Tài liệu The gloabal internet economy pdf

Jones Center hadfinanced a volume a decade ago, entitled Country Competition, that exam-ined this historical tension among national context, technological capa-bility, and the global di¤u

Edited by Bruce Kogut

The MIT Press

Cambridge, Massachusetts

London, England

without permission in writing from the publisher.

This book was set in Baskerville on 3B2 by Asco Typesetters, Hong Kong, and was printed and bound in the United States of America.

Library of Congress Cataloging-in-Publication Data

The global internet economy / Bruce Kogut, editor.

p.cm.

Includes bibliographical references and index.

ISBN 0-262-11272-8 (hc.: alk.paper)

1.Internet—Economic aspects—Cross-cultural studies 2.Internet—Social

aspects—Cross-cultural studies.3.Information technology—Cross-cultural studies 4.Electronic commerce—Cross-cultural studies I.Kogut, Bruce Mitchel.

HC79.I55 G5783 2003

338.407004678—dc21 2002075120

Acknowledgments ix

3 The Growth and Development of the Internet in

Martin Kenney

4 Sweden’s Wireless Wonders: The Diverse Roots

and Selective Adaptations of the Swedish Internet

Henrik Glimstedt and Udo Zander

5 Technological National Learning in France: From

Pierre-Jean Benghozi and Christian Licoppe

6 Creativity under Constraint: Technological

Imprinting and the Migration of Indian Business to

Srilata Zaheer and Radhika Rajan

7 The German Internet Economy and the ‘‘Silicon

Valley Model’’: Convergence, Divergence, or

Steven Casper

Sea-Jin Chang

9 Between Bit Valley and Silicon Valley: Hybrid

Forms of Business Governance in the Japanese

Susan Helper and John Paul MacDu‰e

Alain Jeunemaıˆtre and Herve´ Dumez

13 Non-Market Strategies and Regulation in the

This book was conceived by curiosity, a plague that wiser minds avoid.Itbegan by observing a global euphoria over the potential of a new body oftechnologies lumped under the label of the Internet.Many colleaguesand friends were fascinated by the Internet’s e¤ects on productivity, andsurely almost all were infected by the lure of astronomical valuationsplaced on companies run (dare one say managed?) by talented and en-thusiastic entrepreneurs, often with very little experience.

I had the fortune to be on sabbatical in Paris at the Centre de che en Gestion, attached to the Ecole Polytechnique and constituted as

Recher-a nRecher-ationRecher-al scientific reseRecher-arch center, for the yeRecher-ars 1999–2001.The net economy was in full swing in France in the fall of 1999.There wasalready an active research program, coordinated loosely among severalFrench centers.Having long been a‰liated with the Institute of Inter-national Business at the Stockholm School of Economics and periodi-cally with the Science Center in Berlin, I learned that these instituteswere also engaged in research on the Internet.In all of these countries,the reports indicated the emergence of hundreds of new firms, venturecapitalists, and graduates defecting from the traditional employmentmarkets to enter new firms that promised options and equity sharing.How odd this reality seemed compared to the many stylized models ofnational systems that had been studied for the past decade! Clearly, aglobal cultural movement was in gear, the leading indicator being thereplacement of the business suit by the black T-shirt worn by the newentrepreneurs in Palo Alto, New York, Paris, and Tokyo.Could a cul-

Inter-tural shift be powerful enough to overturn the institutions that guided theeducational systems, the funnelling of engineers and managers to largeindustry, and the traditional bank finance?

These observations drive a theoretical stake into the undeveloped side

of the national systems approach, for economic history has always shownthe fundamental role played by the di¤usion of ideas, methods, andtechnologies across borders.Indeed, the Reginald H Jones Center hadfinanced a volume a decade ago, entitled Country Competition, that exam-ined this historical tension among national context, technological capa-bility, and the global di¤usion of organizing principles.The Interneteconomy reflected these familiar patterns of international di¤usion, onlyplayed at a faster tempo.But more poignantly, this new economy wasalso marked by the transport of an economic model, often called theSilicon Valley model, to countries that had long been shown by re-searchers to be inhospitable to these institutions.How important is theconcept of the nation if cultural ideas can coerce national systems toconverge toward new global understandings of how technology should bedeveloped and people rewarded?

