Published online by Cambridge University Press: 13 December 2011
The computer-services and software industry used to be conveniently divided into three main sectors: mass-market software vendors, enterprise software vendors, and computer services. The three sectors were distinct, because personal computers, corporate mainframes, and online computer networks operated in relative isolation. The arrival of the Internet effectively connected everything, facilitating the entry of mass-market vendors into enterprise software and of both mass-market and enterprise software vendors into computer services. As the turbulence of the first decade of the Internet era subsides, a gradual transition from traditional software products to “Web services” is taking place.
1 Campbell-Kelly, Martin, From Airline Reservations to Sonic the Hedgehog: A History of the Software Industry (Cambridge, Mass., 2003), 3–5Google Scholar. Hoch, Detlev J., Roeding, Cyriac R., Purkert, Gert, and Lindner, Sandro K., Secrets of Software Success (Boston, Mass., 2000), 259–71.Google Scholar
2 Cusumano, Michael, The Business of Software (New York, 2004), 86–127Google Scholar.
3 This article concerns the recent development of an entire industrial sector. It is broader in scope than the typical Business History Review article, though not unprecedented (see, for example, Langlois's, Richard 1992 study of the development of the microcomputer industry, “External Economies and Economic Progress: The Case of the Microcomputer Industry,” Business History Review 66: 1–50)CrossRefGoogle Scholar. Consequently, the range of sources we have consulted is also not typical. Because the events described are recent, we are more than usually reliant on the contemporary business and technical press. Few academic studies have yet been made, and primary sources, such as industry-analyst reports and corporate records, are not gener-ally in the public domain. These, in any case, would likely be subject to a twenty- or thirty-year embargo on disclosure.
4 In justifying this choice of model, we note that broadcasting and telecommunications are similar technological systems with an appliance-infrastructure-services industrial structure.
5 Berners-Lee, Tim, Weaving the Web: The Past, Present, and Future of the World Wide Web (London, 1999)Google Scholar.
6 Cusumano, Michael A. and Yoffie, David B., Competing on Internet Time: Lessons from Netscape and its Battle with Microsoft (New York, 1998)Google Scholar.
7 Ibid., 96.
8 Ibid., 98.
9 Ibid., 330.
10 Rebello, Kathy, “Inside Microsoft,” Business Week, 15 July 1996, 56–67.Google Scholar
11 Liebowitz, Stan J. and Margolis, Stephen E., Winners, Losers, and Microsoft: Competition and Antitrust in High Technology (Oakland, Calif., 1999), 217–23Google Scholar.
12 Netscape released the Navigator browsers as follows: version 1.0 in Dec. 1994; 2.0 in Feb. 1996; 3.0 in Aug. 1996; 4.0. in Aug. 1997. Microsoft released Internet Explorer as fol-lows: 1.0 in Aug. 1995; 2.0 in Nov. 1995; 3.0 in Aug. 1996; 4.0 in Sept. 1997. Cusumano, and Yoffie, , Competing on Internet Time, 329–34.Google ScholarEvans, David S., Nichols, Albert L., and Schmalensee, Richard, “An Analysis of the Government's Economic Case in U.S. v. Microsoft Corp,” in Evans, David S., ed., Microsoft, Antitrust, and the New Economy: Selected Essays (Boston, 2002), 23–92CrossRefGoogle Scholar.
13 Windrum, Paul, “Leveraging Technological Externalities in Complex Technologies: Microsoft's Exploitation of Standards in the Browser Wars,” Research Policy 33 (2004): 385–94.CrossRefGoogle Scholar
14 Cusumano, and Yoffie, , Competing on Internet Time, 38.Google Scholar
15 Ibid., 326.
16 Cline, Craig and McKenzie, Matt, “Authoring the Web,” Seybold Report on Internet Publishing 1 (Oct. 1996): 9–14Google Scholar.
17 “Tools for Creating Web Pages,” Seybold Report on Publishing Systems 24 (May 1995).
18 Terdeman, Sharon, “Web Authoring,” PC Magazine, 10 Sept. 1996, 115.Google Scholar
19 Ferguson, Charles H., High St@kes, No Prisoners: A Winner's Tale of Greed and Glory in the Internet Wars (New York, 1999)Google Scholar. Prior to founding Vermeer, Ferguson was a technology analyst and policy expert, and his book is full of insights.
