many of the early scientific computers had been built

from modified IB M punched-card equipment

Second, the company h ad a long tiadition of doing business

with government, and its chief executive officer was a close

friend of the Roosevelts (Both factors came into play dur-

ing the war when IBM sponsored the Mark I project headed

by Howard Aiken of Harvard University.)

Third, IBM was a market-oriented company, and scientific

computing represented an obvious opportunity, one which

did not threaten its established base at all

[9]

That market was especial ly at t ract ive because of the ap-

proach the government took to comput ing Froin the begin-

ning, the government did not at tempt to ta iget f i ims with the

most imp ressive research organizat ions In other words, i t d id

not pursue a “supp ly-side” approach, in which i t assumed that

money s pent on research would ul t imately yield computers

Instead, the vast major i ty of i t s suppor t came in the form of

purchase orders for comput ing power The gov ernment , act ing

as an “informed f i r st user ,” set goals and put out bids to have

them met Moreove r, it did

so

not through a single, coordi-

nated plan, but by placing money in the hands of many differ-

ent organizat ions that each put out thei r ow n contracts for bid

E ach of the armed services acted

as

a consumei , as did the

laborator ies of the Atomic Energy C ommission , as did the

large manufacturers of ai rcraf t operat ing under government

contract In effect , the government set up a market for power-

ful computers-a market of informed useis who each expected to

exert sufficient input into the design of their machine to ensure

that it performed the particular operations they desired

[lo]

This

was

a

market that suited

IBM

perfectly

The

company’s

entire culture was dedicated to the task of meeting specific data

processing prob lems in the field The only significant difference

between large electromechanical data processing installations and

these machines was that the computers would use vacuum tubes

instead of electromechanical relays and would involve a stagger-

ing amount of wiring But these differences appear trivial when

placed in the total context of the task Com puters called for exten-

sive sales, maintenance, programming, and field engineering

Within the plant, the company would look, as always, for ways to

build standardization into the machines while retaining sufficient

flexibility to meet the demand s of each user At this point, before

the advent of lower-cost memory enabled users to reprogram the

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machines easily, such custom tailoring often involved the wiring

itself , just as customizing the older equipment involved unique

arrangements of gears and ratchets. O ne of the greatest challenges

in such work, IBM had long since learned, was to keep track of

design changes as the machine moved into production and out

into the field. This task required mass ive record-keeping and close

cooperation among engineers responsible for design, assembly,

and service.

In

tackling those jobs, IBM drew freely on personnel

who had performed similar tasks at Endicott.

Purchasers recognized these qualities

in

IBM and favored the

company because of them. This was certainly true in the case of

the SA GE contract, a m assive anti-aircraft project funded by the

Air Force that called for 23 pairs of computers operating in real-

time. The Air Force relied on Jay Forrester of MIT to design these

novel machines, but when it came time to build them it chose

IBM over several other firms favoi-ed by the academic designel-.

The Air Force cited IBM’s experience with assembly and service

as the critical factors influencing its choice.

The S AG E contract proved extraordinarily important to IBM,

because it introduced the company to a variety of military-

sponsored technical efforts aimed at reducing the costs of assem-

bling or packaging electronic circuits [ I I ] Especially prior to the

advent of the integrated circuit, packag ing was perhaps the most

important element of compu ter production. It was where logical

design, components, and custom-tailoring intersected. SA GE and

subsequent government contracts for state-of-the-art machines,

such as STRETCH (IBM

7030),

helped IBM build on its estab-

lished expertise as an a ssembler and stay a breast of the latest de-

velopments in solid state techniques [12].

Throughout this critical early period of government support,

IBM benef i t ted f rom a qual i ty that might at f i r st seem a detr i -

ment in an environment of rapidly changing technology. That

qual i ty was humil i ty . In shor t order, com put ing had opened

two technolog ical frontiers-logical design and solid state

components. I t was very easy for people working at those

frontiers to feel a certain hubris. Many of the practitioners

were physicists and mathemat icians. The work they did was

new, i t was scient i f ic , and i t y ielded fame and Nobel pr izes.

IBM f i l led a far less glamorous middle ground. I t purchased

components, as i t a lways had, and i t le t i t s customers have

input into the logical designs. This at t i tude permit ted IBM to

move to the center of knowledge in the industry.

Humility also aided IBM during this period

by

helping prevent

it from ignoring potential customers. Ma ny organizations working

on computers focused almost exclusively on the high end . Perhaps

the most apt comparison is Engineering Research Associates

(ERA), a company that concentrated on building computers for

the most sophisticated users [13].5 As IBM entered the scientific

market, it never lost sight of the commercial market and the po-

tential connections between the two. Most significantly, the com-

pany did not isolate work

on

the large computers in a separate

scientific or defense wing. As it worked on the IBM 701, it si-

5.

“Because

of the

nature

of

its market,’’ Kenneth Flamm has noted

in

his excellent history

of

the compu ter industry, “engineering considerations

dominated ERA’S business orientation

.. n

sharp contrast with firms

seeking a commercial market, ERA ex perienced little feedback from users

and

little

direct contact with what remained a relatively unknown market.