These are intriguing questions that could not be ignored.A project wasborn after discussion with colleagues who came to join the endeavor.Most of them responded first with the reply, ‘‘It is still too early to studythese questions, and I don’t know enough in any event.’’ And then camethe second response, ‘‘But still, I would like to know the answer ’’ Thedangers and wonders of curious minds.I would like to thank above allthese participants who had to give so much of their time to learn aboutthe Internet, to gather the facts, and then to write their interpretations ofwhat they observed

We thank as well the participation of many people who helped usalong the way.These include above all Patrick Fridenson and his students

at the E´ cole Hautes des Etudes en Sciences Sociales and Dan Ra¤ of theWharton School, who contributed a sense of historical sobriety to ourdeliberations.Olivier Bomsel at the E´ cole des Mines, Susan Lucas-Cornwall of VEO, Michel Fleuret of CCF in Paris, and Fre´de´riqueSachwald of the Institut Francais des Relations Internationals providedcomments on several of the draft chapters presented in March 2001 at

an event sponsored by the Centre de Recherche en Gestion, the ReginaldH.Jones Center, and the Wharton Alumni Club of France.We would

also like to thank the Institute of International Business, and especiallyMalin Ekberg, for organizing the first of our meetings, held on an islandnear Stockholm, to discuss early drafts in June 2000.

This project was financed by the Reginald H.Jones Center of theWharton School at the University of Pennsylvania.The center receivesfunding from the private sector and government agencies to conduct re-search on the concerns of the chief executive o‰cer.We would like tothank DuPont, General Electric, General Motors, the IBM Institute forKnowledge-Based Organizations, and Pitney Bowes, and their managerswho give us their time and support.These include Paul Costello, JamesParke, Reginald Jones, Julie Beamer and Mark Hogan, Doug Sweeny,and Johnna Torsone.I would like to express my thanks especially toLarry Prusak and to John Seely Brown, with whom we organized a series

of conferences on ‘‘The Internet and Virtual Communities.’’ Our eration with Larry’s Institute for Knowledge-Based Organizations hasbeen intellectually vital to this research program.We would also like tomention the help of Mukul Pandya and Robbie Shell, who disseminatedthe results of our work and conferences through Knowledge@Wharton, agreat example of the educational power of the Internet

coop-John Covell, Deborah Cantor-Adams, and the MIT Press provided uswith excellent support and productive criticism.My co-directors at theReginald H.Jones Center, John Paul MacDu‰e and Sid Winter, gaveenthusiasm and, in the case of John Paul, their time to this project.SueMcMullen, a valued colleague and associate at the center, watched withcare the financial management

And above all, my thanks to Rachel Barrett, who more patiently than

we deserve, managed the various parts to a completed manuscript

Pierre-Jean Benghozi is presently the research director at the National Centerfor Scientific Research (CNRS) and teaches regularly at University of Paris(Panthe´on-Sorbonne, Dauphine, Nanterre).He created and leads a researchgroup on Information Technology, Telecomunications, Media, and Culture atthe Centre de Recherche en Gestion (CRG) at the E´ cole Polytechnique.Hiscurrent projects draw attention to adoption and uses of ITC in large organi-zations, structuring of e-commerce, and ITC-supported markets and supplychains.Pierre-Jean Benghozi publishes on these topics in French and English.Steven Casper is a university lecturer at the Judge Institute of ManagementStudies and a senior research fellow at the Center for Business Research, both atthe University of Cambridge.His research focuses on cross-national comparisons

of the organization of science-based industry and the relationship between lawand technical change.He is currently writing a book examining the di¤usion ofinstitutions to support entepreneurial technology firms across Europe