20 Ibid., 31.
21 Ibid., 253.
22 Pfiffner, Pam, Inside the Publishing Revolution: The Adobe Story (Berkeley, 2002), 170, 213-14Google Scholar; “DreamWeaver Wakes Up the Web Authoring Market,” Seybold Report on Internet Publishing 2 (Nov. 1997): 33–36Google Scholar.
23 Shapiro, Carl and Varian, Hal R., Information Rules: A Strategic Guide to the Networked Economy (Boston, 1999), 44–46Google Scholar.
24 There are no public-domain sources for market shares of Web publishing tools. A proxy for their current popularity is, perhaps, the number of textbooks listed on Amazon.com: FrontPage, 529; DreamWeaver, 638; GoLive, 71; PageMill, 24, NetObjects Fusion, 21; HoT-Metal, 4. (Search conducted by author, 19 Jan. 2007.)
25 For example, Amazon.com was founded in July 1995; AuctionWeb (later eBay), in late 1995. Spector, Robert, Amazon.com: Get Big Fast (New York, 2000)Google Scholar; Cohen, Adam, The Perfect Store: Inside eBay (New York, 2002)Google Scholar.
26 Pfiffner, Pam, Inside the Publishing Revolution, 137.Google Scholar
27 Brandt, Richard, “Does Adobe Have a Paper Cutter?” Business Week, 16 Nov. 1992, 98–99Google Scholar.
28 Cortese, Amy, “This Acrobat Has Really Limbered Up,” Business Week, 26 Sept. 1994, 73–74Google Scholar; Pfiffer, , Inside the Publishing Revolution, 141.Google Scholar
29 For the early history of RealNetworks, see Reid, Robert H., Architects of the Web (New York, 1997), 69–101Google Scholar.
30 “Progressive Networks Announces RealAudio Personal Server,” BusinessWire, 9 Oct. 1995.
31 Hamm, Steve, “The 800-Pound Gorilla's New Toy,” Business Week, 11 May 1998, 60–64.Google Scholar
32 In December 2003, RealNetworks filed an antitrust suit against Microsoft, alleging that it had used its monopoly power to restrict competition. The action was settled in October 2005 when Microsoft agreed to pay RealNetworks $761 million. RealNetworks, Annual Report, 2005, p. 4.
33 Networks, Real, Annual Reports, 1998, 2005.Google Scholar
34 See, for example, Akera, Atsushi, “Voluntarism and the Fruits of Collaboration: The IBM User's Group Share,” Technology and Culture 42, no. 4 (2001): 710–36CrossRefGoogle Scholar.
35 Stallman, Richard, “The GNU Operating System and the Free Software Movement,” in DiBona, Chris, Ockman, Sam, and Stone, Mark, Open Sources: Voices from the Open Source Revolution (Sebastopol, Calif., 1999), 53–70Google Scholar.
36 Weber, Steven, The Success of Open Source (Cambridge, Mass., 2004), 52.Google Scholar
37 Three prominent examples were the Apache Web-server software, the Sendmail program, and the Bind DNS software. These programs were fundamental components of the Internet infrastructure, and all of them captured more than half of their “markets.” See Weber, Success of Open Source, 6. It is somewhat paradoxical to speak of markets for free software, because open-source products are not directly purchased. The market is usually measured by units, rather than in revenues.
38 Torvalds, Linus and Diamond, David, Just For Fun: The Story of an Accidental Revolutionary (New York, 2001)Google Scholar.
39 Ibid., 92-93.
40 Ceruzzi, Paul, A History of Modern Computing (Cambridge, Mass. 1998), 282–87Google Scholar; Dunphy, Ed, The Unix Industry and Open Systems in Transition (New York, 1994)Google Scholar. RISC (Reduced Instruction Set Computer) technology gave a superior price performance to that of traditional mainframe computers. See Ceruzzi, History of Modern Computing, 287-90.
41 Rebello, Kathy, Hof, Robert D. and Mitchell, Russell, “Novell: End of an Era?” Business Week, 22 Nov. 1993, 43–45.Google Scholar
42 Throughout the 1990s, microprocessor improvements followed “Moore's Law,” according to which transistor density in microchips improved by a factor of two every year. See “Computer Laws,” in Anthony Ralston, Reilly, Edwin D., and Hemmendinger, David, eds., Encyclopedia of Computer Science (London, 2000), 960–64Google Scholar.
43 Fink, Martin, The Business and Economics of Linux and Open Source (Upper Saddle River, N.J., 2003), 87–91Google Scholar.
