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Entrepreneurial Capitalism and Innovation:
A History of Computer Communications 1968-1988
By James Pelkey

Entrepreneurial Capitalism & Innovation:
History of Computer Communications
1968 -1988
By James Pelkey

This history is organized by three co-evolving market sectors and also standards making.
An overview of the schema is presented in the Introduction.

Ch. 1: Emergence
Ch. 3: Competition
Ch. 5: Market Order
Ch. 11: Adaptation

Ch. 2: Vision
Ch. 4: Arpanet
Ch. 6: Diffusion
Ch. 7: Emergence
Ch 8: Completion
Ch. 10: Market Order

Ch. 9: Creation

Ch. 12: Emergence



Chapter 12
Internetworking: LANs and WANs 1985-1988
Local Area Networks and Wide Area Networks


12.2    Interconnecting Local Area Networks (LANs)

By 1986, corporate Information Technology (IT) managers no longer needed to be sold on the benefits of interconnecting their computers into networks. In a report issued a few years later, in 1988, the preeminent market research firm, Dataquest, estimated that at yearend 1985 there were 560,000 installed Ethernet LAN connections. [1] Assuming five LAN connections, or computers, per network gives an estimated 100,000 Ethernet networks. In 1986, there were 650,000 Ethernet LAN connections shipped, likely doubling the number of Ethernet networks. The same would hold true for 1987 when 1,260,000 Ethernet LAN connections shipped. The market research firm International Data Corporation (IDC) reported similar, only slightly more conservation numbers in 1987. [2] IDC estimated an installed base domestically of 27 million personal computers in business environments in 1987 with only 11% connected in LANs. They projected the number of personal computers in business environments to swell to 38 million by 1989 with 28% of them attached to LANs – a 65% growth rate over the 6.6 million personal computers attached to LANs in 1988. No wonder corporate IT managers felt the need to interconnect their networks into ever-larger networks, making it possible for more users to share information and peripherals and communicate using email.

Interconnecting LANs throughout large corporations with distant facilities introduced problems different than simply interconnecting local LANs. Even as late as the mid-1980’s, unless LANs were from the same vendor, interconnecting them was far from simple. Decisions had to be made as to whether to force all LANs to conform to the same standards, i.e. Ethernet, some other version of CSMA/CD, token ring, a proprietary standard of a preferred vendor, etc. and also conform to the same communication protocols, i.e. TCP/IP, DECnet, XNS, Novels Netware, etc., that in themselves could vary dramatically from one vendor’s implementation to another. To cite another major problem, the communication speeds of LANs could not be supported by modems, the predominant devices used to interconnect to distant facilities. A solution could force major installation costs, such as upgrading to T-1 facilities or upgrading to sophisticated protocol software such as TCP/IP. Or should IT managers recommend waiting for the coming OSI protocols?

While corporate IT managers first encountered these issues in the 1983-1984 timeframe, computer scientists and researchers affiliated with ARPA had confronted them more than a decade earlier when the NCP software of the Arpanet required upgrading. In 1972-1973, the ARPA computer scientists first faced the challenges of interconnecting vastly different networks, such as radio networks, to the Arpanet. Those requirements precipitated years of debate within communication committees and standards bodies, such as INWG, IFIP Working Group 6.1 and ISO TC 97/SC 16. (See Chapters 4, 6 and 7) In addition to government and NGO activities, corporations, such as Xerox, IBM, and DEC, also had explored how to interconnect LANs. The most productive efforts took place at Xerox PARC with the creation of large Ethernet networks using first PUP and then XNS protocols. During these years there had been conversations of how to interconnect networks, but it always seemed too far in the future to resolve when there was work to be done to create the products and infrastructure needed to successfully convince corporations to use LANs. Two universities, Stanford and M.I.T, were also on the forefront of interconnecting LANs, and their researchers will enter this history later in this chapter.

Corporate IT managers and vendors had labored with years of uncertainty over how to create the best communication networks. Helpful had been the nearly universal agreement as to the lower four layers of the OSI Reference Model, the layers that dealt with creating reliable communications between computing devices. (See Exhibit 12.0 The OSI Reference Model) Nevertheless it had taken years to sort out first the specific standards of the Data Link Layer and then the Transport Layer, and then commercially successful products. During this period, the problems had been how to get one LAN network working “perfectly.” But by 1983-1984, corporations wanted to interconnect their growing number of LANs (see Chapter 10) and sudden appearance of WANs (see Chapter 11), and thus the sudden importance of the Network Layer standards; standards that had been thought hammered out, but not incorporated into products.

Exhibit 12.0 -- The OSI Reference Model


Layer Name

Layer Function

Product Example



Provides reliable end-to-end connections




Provides addressing and routing for the network



Data Link

Provides media error control and addresses for multi-access media




Provides for physical connectivity

Coaxial Cable

This chapter observes the formative economic history of the organizations and products of Internetworking. The important products were: local and remote bridges, gateways and routers. Of particular interest will be how the political institutions prioritized the creation of gateways whereas the economic institutions – again primarily venture capital-backed start-ups – raced ahead with routers. By the end of 1988, routers are on the verge of becoming the most economically important, and transformative, products of Computer Communications.


[1] Dataquest Incorporated June 1988 pgs. 82-84

[2] "Basic connectivity high on users' lists," Network World, April 11, 1988, p. 16