The

emphasis

on

technical sophistication over marketing, it may

be

ar-

gued, persisted in the computer companies

that the

engineers brought

up in

ERA w ent on to

found.”

multaneously dev eloped the IBM 702 for business purposes. The

two programs shared many of the same personnel and the same

technology. Here again, one can see that an established character-

istic of the firm-its tradition of entering many markets and

seeking to transfer lessons learned in one to the others-

ultimately contributed to success in the computing business.

Throughout this critical early period of

government support IBM benefitted

from a quality that might at first seem a

detriment in an environment of rapidly

changing technology. That quality was

humility.

In actuality, however, IBM’s efforts to transfer the fruits of

i ts work

on

scientific machines directly to the commercial mar-

ket seldom worked as well as planned. The real growth in busi-

ness computing came instead from the second path, the opera-

tions at Endicott, where engineers developed programmable

electronic calculators. Their first big success was the IBM 650,

which ultimately sold in the thousands, and later they generated

the IBM 1400 series, a spectacular success of the early sixties

that made computing far more common in business than it had

ever been before. The Endicott facility also produced a series of

input-output devices that helped develop the market for both

large and small computers. Though these products made use of

electronics, they also drew extensively on the mechanical skills

available at Endicott. Printers and disk storage devices, in par-

ticular, were distinguished as much for their rapid, precise me-

chanical motions a s for their logical design [14].

The introduction of these products perhaps lends some support

to

the contention that IBM showed extraordinary daring in mak-

ing its established line obsolete. But again,

I

would urge that the

developments at Endicott be seen in the context

of

IBM’s previ-

ous history and the emergent m arket for data processing. By the

time of its move into electronics, IBM had

a

long history of mak-

ing its own machines obsolete. Its sales force had long since

learned that change, if it produced some new capabilities, was the

surest path to larger contracts. Greater calculating power would

almost certainly lead customers to spend m ore on novel m ethods

of printing or to do additional tasks.

In assessing this situation, moreover, we should remember that

the market for data processing was growing rapidly. World War I1

had triggered an explosion in demand. Punched-card techniques

attracted particular interest, in part because all draftees and other

government personnel had their names and vital information en-

tered

on

cards. IBM saw its revenues more than triple during the

war, and Remington Rand did nearly as well [15]. This boom

carried over into the peace, as civilian institutions that had grown

familiar with data processing equipment found new applications

and the requirements of the Cold War sustained government de-

mand. With the market boom ing, machines taken out of service at

one installation could readily

be

placed in another. Many were

shipped overseas, where depression and war had created an enor-

mous pent-up demand that domestic manufacturers could not

meet.

No

firm was better positioned to perceive these marketing

oppo rtunities than IBM, the largest accounting machine com pany,

and one with established outlets around the world [16].

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Fos t e r i ng a C apac i t y f o r Comprom i se : Bus i ness G ove rnm en t and St ages

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I nnova t i on

rand Compromise

o

System/360

Because IBM ended up with development efforts aimed at all

segments of the market, it was then in a position to see and feel

pressures from what would soon emerge as the central recurrent

dynamic force in the computer industry: the convergence of ma-

chines designed for one market with those designed for another as

the availability of new memory increased programming capacity

and as changes in com ponents improved processing power. From

the mid-fifties on, this issue continually created problems within

IBM, as its machines competed with one another in the market-

place and its development efforts overlapped. The problems

within development were compounded by the continually ad-

vancing technology of solid state, which constantly blurred divi-

sions between component manufacture and logical design. Mervin

Kelly, the former research director of Bell Labs, w hom Tom Wat-

son, Jr. had hired as a consultant, warned Watson that IBM would

lose the capacity to design computers if it failed to integrate

backward into the components business. Kelly predicted that es-

tablished component producers who also had experience design-

ing, building and marketing electronic products, such as RCA and

GE, would eventually dominate the industry. Though few did

so

as early as Kelly, in time many observers in the business press

expressed similar judgments. Man agers at

G E

and RCA laid plans

for the move [17].6

During the late fifties IBM addressed these pressing matters. It

struggled to sort out its development efforts and to master solid

state manufacturing. Steps taken during this period would eventu-

ally culminate in Systemi360, a single line of computers that

would replace all other IBM machines, run the same programs,

and contain solid state circuits of the same standard design manu-

factured from scratch entirely within IBM. No other product an-

nouncement would have

a

more profound affect on the computer

industry-at least until the coming of the personal computer.

Space does not permit a full accounting of the torturous

course that culminated in production of S ys ted 36 0, but one

feature of the process deserves em phasis. Even as IBM inte-

grated backward into component production, its traditions of

assembly, packaging, flexible production, and feedback from

the

sales

force and field engineers remained essential factors in

its success. The key remained not simply to master components,

but to strike balances between co mponents, logical design, and

markets. Within the area of components, moreover, one needed

to strike balances between performance and manufacturability.

Once again, IBM’s tradition of product engineering and its lack

of technical hubris proved extraordinarily useful.

Drawing on its established capabilities in circuit assembly and

packaging,

IBM inoved

in two steps.

First

it developed a new

solid-state package using transistors obtained under license from

Texas Instruments. (IBM ’s established position in the,m arketpl ace

no doubt provided another advantage by making it an attractive

plum for Texas Instruments). The new package, known as Stan-

dard Modular System or SMS, introduced IBM to the world of

chemical or “wet process” manufacturing. This technology

formed the basis of the IB M 1400 series computers and other

large scale machines. The line operated at Endicott, where its

6 The analysis in this section closely follows that of Usselman, “IBM

and

Its Imitators,”

which

in turn i s derived from

my

monograph, “Creating

System/36O”

in

progress)

designers again took advantage of the available mechanical skills

to build the necessary conveyers and other materials-handling

equipment.