Sea-Jin Chang is currently Professor of Business Administration at Korea versity.Previously, he was a faculty member at the Stern School of Business ofNew York University and a visiting professor at Stanford and INSEAD.ProfessorChang is primarily interested in the management of diversified multinationalenterprises.His research interests include diversification, corporate restructuring,organizational learning, corporate growth through joint ventures and acquisi-tions, and comparative management studies of Japan and Korea

Uni-Herve´ Dumez is Director of Research at the CNRS (Centre de Recherche enGestion de l’E´ cole Polytechnique).He has been a visiting professor at MIT.Hismain stream of research focuses on regulatory policy, the globalization of mar-kets, and EU integration

Henrik Glimstedt is an associate professor at the Institute of InternationalBusiness, Stockholm School of Economics.He has been a visitor to the WhartonSchool of the University of Pennsylvania; the Wissenschaftszentrum in Berlin,Germany; the Norwegian School of Management; and University of Wisconsin–Madison.He has mainly published on globalization and national and interna-tional industry governance in historical and comparative perspective.His recentwriting includes articles on global standardization and governance of technologi-cal development in the information and communications industry.

Susan Helper is Professor of Economics at the Weatherhead School of agement of Case Western Reserve University in Cleveland.Her research focuses

Man-on how innovatiMan-on is a¤ected by the structure incentive systems and channels ofinformation flow within supply chains.Current research projects include inves-tigating the impact of industry clusters on productivity and innovation in Midwestand Mexican component manufacturing, the determinants of worker satisfaction

in low-wage manufacturing, and the impact of e-business on small automotivesuppliers.She is a research associate of the National Bureau of Economic Re-search, the MIT International Motor Vehicle Program, and Gerpisa (Europeanautomotive research group)

Alain Jeunemaıˆtre, Director of Research at CNRS–Maison Franc¸aised’Oxford, is a‰liated with Nu‰eld College and the Regulatory Policy Institute(Hertford College) at the University of Oxford.His main stream of researchfocuses on regulatory policy, the globalization of markets, and the EU integration.Martin Kenney is a professor in the Department of Human and CommunityDevelopment at the University of California at Davis, as well as a senior projectdirector at the Berkeley Roundtable on the International Economy.He has been

a visitor at the Copenhagen Business School, Hitotsubashi University, the versity of Tokyo, and Kobe University.He works on regional innovation com-plexes, venture capital, and industry globalization issues

Uni-Bruce Kogut is the Dr.Felix Zandman Professor of International Management

at the Wharton School of the University of Pennsylvania, and co-director of theReginald H.Jones Center.He has been a visitor at the Stockholm School ofEconomics, the Wissenschaftszentrum in Berlin, the Centre de Recherche enGestion at the E´ cole Polytechnique, and INSEAD.He works on the di¤usion ofideas across borders and the economic potential of information technologies fordeveloping countries

Christian Licoppe has been trained in the history and sociology of science andtechnology.He has published a book on the history of experimental practices and

is currently working on the analysis of mediated interaction practices in the field

of electronic exchanges and e-commerce.He is director of the social and tive science laboratory at the France Telecom R&D research facility in Paris

cogni-John Paul MacDu‰e is an associate professor in the Management ment at the Wharton School, University of Pennsylvania and co-director of theReginald H.Jones Center.His research focuses on the rise of lean production as

Depart-an alternative to mass production; the consequences for economic performDepart-anceand the organization of work; the di¤usion of this approach across company andcountry boundaries; and patterns of collaborative problem-solving and knowl-edge transfer within and across firms.For many years, he has been a core re-searcher for MIT’s International Motor Vehicle Program (IMVP), and he wasrecently named as IMVP’s co-director

Radhika Rajan works with the TCG Group, an investment house in New YorkCity focused on technology investments.She has first-hand knowledge of theissues discussed in this book, from her experience as executive vice president of aglobal IT company, headquartered in the United States with substantial Indianoperations and customers on every continent.She has worked in the financialmarkets at JP-Morgan Chase, Union Bank of Switzerland, Bank of America, andother prime financial institutions.She is a graduate of the Indian Institute ofTechnology in Bombay, and the Indian Institute of Management in Ahmedabad.She combines a career in investments with strong academic interests in interna-tional business strategies, especially cross-border issues in Asia