44 Ante, Spencer E., “Big Blue's Big Bet on Free Software,” Business Week, 13 Aug. 2001, 57–58Google Scholar; Capek, P. G. et al., “A History of IBM's Open-Source Involvement and Strategy,” IBM Systems Journal 44, no. 2 (2005): 249–57CrossRefGoogle Scholar.
45 IDC, Worldwide Client and Server Operating Environments, 2004-2008 Forecast (Framingham, Mass., 2004), 2–4.Google Scholar
46 Markoff, John and Hansell, Saul, “Hiding in Plain Sight, Google Seeks an Expansion of Power,” New York Times, 14 June 2006, A1.Google Scholar
47 Zachary, G. Pascal, Showstopper: The Breakneck Race to Create Windows NT and the Next Generation at Microsoft (New York, 2004)Google Scholar.
48 Andrews, Paul, How the Web Was Won: How Bill Gates and His Internet Idealists Transformed the Microsoft Empire (New York, 2000), 203–7.Google Scholar
49 Cortada, James W., Before the Computer: IBM, NCR, Burroughs, and Remington Rand and the Industry They Created, 1865-1956 (Princeton, 1993), 269–70Google Scholar.
50 IDC, Worldwide Client and Server Operating Environments, 2-4. The success of the Windows Server operating system led to antitrust concerns over its interoperability with other systems, particularly Linux. In March 200 4 the European Commission brought an antitrust suit against Microsoft, which compelled it to publish detailed specifications for interoperability.
51 Egan, Mark, The Executive Guide to Information Security: Threats, Challenges, and Solutions (Indianapolis, 2005), 9.Google Scholar
52 Ibid., 15.
53 Gartner, “Gartner Says Worldwide Security Software Revenue Totaled $7.4 Billion in 2005,” press release, 12 Sept. 2006.
54 “The 2005 Software 500,” Software Magazine, Sept. 2006. In addition, the larger infra-structure software firms, such as Computer Associates (CA) and IBM, also supplied security software. In 2005 the reported revenues for CA's and IBM's security products were $438 million and $299 million, respectively. See Gartner, “Worldwide Security Software Revenue.”
55 See, for example, “Software's Big 50,” Datamation, 1 Dec. 1990, 67-71.
56 Shaffer, Richard A., “Symantec's Little Hits,” Forbes, 25 Nov. 1991, 196.Google Scholar
57 Grow, Brian, “Symantec: Leading the Charge Against Hackers,” Business Week, 21 Jun. 2004, 85.Google Scholar
58 Egan, , Executive Guide to Information Security, 12–14.Google Scholar
59 “Software Companies in Israel—Security,” at the Israel Science and Technology home page, “Software Companies in Israel,” www. science.co.il/SoftwareCo.asp, accessed 5 Dec. 2007.
60 Sanchez-Klein, Jana, “Israel: Land of High-Tech Promise?” Computer Business Review, July 1998, 33–40.Google Scholar
61 For example, Britain has an important videogame software industry. See Department of Trade and Industry, From Exuberant Youth to Sustainable Maturity: Competitiveness Analysis of the UK Games Software Industry (London, 2002)Google Scholar. Russia is reported to be particularly successful in algorithmic and mathematical software. See Terekhov, Andrey A., “The Russian Software Industry,” IEEE Software, Nov./Dec. 2001, 98–101CrossRefGoogle Scholar. See also Arora, Ashish and Gambardella, Alphonso, From Underdogs to Tigers: The Rise and Growth of the Software Industry in Brazil, China, India, Ireland, and Israel (Oxford, 2005)CrossRefGoogle Scholar.
62 Cusumano, , Business of Software, 25–29.Google Scholar
63 Campbell-Kelly, Martin and Aspray, William, Computer: A History of the Information Machine, 2nd. ed (Boulder, Colo., 2004), 193–96Google Scholar.
64 Phister, Montgomery Jr, Data Processing: Technology and Economics, 2nd. ed. (Santa Monica, Calif., 1979), table II.1.26a, p. 610Google Scholar.
65 Kanarkowski, Edward J., ADP50th Anniversary, 1949-1999 (Roseland, N.J., 1999), 6Google Scholar.
66 Computer Sciences Corp., The CSC Story (El Segundo, Calif., 2003), 7–8Google Scholar.
67 For the early history of EDS, see Levin, Doron P., Irreconcilable Differences: Ross Perot versus General Motors (Boston, 1989), 27–64Google Scholar.