Then, for its Sys te d3 60 series announced in 1964, IBM took

the expertise acquired from TI and developed its own internal

component production facility. Though constructed near the

Poughkeepsie plant, a management team from the

SMS

produc-

tion area ultimately took charge of running this operation, with

ample assistance from personnel borrowed from TI. Significantly,

IBM in building this facility struck

a

fundamental compromise,

choosing not to develop the new integrated circuits, and instead

concentrating on building a production line of great flexibility that

could readily respond to shifts in demand and keep track of design

changes. True to its heritage, even

as

it moved into extraordinarily

capital intensive process manufacturing, IBM did not want to

sacrifice the flexibility it had come to rely on as an assembler of

customized machines. (It gained additional flexibility by con-

tinuing to rely on the SMS format for many of the peripherals.)

Though S ys te d3 60 is often lauded as bringing a high degree of

order to the market by consolidating IBM’s offerings in

a

few

standard models, in reality the system included machines

of

nu-

merous variations.

Contrary to predictions, RCA and GE never competed success-

fully with Systed360, despite conspicuous efforts to market

similar lines. The poor match between these firms’ organizational

capabilities and the tasks inherent to computer production again

holds the key. Neither RCA nor

GE

had much experience

mar-’

keting complex products to business people who were not scien-

tists and engineers[l8]. Since feedback from the business ma-

chines market remained an important ingredient in IBM’s success,

the absence of

an

established marketing and support team almost

certainly handicapped its two competitors. As Kelly’s remarks to

Watson suggest, RCA and GE no doubt hoped that their traditions

of manufacturing their own components would compensate for

deficiencies in marketing. But IBM’s experience with backward

integration into component production suggests to me that those

firms’ experience with vacuum tube production might well have

worked to their detriment. Manufacturers

o f

vacuum tubes did not

generally achieve success with semiconductors, an industry that

came

to

be dominated by new firms

[19].

Companies that manu-

factured components, moreover, often tended to exaggerate their

importance and neglect packaging. Again, the IBM case suggests

that packaging remained essential even with the rise of solid state.

Though the materials changed, the outlook and approach re-

mained much the same. Like many other observers of the indus-

try, Kelly had exaggerated the importance of one technical feature

and

underestimated the importance of organizational capabilities

that facilitated coordinated action on many features at once.

Public olicy and the IBM Paradigm

Though the approach to comput ing embodied in Systed360

emerged from the private pursuit

of

profit by a firm operating

in a

largely unregulated environment, the product achieved such phe-

nomenal success that IBM’s strategy in effect constituted a na-

tional policy toward computing That was certainly the view from

abroad, at least Througho ut the sixties and seventies, govern-

ments in most industrialized countries scrambled to encouiage

firms that would mimic IBM and keep the American colossus at

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bay. Americans themselves, secure in their position of world lead-

ership, pursued a less interventionist strategy. Government actu-

ally reduced its role as a procurer of computing technology and

instead came to rely almost wholly upon the tools and traditions

of antitrust to monitor the industry. IBM, with its enormous share

of the market, presented an obvious target. From the moment the

firm entered into a consent decree with the Justice Department in

1956 until a 13-year lawsuit against it was deemed “without

merit” in 1982, IBM attracted virtually continual attention from

antitrust investigators and the courts. These proceedings chas-

tened IBM, but they ultimately left the firm intact and effectively

certified the paradigm of computing it had long pursued.

In reaching this series of antitrust judg eme nts, Ame ricans

struck basically the same compromise that had characterized so

many of IBM’s own decisions regarding computing. They

weighed the benefits of standardization against the potential for

further innovation. Influential figures in the regulatory appara-

tus viewed the computer giant

as

a useful intermediary between

a

rapidly changing technology and

a

market of consumers who

were anxious to put that technology to a variety of uses. By

controlling such a large share of the market for central proces-

sors and peripherals, IBM instilled a measure of stability into an

industry that very well could have foundered in a sea of con-

flicting, incompatible approaches. It provided the emerging

semi-conductor industry with demand for standardized compo-

nents, and it enabled programmers to develop a few basic lan-

guages and then allocate their energies toward developing spe-

cific applications. The consent decree of 1956 sought to ensure

that IBM would perform a similar function for manufacturers of

punched cards and peripherals. The decree required IBM to sell,

as well

as

lease, its products and to allow consumers to pur-

chase parts of their systems from competitors [20].

In taking this approach to the nascent computer industry, gov-

ernment followed patterns it had developed in response to other

emerge nt industries [21]. At the turn of the century, for instance,

antitrusters had tolerated a duopoly of General Electric and

Westinghouse in electric power. These firms quickly established

standards and helped rapidly transform a technical novelty into a

utility that local power companies, manufacturers of appliances,

and consume rs could take for granted [22]. Of more immediate

relevance to computing, perhaps, were stances taken toward the

telephone system and broadcasting networks. In telephony, state

and federal governments had struck a basic bargain with AT&T,

allowing it to function as a near-monopolist

so

long as it subjected

itself to rate regulation and pursued a vigorous program of inno-

vation [23]. If AT&T showed signs of abusing its power, as w hen

it attempted to monopolize network radio broadcasting during the

twenties, the government again threatened antitrust action. When

AT&T agreed to act as a common carrier, providing long-distance

services to anyone wishing to link together a series of radio or

television stations, broadcasting came into the hands of a few

powerful networks. They, too, soon found themselves operating

under the regulatory umbrella of the Federal Communications

Commission

[24].

