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Chapter 1 - Introduction

1.3 Firms constructing social networks as Populations

The developmental dynamics from entrepreneur to adaptive corporation are not enacted in isolation but within an ecology of other social organizations and networks. There are competitive corporations, customers, vendors, law firms, accounting firms, venture capital partnerships, commercial banks, investment banks, governments, standards-making bodies, universities, etc. The most important organizations or individuals to a firm are customers, customers that in this history are large corporations. Second in importance to customers are competitors. There are direct competitors, those selling essentially the same product, using the same or nearly the same technology, and indirect competitors, those selling products that can be used for the same purpose but achieve the functionality through different means. When a new technology makes possible new categories of products, there can be a surge of start-ups as well as existing firms all introducing products within a few years of each other. These firms, and others that join them later, interact competitively as a population of firms constructing a social network. If the firm interactions coalesce successfully, a new market will form.

A successful new market will progress through three phases: “Emergence” to “Competitive” to “Order.” Emergence can last for many years and will consist of firms ranging from entrepreneurs attempting to form corporations to existing firms attempting to adapt into the new product category. What remains uncertain in the emergence phase is whether the products being commercialized hold enough economic potential to generate the sales to support successful firms. In the Competitive phase of market formation, the product category has proven to have traction but it remains unclear how large the market will be or how long it will last. It is during this phase that weaker or less successful firms begin being acquired or merge or fail completely. The last phase of market formation, Order, is when the often hundreds of firms that introduced products have shrunk to an oligopoly of as few as a half a dozen firms controlling two-thirds of the market. This history will observe Data Communications and Networking progressing through all three phases and Internetworking entering the Competitive phase.

This progression of market formation from emergence to competition to order will be metaphorically referred to as a wave. A wave, or sector, is distinct from other sectors largely by the nature of the new technology innovations. Sectors, also referred to as industries, can have niches, more refined distinctions, and sectors can, with time, merge with other sectors. Niches do not exist a priori but come into existence through the dynamics of markets and their ever=changing environments. Niches in time are absorbed into existing markets, disappear or, in the very rare instance, become markets themselves. Computer communications will be observed as three waves, or sectors (with co-evolving niches): Data Communications, Networking and Internetworking What is interesting is that hundreds of companies entered each wave, only a handful of firms came to dominate, and few firms ever impacted a successive sector. An intriguing mystery and one I hopefully have captured for your fun, and reflective mind.

The three waves of computer communications were profoundly impacted by the changes occurring in the two technology sectors directly related to how computers would communicate with each other: computers and communications. The dynamics of the computer sector or market were dictated by free market competition, albeit the dominant firm, International Business Machines, controlled a near monopolistic market share. In contrast, American Telephone and Telegraph dominated the communication, or telecommunication, market as a regulated monopoly. The impact of each of these markets on computer communications will be briefly described. (A more complete reconstruction will be found in the text.) Interestingly, neither International Business Machines nor American Telephone & Telegraph became competitive factors in computer communications.