68 ADR, , Annual Report, 2005.Google Scholar
69 Angel, Karen, Inside Yahoo (New York, 2000), 126–30Google Scholar.
70 Kaplan, Jeffrey, “Software-as-a-Service Myths,” Business Week Online, 17 Apr. 2006.Google Scholar
71 IDC, Worldwide On-Demand Customer Relationship Management Applications 2004 Vendor Analysis (Framingham, Mass., 2005), 21.Google Scholar
72 Markoff, John, “Google Takes Aim at Excel,” New York Times (6 Jun. 2006), A1.Google Scholar
73 Koch, Christopher, “Open-Source ERP Gains Users,” CIO Magazine, 3 Feb. 2004Google Scholar; , , “Open-Source Software Opening HR Doors,” Workforce Management Online, Jan. 2007Google Scholar; Beasty, Colin, “Low-Cost, Open Source CRM,” destinationCRM.com, 15 Apr. 2005.Google Scholar
74 Kontzer, Tony, “Sugar CRM Offers Online Service,” Information Week, 8 Nov. 2004.Google Scholar
75 The size of the global software-products industry is notoriously difficult to estimate. However, we estimate that the four-firm concentration ratio of the industry in 1995 (based on IBM, Microsoft, Computer Associates, and Oracle Systems) was probably no more than 15 percent. (Based on data and observations in Campbell-Kelly, From Airline Reservations to Sonic the Hedgehog, esp. ch. 1.)
76 Cortese, Amy, “Sexy? No. Profitable? You Bet,” Business Week, 11 Nov. 1996, 70–72.Google Scholar
77 For example, see Baker, Stephen, “The Sizzle is Out of SAP” Business Week, 12 Apr. 1999, 52Google Scholar; Baker, Stephen, “Can SAP Swim with the Swiftest?” Business Week, 26 June 1999, 52Google Scholar; and Fox, Justin, “Lumbering Toward B2B,” Fortune, 12 June 2000.Google Scholar
78 Baker, “Can SAP Swim with the Swiftest?"
79 “The Soft-letter 100,” Soft-letter, 30 Apr. 2001,1.
80 Ibid., 1-2.
81 Symantec, Annual Report, 2005, p. 3.
82 Keegan, Paul, “Is This the Death of Packaged Software?” Upside, Oct. 1999.Google Scholar
83 “Symantec Announces Norton AntiVirus 2.0 for Windows NT,” press release, 16 Sept. 1996.
84 Leah, Sarah and Grow, Brian, “Norton Gets a Bit Less Secure,” Business Week, 12 Dec. 2005, 44.Google Scholar
85 Symantec, Annual Report, 2001, p. 11.
86 “Bunker Mentality,” Economist, 17 Dec. 2005, 75.
87 Chen, Christine Y., “A Trip to the Antivirus War Room,” Fortune, 18 Oct. 2004, 272.Google Scholar
88 For the history of Intuit, see Taylor, Suzanne and Schroeder, Kathy, Inside Intuit (Boston, Mass., 2003)Google Scholar; Campbell-Kelly, From Airline Reservations to Sonic the Hedgehog, 294-300.
89 Horvitz, Paul M., “Efficiency and Antitrust Considerations in Home Banking: The Proposed Microsoft-Intuit Merger,” Antitrust Bulletin (Summer 1996): 427–46.Google Scholar
90 “Kathy Rebello and Keith H. Hammonds, “Gut Feel at Intuit,” Business Week, 30 Sept. 1996, 46.
91 Hamm, Steve, “This Intuit Hunch May Pay Off,” Business Week, 15 June 1998, 123–24.Google Scholar
92 Intuit, Annual Report, 2000.
93 Intuit, Annual Report, 1999, p. 7.
94 “Intuit Completes Acquisition of Computing Resources, Inc.,” press release, 3 May 1999.
95 Intuit, Annual Report, 2005.
96 Cusumano, , The Business of Software, 86–127Google Scholar; Cusumano, Michael A., “Finding Your Balance in the Products and Services Debate,” Communications of the ACM 46 (Mar. 2003): 15–17Google Scholar.
97 Campbell-Kelly, From Airline Reservations to Sonic the Hedgehog, 115.
98 See, for example, “CBR Software Top 50,” Computer Business Review, special report, 1996, p. 6.
99 Evans, David S., Hagiu, Andrei, and Schmalensee, Richard, Invisible Engines: How Software Platforms Drive Innovation and Transform Industries (Cambridge, Mass., 2006), 349–55Google Scholar. See, for example, Mueller, John Paul, Mining eBay Web Services: Building Applications with the eBay API (San Francisco, 2004)Google Scholar.