The FCC sought to ensure that broadcast net-

works would not control the content of programming but would

instead act as brokers between programmers and the public. Jus-

tice Department officials hoped IBM would perform a similar

intermediary function in computing, acting as a broker or com-

mon carrier for component manufacturers and programmers.

The government’s strategy was not without risks. A firm with

IBM’s market power could potentially exert pressure on suppliers

and customers and effectively dictate technical choices for the

industry as

a

whole. For a decade after the consent decree, com-

petitors made little headway in getting their peripherals attached

to IBM systems. Some industry observers complained that banks

and insurance companies unduly influenced IBM and kept it from

aggressively pursuing applications and approaches to computing

that would have su ited more creative customers. By the early sixties,

No

firm was better pos itioned to

perceive these marketing opportunities

than IBM the largest accounting

machine company and one with

established outlets around the world.

sophisticated scientific users had begun to look elsewhere for

computers. At about the same time, many within the technical

press roundly criticized IBM for not utilizing the new integrated

circuitry in its S ys te d3 60 computers. Several potential customers

expressed disappointment that the new series of machines did not

offer better time-sharing capabilities. Such criticisms suggested

that IBM had struck a balance that unnecessarily impeded innova-

tion. Its sometimes frantic efforts to make up the deficiencies did

little to dispel that impression or to discourage the Justice Depart-

ment from launching a new investigation [25].

The major antitrust suit that resulted, announced in January

1969,

serves as vivid testimony to the seriousness with which the

American government pursued the course of compromise. Viewed

from an international perspective, the suit appeared preposterous.

At the time it was launched, governments in virtually every ad-

vanced industrial nation were busily trying to imitate IBM [26]. In

Great Britain, the governme nt had just negotiated the merger of

several firms into giant ICL,

a

“national champion” modeled ex-

pressly after IBM [27]. Three years before, the British govern-

ment had commissioned a study in which one of that country’s

ablest economists explained how IBM’s greatest asset was its

ability to strike technical com promise s [28 ]. In Japan, governm ent

had launched a multifaceted policy involving direct subsidies and

other incentives. By fostering extensive cooperation between

electronics manufacturers and potential consumers, Japan set out

to nurture organizations that would function like IBM. The gov-

ernment explicitly targeted performance standards equal to those

of Sy st ed 36 0 and Syste d37 0. In a rare depar ture f rom i ts stan-

dard policy, Japan had even permitted IBM to build a manufac-

turing plant within its borders

[29].

Why would the United States prosecute a firm so admired by

others? In part, of course, the decision reflects the innocent self-

absorption of a nation that had not yet realized that it was already

under the pressure of international competition. Few yet worried

that antitrust proceedings might handicap Americans abroad. Of

much greater concern to many within the regulatory community

of the 1960s was a mounting feeling that the bargains struck with

institutions such as AT&T had not yielded the anticipated social

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Fostering a Capacity for Compromise: Business Government and Stages of innovation

benefit^ ^ Old antitrusters and others within government, goaded

by leftists and disillusioned liberals in the academy, were per-

suaded that government agencies protected large corporations

as

much as they regulated them. At the same time, a growing body

of neoclassical economists, enamored with the power of market

mechanisms to allocate resources and encourage efficiency,

sought to substitute Competition for regulation and bureaucracy.

These impulses would eventually find expression on both sides of

the political spectrum. Richard Nixon drew on them in putting

forth his initiative to return federal revenue back to the states, and

Jimmy Carter embraced them when he authorized a guru of the

deregulation movement, Albert Kahn, to remove the blanket of

Civil Aeronautics Board protection from the airline industry.

By 1968, such sentiments had already begun to reach the tele-

communications industry. That year, for instance, the FCC’s Ber-

nard Strassburg had, with little provocation, taken steps to ensure

that AT&T keep its network open to “entry technologies” such as

mobile telephones and computers, which might someday feed

signals and data into the phone system. Strassburg wanted to

make sure AT&T did not use its control of transmission technol-

ogy to dictate developments in computing and telephony.’ At the

time, an upstart named Microwave Communications Incorporated

had just begun

to

accuse AT&T of using its local affiliates to

block access to MCI’s alternative long-distance transmission sys-

tem. Its multifaceted legal and technical challenge would culrn-

nate 14 years later with a shocking settlement that called for

AT&T to divest itself of the local companies and to compete

openly in long distance.

The decision to prosecute IBM can only be understood within the

context of this watershed moment in American political economy.

Seemingly the chief actor in the entire regulatory apparatus had

embarked

on

a fundamental reexamination of the brokering

agreements that had characterized much of American economic

policy. IBM could hardly have hoped to escape the tide. Fittingly,

the case against it march ed in almost exact parallel with that against

AT&T, each reaching its denoum ent on a single aftemoon in 1982.

