The origins of Wintelism

Wintelism’s roots can be traced to the merchant character of the domestic US semiconductor industry, the first crucial step in the disintegration of the electronics industry’s value-chain and one strongly influenced by policy. After incubation period during the 1950s in which several critical technical developments were diffused by antitrust constraints on Bell Laboratories and by military spending, government defense and space procurement at premium prices provided the initial launch market for the new technology in the 1960s. As costs fell with large-scale federal procurement, initial commercial applications spun off into the computer industry where antitrust constraints further prevented IBM from monopolizing the application of the technology. Through antitrust-induced licensing, labor mobility (in typically flexible US labor markets), tax-advantaged venture capital, and federal procurement contracts, the policy helped to foster the emergence of “merchant” chip firms who specialized in developing and selling semiconductor components to assemblers of final products.

Because their basic role was to diffuse chip technology as widely as possible, merchant semiconductor firms fostered other specialized producers throughout the electronics value-chain. In effect, they pioneered and instigated a gradual process of vertical disintegration throughout the American electronics industry. Final assemblers no longer needed to be vertically integrated into component production on the IBM=ATT model. Instead, they could focus on system definition and assembly. Specialization in one part of the value-chain bred specialization in other parts: throughout the 1960s and 1970s, specialized producers of semiconductor equipment and materials emerged, as did producers of software and systems integrators higher up the value-chain. The whole process was accelerated by the competitive entry of Japanese producers who helped to eliminate traditional vertically integrated players from the US market.

In the struggle to break loose from IBM’s dominant model and to react to Japan’s ascent, new product strategies emerged. The pioneering product was, of course, the PC. But the extraordinary pace of technical progress and ever improving price/performance soon made the underlying microelectronics technologies increasingly pervasive, transforming just about everything from telecommunications switches to automobiles and medical instruments. By the mid-1980s, new electronics product markets began to converge on a cost effective, common technological foundation of networkable, microprocessor based systems, of which the PC was only emblematic.

Such systems enabled a dramatic shift in the character of electronics products: from the prior era’s proprietary systems built to fully open or closed standards, to the Wintelist eras “open-but-owned” systems built to “restricted” standards. In the new systems, key product standards, especially the interface specifications that permit interoperability with the operating system or system hardware, are owned as intellectual property but made available to others in the value-chain who produce complementary or competing components, systems, or software products. Hence the systems are “open-but-owned.” The relevant technical standards are licensed rather than published, with either the universe of licensees, the degree of documentation of the technical specifications, or the permissible uses, restricted in some fashion. Very often, changes can be made unilaterally by the standard holder in ways that affect availability and timing of access to the interface specification, as Microsoft is routinely accused of doing by its licensee competitors. Open-but-owned systems combined competitive elements from both product types of the prior era. The standards are licensed in order to create commodity-like competition around system elements chosen by the licensor (e.g. around assembled PCs built to Intel processor architecture standards), whereas their evolution is controlled by the owner to build an installed base and to lock in customers and the value-added licensees.

The shift to open-but-owned systems was accelerated by two factors that helped to spread and consolidate Wintelist business strategies. From the supply side, the increasing cost and complexity of continuing innovation made it increasingly difficult for any one company, even IBM, to maintain ownership and control over all of the relevant technologies. The increasing expense of technological advance demanded specialization to maintain the pace of innovation. But the specialized technical elements had to fit together at the end of the day into workable systems. The former demanded ownership to recoup costs; the latter demanded openness for system integrity.

Second, and more critical, major industrial users in the United States, such as banks, brokerages and insurance companies, aerospace, automobile and petrochemical producers, began aggressively to move their business operations onto integrated corporate data communications networks, a process that was well under way by the early 1980s. In pioneering such complex hybrid networks (i.e. using an integrated mix of owned and purchased facilities and services), major corporations were inevitably operating in a multivendor environment as they attempted to tie together computer systems from some vendors with communications systems from others, with databases and software from still others. Consequently, they began to demand that all of their vendors deliver increasing levels of interoperability in the complex systems being delivered.

Again, American public policy set the context: over three decades from the 1950s through the 1980s, US policy gradually deregulated American Telephone and Telegraph Company (AT&T) and introduced competition into the domestic US market for communications services and equipment. That, in turn, provided the communications facilities and services from which industrial users would piece together their information networks. Industrial demand stimulated a burst of innovation in both development and usage of network equipment and services, creating broad market opportunities for new firms such as Cisco Systems and Novell. Users could pick and choose among the most innovative equipment and services from multiple vendors to knit together their information networks. But the pieces from multiple vendors had to fit together; they had to be open enough to enable end-to-end interoperability of the corporate communications infrastructure. Suppliers responded with open-but-owned systems: “open” at the interface to permit interconnection of systems from other vendors, but “owned” to reap a return from innovation. In short, users demanded highly functional and interoperable systems, US policy stimulated provision of them, and both further encouraged the value-chain specialization with open-but-owned standards that are the hallmarks of Wintelism.

But the move to open-but-owned systems and value-chain specialization was legitimized, as perhaps it only could have been, by IBM with the IBM PC. In order to get to market fast and to exploit a market window opened by Apple (who had adopted a quite traditional proprietary systems strategy), IBM pieced together the first open-but-owned PC using its own proprietary BIOS (basic input-output system) and a variety of components and software from numerous third-party vendors. It invited cloning to establish the market. Once firmly entrenched, IBM intended to bring the product back in-house and make it increasingly proprietary. It presumed that its brand conjoined with a traditional strategy of unsurpassed scale, and vertical control of technology and manufacturing would fend off the clones. It was wrong. Unfortunately for the computer giant, it permitted key standards in its PC to be owned by others (especially Intel for the microprocessor architecture, and Microsoft for the operating system) who innovated at the furious pace that focus and specialization permitted. Gradually, they took control of the evolution of the PC’s key standards. In concert with the clone-makers, Intel and Microsoft wrested control from IBM of the PC itself. Strategies to set and control the evolution of de facto standards were developed. Business speed (e.g. rapid product cycles, fast time to market) was rewarded. Wintelism was born.