Preface to the Paperback Edition of Inventing the Electronic Century

Inventing the Electronic Century

Only a tiny number of for-profit business enterprises created today's audio, video, and information technologies. Their story is an epic one. In audio and video technology, one company, the Radio Corporation of America (RCA), came to dominate markets worldwide by the 1950s. It did so first in audio systems, including radios and phonographs. By 1960 it had fully defined basic video technology. Then in the 1960s RCA stepped beyond its core business and attempted to commercialize mainframe computers. From there, it used acquisitions to branch into various industries, including rental cars and hotels. By 1970, this strategy of unrelated diversification destroyed RCA by diverting financial resources and management from the core business. With the fall of RCA, the U.S. audio and video industry collapsed. By the 1980s, four Japanese companies—Sony, Matsushita, Sanyo (aspin-off from Matsushita), and Sharp—dominated markets worldwide. Such a swift creation and destruction of one national industry by another in markets worldwide is unparalleled in industrial history.

The historical evolution of the information technology industry is as remarkable as that of audio and video. Only in this case, International Business Machines (IBM) has dominated the industry (including its forebears, office equipment and data processing) continuously since its beginning in 1911. Its initial products included punched-card tabulators, which were available globally by the 1920s. In the 1940s and 1950s, IBM helped to pioneer digital computers and software and remained in the lead as the industry moved further into electronics. By 1963, when it completed conversion from vacuum tubes to solid-state electronics, IBM's revenues reached $1.2 billion, whereas its U.S. competitors' revenues combined reached only $7.1 million.

Pouring its profits into research and development, IBM's managers and technical staff commercialized between 1963 and 1967 the System 360 mainframe computer, an extraordinary achievement. The System 360 and its successors remained the models for large-scale computers through the beginning of the twenty-first century. In 1970, however, a leading designer of the System 360, Gene Amdahl, left IBM to start his own company. Unable to finance it in the United States, he turned to Japan, thus providing Japan's fledgling computer industry with state-of-the-art technology. During the 1970s, the four major Japanese computing companies—Fujitsu, Toshiba, NEC, and Hitachi—built on this foundation to capture not only the Asian market, but in alliance with the European companies, that of Europe.

In Europe, British, French, German, and Italian computer companies, all except the last supported heavily by their governments, had struggled to commercialize large-scale computers. By the late 1970s and early 1980s, the managers in these four countries gave up. They turned to Japan to obtain their mainframes on an OEM basis; that is, to put their labels on the Japanese-made products. Germany's Siemens turned to Fujitsu as did Britain's ICL. Somewhat later France relied on NEC, and Italy's Olivetti on Hitachi. By the 1980s, these arrangements assured the Japanese dominance in Europe's large-scale computing market. IBM and the four Japanese firms also became worldwide leaders in the minicomputer and its descendants, the workstation and the server.

In the 1970s, IBM transformed information technology for a second time when it mass produced and mass marketed the personal computer initially commercialized by young hobbyists and engineers. The IBM PC and its clones, with microprocessors produced by Intel and operating systems by Microsoft, still dominate the PC market. Table 7.2 on pages 223–224 below documents the dominance of IBM and the four Japanese companies in large-scale systems, servers, desktops, and peripheral equipment such as printers and scanners in the 1990s. The table also illustrates the almost total competitive failure of the European producers. The dominance of such a small number of companies in global markets is unique in industrial history.

In reviewing the epic story of the Japanese dominance...