The contrasting outcomes of those cases prompted s ome to see

a conspiratorial tradeoff, in which a pro-business administration

achieved “compromise” by pardoning one guilty party while pub-

licly sacrificing another. But the two judgements actually reflected

the same basic philosophy. In each case, government officials had

sought ultimately to assure themselves that leading

firms

had not

abused their power in ways that stifled innovation and threatened

the good outcomes that market competition could achieve. This

was the common thread of the deregulation movement. Though

proceedings such as those against AT&T and IBM necessarily

focused on particular behaviors and complaints, the overarching

consideration for the Departmen t of Justic e in 198 2 was wheth er

the government was protecting monopoly or not. Without gov-

ernment protection, Assistant Attorney General Baxter thought,

monopoly could not exist unless it was efficient and innovative.

Measured on that basis, the contrasting moves of the Justice De-

partment were consistent and prescient as well. For whatever one

might think

of

the merits of the case against IBM or of the para-

7. My analysis of the deregulation movement follows closely that of

Peter Temin, with Louis Galambos,

The Full of the Bell System: Study

in

Pvices

and

Politics

Cambridge, 1987.

8. An investigation begun by the FCC in 1976 applied additional pres-

sure on the firm to further open its network to data transmission.

digm of computing the company had advanced, no one could

argue that the computer industry lacked dynamic forces of change

during and after the period the lawsuit was contested. Technol-

ogy-based competition would accomplish for computing what

Justice Department lawyers had done for telephony.

Proliferating Options

Persistent Compromises

The fundamental source of change in computing during the

seventies and eighties remained the same as before. Continual

ref inement of sol id state product ion technology made a val abl e

processors of much higher speed and also dramatically iii-

creased the memory and storage capacities of computing sys-

tems Increased capacities gave programm ers much greater

latitude Instead of devoting the lion’s share of their energies to

conserving processor time, programmers increasingly could

focus their efforts on making computers receive data in different

forms, manipulate it in various ways, and present the results in

more comprehensible fashion Data processing continued its

metamorphosis into information processing

Much

of

this transformation occurred within the basic para-

digm IBM had established Indeed, Sys te d3 60 and its successors

performed even better than IBM had hoped The modular design

enabled IBM to incorporate the benefits of volume production,

dnvin g down prices and bnnging computing into far more realins

than it had ever reached before Modularity also gave IBM the

flexibility to respond to shifting demands for computing applica-

tions Its systems met the growing interest in time-shaiing and

also proved capable of accommodating the veritable revolution in

pnnting and copying that occurred following introduction of the

Xerox 91 4 photocopier during the early 1960s

Though IBM managers and shareholders certainly had ample

cause to celebrate, critics of the company could find consider-

able solace as well System/360 and its successors did, after all ,

make computing available to far more consumers and enable

them to per form a much broader iange of tasks There weie

signs, moreover, that IBM would face increasing competition as

its machines grew more commonplace Th e combination of

modularity and systems applications such as time-sharing

opened huge opportunities for equipment manufacturers to con-

centrate on building lower-cost versions of common compo-

nents such as printers and terminals The 1956 consent deciee

had at last begun to bear fruit Additional compe tition came

from dynamic new firms such

as

Digi tal Equipment Company

and Wang Industries Taking advantage of the plummeting cost

and shrinkmg size of components, these start-up companies

built “mini-computers” tailored to serve particular types

of

us-

ers [39] They carved out niches in the steadily expanding mar-

ket for computing DEC, led by the maverick engineer and

businessman Kenneth Olsen, marketed a series of Personal Data

Processors that proved especially attractive to scientists and to

educators in university compu ting programs Wang, formed

by

Harvard University professor An Wang, focused

o n

office ap-

plications Touting the image of a paperless office, Wang em-

phasized network installations The phenomenal succes s of such

firms prompted IBM to respond with an array of new computers

targeted for particular markets

9. This and the following three paragraphs

owe

much to [30]

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Meanwhile, miniaturization unleashed an alternative path of

innovation that fell entirely outside the IBM paradigm and the

realm of institutional users it served. Individual enthusiasts began

to patch together one-of-a-kind computers of limited capacity.

They combined small processors, made possible by continual

improvements in integrated-circuit technology, with keyboards

and monitors scavenged from terminals or obtained from parts

suppliers. These self-proclaimed “hackers” formed clubs, wrote

newsletters, and pored over catalogs in search of the latest com-

ponents and programs. Infused with

a

strong anti-institutional

ideology and renegade spirit, they brought the vision of a “home

computer” into reality, much

as

the amateur radio operators of an

earlier day had demonstrated the potential of voice transmission

and home reception to a world dominated by the ship-to-shore

wireless telegraphs of the Marconi Company.

As in the case of those eulier hobbyists, however, the era of

the unshackled amateurs did not last for long. Apple Computer,

the creation of hackers Stephen Wozniak and Steven Jobs, im-

posed a degree of order on the personal computer market when it

introduced the Apple I1 in 1976. Though Apple portrayed itself as

David to IBM’s Goliath, within the realm of the hackers it actu-

ally filled a role quite analogous to that which Big Blue had per-

formed in the postwar computer industry. Rather than offer

a

stripped-down, expandable kit that customers could assemble and

refine themselves, Apple sold a standard machine that included its

own monitor, disk drive, and keyboard. Th e compa ny also pro-

vided several basic software packages. Many enthusiasts com-

plained that Jobs and Wozniak made overly conservative choices

and did not press the technical boundaries of microcomputing.

