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The Triumph of Ethernet: Technological Communities and the Battle for the LAN Standard.

Urs von Burg. Stanford, CA: Stanford University Press, 2001. 300 pp. $55.00, cloth; $24.95, paper.

Von Burg presents a refreshing focus on innovation in his historical account of the emergence and development of LAN technologies and the eventual dominance of the Ethernet technology. Rather than examine exclusively the internal capabilities and processes of innovators, he focuses more on the structure of "technological communities." That is, he argues that the structure and relationship between the external network of suppliers and the innovating firm is critical to understanding which technology and firm wins the race for determining the industrywide technological standard. While von Burg's central thesis, that network structure matters, is adequately explored and illustrated, I found that I kept searching for greater theoretical rigor and deeper inferences from the historical accounts. For example, given the relatively extensive theoretical and empirical literature on social networks, I would have liked him to examine more thoroughly the factors that led to the emergence of one kind of network structure versus another. Was it luck or a random sequence of events that led to the network structure of the Ethernet? Alternatively, was it the existing embeddedness of the social actors in a more open network that set the stage for the development of an open network to coordinate interaction with the Ethernet technology?

In the opening section of The Triumph of Ethernet, von Burg presents the theoretical motivation and contribution: despite some initial advantages over the Ethernet, several proprietary-networking technologies failed to become the standard. This story is at odds with received wisdom at the time: keep technological innovations proprietary to derive as much profit from them as possible. He presents a compelling account for why: the firms that kept their technology proprietary failed to attract similarly large supplier communities, that is, technological communities that could have supported and promoted them. As a result, the proprietary technologies could not keep abreast of price declines and technological progress when compared with the Ethernet, which adopted an open technology. This open technological community fostered suppliers' interest because suppliers could not only have help from the innovator in integrating this technology with their technology (because the innovator chooses to forego monopolistic control) but also have the opportunity to generate significant profit (because the innovator chooses to forego monopolistic profits).

He further argues that this standard-setting story contrasts with the economic theory of standardization, which predicts that firms can win the standards race by creating the largest network first. The positive feedback loop that emerges from the exponential growth of the network tips the market toward the leading technology, which eventually becomes the dominant technology and standard for the industry. Economists predict that standardization battles are often won or lost in the very early stages over relatively small events that are often of random origin. Thus, early adopters carry a disproportionate weight in the selection of a standard, and there is no guarantee in this process that the most superior technology will become the standard. The shortcomings of the standardization theory, according to von Burg, are its two assumptions: (1) the small events that tip the market are of random origin, and (2) only two players, the two competing firms, are considered.

In chapter 1, von Burg develops an alternative framework for understanding the standardization battle by introducing the concept of a technological community to describe the network of players that are involved in the development, manufacturing, and distribution of a particular technology. He classifies network communities into three kinds: proprietary, sponsor, and open. Proprietary network structures are characterized by the innovating firm's ownership of the technology and refusal to license it. Open structures require that the innovative technology be in the public domain, accessible to any vendor at any time, and that no vendor possesses private rights to the technology. Sponsor structures characterize situations in which the proprietary technology is accessible to other vendors through reverse engineering.

This chapter is one of the more intriguing parts of the book because he develops a framework that predicts which type of network community is likely to characterize the winner of the standardization race. In particular, he predicts that open network communities will prevail over sponsor and proprietary network communities, and sponsor communities are likely to prevail over proprietary communities. He reasons that open communities provide greater incentives for suppliers to access the standard, thereby creating greater competition, a greater scope of application, as well as a greater network capability to adapt to technical changes. The sponsor community offers lower financial rewards and more authoritative guidance (and perhaps even direct competition from the innovating firm) than the open community, lowering its effectiveness in tipping the market. The proprietary firms are least effective, since monopolistic pricing and control limits the number of suppliers who are willing to engage in working with this technology.

In this chapter, von Burg also considers the case of two similarly structured network communities competing. In this situation, the standard is determined by situational factors: the capabilities, asset positions, and size of the competitors. He also considers innovation within the vertically integrated firm and concludes, consistent with transaction cost logic, that only when innovation requires the coordination of specialized assets is the vertically integrated firm a choice superior to a network, that is, when innovations require systemically integrated technologies rather than autonomous technological innovations. Consistent with recent theoretical reviews (see, e.g., Zenger, Lazzarini, and Poppo, 2002), he also suggests that limits to firms exist: network communities may be more effective in adapting to rapidly changing technologies than vertically integrated firms.

The next six chapters detail extensively the evolution of the LAN technology and the eventual dominance of the Ethernet. Chapter 2 presents a historical account, from 1945 to the late 1970s, of the precommercial stage of the LAN: the pioneers who first created network technology and the subsequent development of the LAN technology. In chapter 3, von Burg argues, contrary to standardization theory, that none of the earliest pioneers who should have been best positioned to tip the network in the late 1970s to early 1980s succeeded in doing so. To the contrary, most of them failed because, initially, the consumer market had yet to be really developed, and these early pioneers lacked the financial and technical resources to keep up with and target the new growth markets, such as the first minicomputers. The Ethernet, a relatively late pioneer, was successful, however, and perhaps its lag in the market may have contributed to its success, since many dimensions of the technology were already determined. In chapter 4, von Burg describes the early stages of the standardization race: during the late 1970s and early 1980s, a number of firms were interested in creating a single standard, but none of them, despite their interest in creating an open standard, could agree on a single standard and, therefore, developed three. With the Institute of Electrical and Electronic Engineers' decision to promote two standards, the Ethernet and the Token Ring, the race for the standard then became much more focused in the 1980s to early 1990s. This chapter also examines the rationales for firms defecting from their early strategy of proprietary standards to that of an open standard. In chapters 5, 6, and 7, von Burg revisits the conceptual framework he introduced in chapter 1 and uses the case studies to illustrate several hypotheses: (1) the dominance of the open Ethernet technological community (chap. 5) and (2) the rise and fall of the proprietary Ethernet competitors (chap. 6) and of IBM's open technology, the Token Ring, and IBM's failure to nurture its suppliers within this open technological community (chap. 7).

In the final chapter, von Burg summarizes the inadequacies of standardization theory, as illustrated by his case studies. His work clearly shows that network structures vary and that the open, supportive technological community of the Ethernet appears to account for its winning the LAN standardization race. Von Burg concedes that while the Ethernet victory is broadly consistent with standardization theory, standardization theory tells us very little about why the development of an open community was so effective. In effect, standardization theory's focus on small and random effects that tip the market overly simplifies and neglects patterns that may well underlie the tipping effect. Thus, von Burg has reached his objective of showing the value of elaborating on the chain of events that contribute to the tipping of a market. While he acknowledges that he does not explore the demand side of the network and its effects on the standardization race, some classification of demand characteristics seems central to understanding the race for emerging technologies and to fully contrasting his technological community perspective with the economic theory of standardization.

REFERENCE

Zenger, T., S. Lazzarini, and L. Poppo

2002 "Informal and formal organization in new institutional economics." In P. Ingram and B. Silverman (eds.), Advances in Strategic Management, vol. 19: The New Institutionalism in Strategic Management: 275-303. New York: Elsevier/JAI.

Laura Poppo

Department of Management

Virginia Tech Blacksburg, VA 24061
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Author:Poppo, Laura
Publication:Administrative Science Quarterly
Article Type:Book Review
Date:Mar 1, 2003
Words:1500
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