Mari Sako is P&O Professor of Management Studies at the Said BusinessSchool and a professorial fellow of Templeton College, University of Oxford.She had previously taught at London School of Economics, and has been avisitor at Kyoto University’s Economics Department and the Institute of SocialScience at Tokyo University.Her research is on comparative business systemswith a specific focus on inter-firm relations, human resources, and the automobilesector

Dennis A Yao is Professor of Business and Public Policy and associate professor

of Management at the Wharton School, University of Pennsylvania.From 1991–

1994 he served as commissioner of the U.S Federal Trade Commission, where

he and his colleagues had responsibility for antitrust and consumer protectionmatters.Professor Yao has published a number of papers concerned with eco-nomics and policy in the areas of antitrust, consumer protection, regulation,procurement contracting, and innovation and intellectual property

Srilata Zaheer (Ph.D., MIT) is the Carlson School Term Professor of tional Management at the University of Minnesota’s Carlson School of Manage-ment, and chair of the International Management Division of the Academy ofManagement (2001–2002).Her research interests revolve around internationalstrategy and organization, and focus on the legitimacy of multinational enter-prises, the value of international location in a digital economy, knowledgecreation, and di¤usion across borders and time-based strategies

Interna-Udo Zander is Professor of International Business at the Stockholm School ofEconomics, where he is the acting director of the Institute of International Busi-ness.Dr.Zander has been a visitor at the Wharton School, University of Penn-sylvania, and Stanford University.He is the author of several articles that coverthe internationalization of R&D, the theory of the firm as a social community,and a comparative study of the Zeiss firms in East and West Germany.His mostrecent area of research is the impact and power of ideas on international firmsand society, addressing the myth of unidirectional and smooth globalization.

Bruce Kogut

Technologies di¤use rapidly in the modern global economy Certainly,the di¤usion of the technologies that make up the Internet occurred withgreat rapidity over the past two decades This is hardly surprising giventhe global web of ties among people, firms, and institutions Many ofthe Internet’s key components were created in universities and publicresearch institutions that viewed their research mission as public dis-semination Multinational companies recognized the global demand forthe infrastructure of the Internet: fiber optics, routers, data terminals,computers, software Any country with su‰cient financial and economicresources could have rendered its communication and data transmissioninfrastructure capable of supporting Internet connections Though coun-tries varied in the speed and the extent by which these investments weremade, all but a handful of countries were connected to the global Inter-net by 2002

This story of the global Internet gold rush hides another and a nating tale Here we have an intrinsically global technology—for once

fasci-a country is connected, it becomes virtufasci-ally co-locfasci-ated with fasci-all othercountries—but its development occurs within the physical and institu-tional geography of nations The Internet relies, after all, on two tech-nological components: a network among distributed computers, and thedigitalization of content (e.g., music, text, data) In Nicholas Negro-ponte’s (1995) powerful phrasing, the movement of atoms that had beenthe core of world trade since the dawn of human history gave way to thetransmission of electrons, or bits, that do not comply with the economic

geography we learn in school and through travel By this view, this is notthe end of history, but the end of distance.