But compared to virtually any other supplier of home computers,

Apple projected

an

image of stability, and

as a

result it enticed

large numbers of less technically inclined customers into the do-

main of the hackers. Apple’s revenues soared from three-quarters

of a million dollars in 1977 to just under

a

billion dollars in 1983.

Not surprisingly, several other firms soon mimicked Apple,

with considerable success. By far the most important imitator

was IBM itself , which launched a crash program to develop a

microcomputer

of

its own. This effort resulted in the Personal

Computer. Introduced in 1 981, it immediately captured 26 of

the market. The impact of the PC went well beyond IBM’s own

sales, moreover, because the product’s modular design and ex-

tensive use of licensed components left other manufacturers free

to produce clones that accounted for another

50

percent or more

of the market. In effect, IBM with the PC repeated its experi-

ence with System/360 in mainframe computing, only in fast

forward. Drawing on its market presence and its capacity for

technical compromise, IBM provided

a

platform that helped

rapidly transform the desktop computer into a standardized

mass-produced commodity, then watched

as

low-cost competi-

tors undercut it in the marketplace.

Within a short time

of

its decision to drop the antitrust case,

then, the Justice Department could feel satisfied that the computer

industrv had entered a oeriod of vibrant economic and technical

tion, the possibilities of what they might do continued to expand.

Yet

so

too did the chances increase that programmers would be-

come mired in a myriad of incompatible approaches. Meanwhile,

the drive toward miniaturization continued apace, keeping designs

in perpetual flux. Within the separate but parallel realms Apple

and IBM had created, designers and programmers thus still

needed to strike compromises and achieve

a

balance between

standardization and customization.’”

Contrary to predict ions RCA and

GE

never competed successfully with

System/360 despite conspicuous

efforts to market simi lar lines.

By the mid-eighties, that balancing act had come to focus on

two fundamental issues-the design and production of the mi-

croprocessor, and the basic operating language. With Apple,

both were proprietary; in the case of the PC, they were shaped

respectively by Intel and Microsoft, the firms IBM had chosen

as

its original suppliers.”

In

a move that clearly heralded its

prominence in hardware production, Intel in the early nineties

began advertising directly to consumers. It gave its processors

catchy names and insisted that machines containing its proces-

sors carry an “Intel Inside” sticker. Meanwhile, Microsoft had

grown larger even than IBM. As owner of the MS-DOS and

Windows programs, it supplied the essential gateways through

which most users gained access to their personal computers.

Like IBM in the early mainframe computer industry, these

powerful firms established a degree of uniformity in the essentials

of computing without closing off the potential for further devel-

opment. They continued to introduce new generations of proces-

sors and operating systems that placed greater computing power

in the hands of individual consumers. Their influence and market

power gave suppliers of memory, printers, and monitors confi-

dence to pursue techniques of mass production. Most importantly,

10. The remainder of this paper is based on accounts widely available

in the technical and business press.

11.

In choosing to obtain its basic components under license from these

two firms, IBM had at last fulfilled the prophecy of Mervin Kelly and seen

its business pass into the hands

of

its suppliers. Why

IBM

chose this

course remains something of a mystery. Some observers see the move as

the product of the sort of rigidity that plagues large institutions. Typically,

they cite comments by the head of the PC design team to the effect that he

did not trust IBM’s own semiconductor facility to make the processors a

top priority. The PC group did not build its own semiconductor production

line because IBM management did not want to duplicate facilities. Others

have portrayed the move simply as a strategic blunder, in which managers

facing intense time pressure failed to appreciate the longer term implica-

tions of their decision. Neither explanation, of course, fits the image of an

organization skilled in striking the sorts of compromises necessary to keep

it at the center

of

the industry.

We would do well to remember, however, that IBM achieved far

greater success with the PC than most analysts expected. Most believed

a firm

so

tied to the business market could not respond to the demands

compe;ition.

But

thou& growing

commodification

had dimin-

ished IBM’s prominence, it had by no means eliminated the need

for the technical balancing act that had long characterized the

computer industry and its leading firm. Com puters remained m a-

chines

of

indeterminate

purpose.

rndeed,

as

they grew

commonplace and came into the hands of

a

more diverse popula-

of

a mass

consumer

market. That

I B M did

so,

even while continuing to

thrive in its conventional a renas amidst intense foreign com petition, is

in many ways qu i t e

a

powerful testimony to its organizat ional

flexibil-

ity. IBM pursued the licensing strategy, moreover, at a time when the

Justice Department suit had stretched across a decade without resolu-

tion. By licensing the processor and the operating system,

IBM

assumed

the sort of intermediary position antitrust regulators had often sanc-

tioned, and which had

proven

so

beneficial

i n

the past ,

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Fostering

a

Capacity for Compromise: Business Government and Stages of Innovation

software writers could proceed with some assurance that their

work would find a broad market and not be rendered obsolete by

subsequent changes in basic hardware or in the basic operating

system. As a result, the microcomputer industry sustained a vi-

brant competition to develop new applications, and computers

came to perform a much broader array of functions.

As with IBM before them, these dominant firms attracted vin-

lent criticism. Competitors and some consumers accused them of

wielding their market influence unfairly to close off technical alter-

natives. Critics of Microsoft sought antitrust action that would have

forced the company to sever all connections with hardware suppliers

and banned it from the applications business, in effect leaving the

firm to operate as a common carrier for specialized software pro-

grams written by others. A settlement announced in the summer of

1994 stopped short of either action.

As

it had in the case of IBM, the

Justice Department determined that Microsoft managed to provide

a

healthy stability without stifling development.

Critics made even less headway against Intel. The Department

of Justice showed little inclination to interfere with a firm that,

regardless of its market share, clearly faced intense competition

from numerous domestic and foreign manufacturers. Indeed,

during the late eighties government had grown

so

concerned

about foreign competition that it had fostered Sematech, a coop-

erative effort among American semiconductor producers. Policy

makers hoped Sematech would promote compromise in design

and enable firms to capture the economies of standard production.

This cooperative effort passed out of existence in

1994,

and re-

sponsibility for striking balances between the economies of vol-

ume production and the added value of specialized design again

became the exclusive province of private firms operating in a

competitive, oligopolistic marketplace. But with the industry

so

recently returned to good health, it seemed unlikely that govem-

ment would reverse field and prosecute the leading American firm.

Critics of Intel would have to satisfy themselves with the quiet

pleasure of watching the firm attempt to recover from an embar-

rassing gaffe with its premier Pentium processor, which consumers

discovered mad e small mathematical errors in certain applications.

o n ~ l ~ s i ~ ~ snd Prospects

The Sematech venture and the Justice Department settlement

with Microsoft demonstrate both the continuing importance of

technical compromise to the computer industry and the sustained

commitment of public policy makers to promoting it.’* Though

each left the dominant firms largely unaltered and free for the

moment to compete without significant restriction in the market-

place, they also left little doubt that all aspects of computing

would continue to operate under the watchful eye

of

the govem-

meut. Indeed, by early 1995

a

federal judge had already over-

turned the settlement between the Justice Department and Micro-

soft.

As

the former combatants joined in unlikely alliance to ap-

12 Whether Seinatech deserves any credit for the recovery of the

American semiconductor industry remains a matter of some question. The

decision not to renew its charter hardly suggests a ringing endorsement,

though defendcrs stress that Sematech had performed a vital service and

was simply no longer needed. Regardless of its effectiveness, however, the

initiative certainly does nothing to diminish the perceived importance of

flexible compromise to the computer industry. For it is precisely the abil-

ity to strike compromises that defenders claim for Sematech and that its

detractors claim for the open market.

38

I E E E A nna l s o h History o Computing Vol. 18, No. 2, 1996

peal this decision, the specter of a long judge-led inquiry similar

to that which led to the break up of AT&T loomed before the

giant software supplier. Meanwhile the Justice Department itself

prohibited Microsoft from purchasing a competitor but voiced no

public objections when IBM bought the Lotus software develop-

ment firm for

a

price in excess of three billion dollars. In restrict-

ing a horizontal combination involving the dominant firm while

tolerating a vertical integration on the part of

a

large competitor,

the govemment’s antitrust lawyers again embraced oligopoly as

the best means of maintaining a climate of vigorous com petition

at the frontiers of the industry.

As the fruits of continuing miniaturization and manufacturing

economies d rive all computing and comm unications technologies

toward

a

grand convergence in the common underpinnings of

digital technology, the vigilance of the regulatory community will

only increase. Drawing

on

the long traditions

of

American politi-

cal economy, government officials will continue to pursue the

comm on carrier or brokering approach, with its emphasis on ac-

cess and innovation. They have employed this approach almost

instinctively as they have observed the proposed mergers of en-

tertainment companies with communications firms. They would

undoubtedly move swiftly to stifle any blatant attempts to assert

undue control over the basic transmission technologies or over the

crucial electronic components and the fundamental operating

systems upon which modem communications depend. The ongo-

ing compromise between innovation and stability; achie<ed

through a mix of marke t mecha nisms and public policy,, seems

likely to remain a hallmark of American communications and

computing even in the era of interconnectedness.

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The standard source is Ernest Braun, Revolution in Miniature:

The History and Impact of Semicon ductor Electronics, New

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pp.

9-100; and David C. Mowery, “Innovation, Market

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concept of natural trajectories and to the related idea of techno-

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o f

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move

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as

a prime example.

Gerald W.

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For a well-documented example with close parallels to computing,

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o

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Steven W. Usselman, “Computing and Cominunications Tech-

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Change , Cambridge, Mass., 1982. For further elaboration on how the

model applies to the computer industry,see Steven W. U sselman, “IBM

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International Computer Industry,”

Business and Economic History

vol. 22 no. 2, 1993, pp. 1-35. On the nature

of

economic activity in the

corporate era, see the work of Alfred D. Chandler, Jr.,The Visible Hand

Cambridge, Mass., 1977;

Scale and Scope

Cambridge, Mass., 1990; and

“Organizational Capabilities and the Economic History of the Industrial

Enterprise,”

J Economic Perspectives

vol.

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no.

3,

pp. 79-100, Summer

1992;and that of William Lazonick,Business Organizationand the Myth

of the Market Econom y

Cambridge, 1991.

On Turing, see Andrew Hodges,

Alan Turing: The Enigma.

New

York, 1983.

Emerson Pugh, Memories that Shaped an Industry. Cambridge,

Mass., 1984.

James W . Cortada,

Before the Computer:

IBM

NCR Burroughs

Remington Rand the Industry They Created Princeton, 1993; Ar-

thur L. Norberg, “High-Technology Calculation in the Early 20th

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Technology and Culture 1990; JoAnne Yates, “CO-evolution

of

In-

formation-Processing Technology and Use: Interaction Between the

Life Insurance and Tabulating Industries,”

Business History Review

1993; Geoffrey Austrian, Hernian Hollerith: Forgotten Giant

o

In-

formation P rocessing

1982; Robert Sobel,

IBM: Colossus in Tran-

sition New York, 1981; and Usselman, “IBM and Its Imitators.”

Charles J. Bashe, et. al.,

IBM’s

Early Computers. Cambridge, Mass.,

1986; and Usselman, “IBM and Its Imitators.”

Richard

R.

Nelson, ed.,

Government and Technical Progress: A

Cross-Industry Analysis New York, 1982, especially the essays by

the editor, “Introduction,” pp. 1-9, and “Government Stimulus of

Technological Progress: Lessons from American History,” pp.

45

1-

482; Barbara Goody Katz and Almarin Phillips, “The Computer In-

dustry” pp. 162-232; Bashe, IBM’s Early Computers: Brock, The

U.S. Computer Industry; Flamm, Creating the Computer; Lewin,

The Semiconductor Industry;

and Mowery,

Innovation Market

Structure and Governm ent Policy. On informed first users and other

useful concepts for understanding government policy toward science

and technology, see David C. Mowery and Nathan Rosenberg,

Technology and the Pursuit of Economic G rowth Cambridge, 1989.

Lewin, “The Semiconductor Industry”; Pugh, Memories; and Us-

selman, “IBM and Its Imitators.”

Bashe,

IBM’s Early Computers.

Flamm,

Creating the Computer p.

46. For additional information

and further analysis, see Arthur L. Norberg, “New Engineering

Companies and the Evolution of the United States Computer Indus-

try,”

Business and Economic History

vol.

22

no. 1, pp. 181-193,

1993.

Bashe, IBM’s Early Computers and Usselman, “IBM and Its Imi-

tators.”

Cortada,

Before the Computer.

Sobel,

IBM:

Colossus in Transition and I B M vs. Japan: The Struggle

for the Future. New York, 1986.

See Emerson Pugh, et. al., IBM’s

360 and Early 370 Systems

Cam-

bridge, Mass., 1991.

Margaret B.W.

Graham RCA and the Videodisc.

Cambridge, 1986.

Dosi, “Technological Paradigms;” Lewin, “The Semiconductor

Industry;” and Mowery, “Innovation, Market Structure, and Gov-

ernment Policy.”

Sobel, IBM: Colossus in Transition.

For an excellent overview,

see

Louis Galambos and Joseph Pratt, The

Rise of the Corporate Commonwealth: United States Business and

Public Policy in the Twentieth Century New York, 1988.

Hughes, Networks

of

Power; Harold C . Passer, The Electrical

Manufacturers 1875-1900: A Study in Competition Technical

Change and Growth

Cambridge, Mass., 1953; and Steven W. Us-

selman, “From Novelty to Utility: George Westinghouse and the

Business of lnnovation during the Age of Edison,” Business History

Review vol. 66, pp. 2.5-304, 1992.

Louis Galambos, “Theodore

N.

Vail and the Role of Innovation in

the Bell System,”


vol. 66, pp. 95-126,

1992.

Eric Barnouw, A Tower in Babel: A History

o

Broadcasting in the

United States to 1933 New York, 1966 and The Golden Web:

A

History of Broadcasting in the United States 1933-1953 New York,

1968, remain the starting points for an understanding of the emer-

gence and evolution

of

networks.

See

also Walter B. Emery, Broad-

casting and Government: Responsibilities and Regulations East

Lansing, 1971.

Usselman, ‘Creating Systed360.”

Flamm,

Creating the Computer.

Martin Campbell-Kelly, ICL: A Business and Technical History

New York, 1989.

Christopher Freeman, “Research and Development in Electronic

Capital Goods,” National Institute Economic Re view vol. 34, pp. 40-

97, Nov. 1965.

Marie Anchordoguy, Computers Inc.: Jupan ’ Challenge to IBM

Cambridge, Mass., 1989; Martin Fransman,

The Market and Beyond:

Cooperation and Competition in Information Technology Development

in the Japanese System

Cambridge, 1990.

For an excellent history and analysis of the minicomputer and micm-

computer industries, see Richard N. Langlois, “External Economies

and Economic Progress: The Case of the Microcomputer Industry,”


vol6 6, pp. 1-50, (1992).

Steven W. Usselman is an Associate Pro-

fessor in the School of History, Technol-

ogy, and Society at

the

Georgia Institute of

Technology. His essay, “IBM and Its Imi-

tators,” won the

1993

Newcomen Prize for

excellence in business history. He is writing

a book on the strategic issues and organiza-

tional difficulties associated with

IBM’s

move into computing, culminating with

Systeml360.

IEEEAnnals o the History o Computing Vol.

18, No.

2, 1996 39

00489748

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