There are elements of truth to this vision The Internet arrived at

a particularly critical junction in economic history, for its exploitation

is closely intertwined with the powerful force of the globalization offinance, corporate governance, and trade This coincidence of the Inter-net and globalization poses deep challenges to the historical institutionalmodels that govern the development and exploitation of technologiesand innovations within nations Historically, countries have been defined

by more than just political borders, but also by more or less coherentinstitutions and conventions that shape the skill formation of a work forceand the entrepreneurial modes by which technologies are commerciallydeveloped and marketed The Internet technologies crashed on the shores

of most countries about the same time, challenging existing institutionsand powerful interests, as their di¤usion was coupled with global ideasabout venture capital financing, start-ups, and radical business models.The Internet technology was global, but its economic and business de-velopment was molded in the context of prevailing national institutions.The ambition of this book is not to give an assessment of the ‘‘average’’impact of the Internet By comparing seven di¤erent country experi-ences, we analyze how the Internet was developed and what has beenthe impact on changing national institutions Three additional chaptersanalyze specific Internet sectors and regulation across countries By thiscomparative analysis, we assess the extent that the Internet presented arevolutionary opening for economic and cultural change and served as animpetus for institutional readjustments to a global economy

The Two Explosions of the Internet

The Internet technologies evolved far more steadily and incrementallythan their economic and commercial exploitation One date by which tomark the explosion of the Internet onto the business and cultural scene

is 1994, the year an easy-to-use Internet browser with secured actions called Netscape was launched From this date to 2000, the num-ber of web hosts grew from 2.2 million to over 94 million The number of

trans-‘‘internauts’’ worldwide grew by some estimates to over 400 million, 40

percent of these in North America and half divided almost evenly tween Europe and Asia/Pacific.1Thousands of new firms were created.Stock markets boomed Venerable firms trembled before the astronomicrise in valuations of firms no more than a few years old Suddenly, therewas an old and ‘‘new economy.’’ The literary gazette of the new Ameri-can economy, Wired magazine, predicted in September 1999 that theDow Jones Index for Wall Street would hit 50,000 in the year 2010.The euphoria ended in the implosion of April 2000, during which thestock market values of new economy companies fell dramatically Sud-denly, there was wide recognition that the stock market looked like aclassic speculative bubble Fundamentals mattered after all, and rules ofdiscounted cash flow returned to remind investors that even the most re-markable growth opportunities could not explain the valuations of thenew economy companies Sobriety returned.

be-History is not reversible This simple learning means that the cycle bywhich expectations started and ended close to their long-term steady statedid not leave companies, consumers, and national systems the same Inthe course of these six years, a wave of innovation carried on its crestnew firm creation and the transformation of existing companies thatpermanently influenced the trajectories of national economies around theworld

The Internet as a Cultural Event

The Internet o¤ered the possibility for the delivery of new services Some

of these services were the provision of information Some promised torationalize the supply chains of entire industries Others o¤ered oppor-tunities for people to communicate and to help each other through onlinecommunities

Workers abandoned traditional companies to work for start-ups.Graduates of engineering schools turned down o¤ers from prestigiouscompanies to take up o¤ers to work for companies that had no revenues.Clad in jeans, open shirts, and casual shoes, these workers labored longhours to realize the dream that their stock options they would receivefrom an Initial Public O¤ering (IPO) would be worth more than whattheir parents had earned in the course of their entire working lives Theyattended gatherings where investors and twenty-something entrepreneurs

would meet in the midst of a cultural happening Organizations such asFirst Tuesday opened operations in a dozen European cities to o¤er busi-ness happenings over cocktails, lavish food, and cultural fanfare.

The business icons of this new culture were Je¤ Bezos, founder ofAmazon, David Filo and Chih-Yuan ‘‘Jerry’’ Yang of Yahoo!, and MarcAndreesen of Netscape There were dozens more, many of them young,fresh from meetings with venture capitalists and Wall Street investmentbankers These founders and their companies were worth billions ofdollars and had yet to earn a profit In Silicon Valley, it was reported that250,000 people were millionaires (Kaplan 1999) Stories abounded ofsecretaries gifted company shares, and who could now buy homes in thehills of Los Altos

The cultural significance of the Internet went far beyond business ture The Internet brought new worlds to internauts People entered chatrooms, tried out new identities, and encountered dialogues outside theirlocal lives The quip that on the Internet no one knows you are a dogsummarized the potential for anonymous exploration of new selves.2The Internet economy promised a new economy It represented radicalchanges in labor markets, a change in cultural expectations and explora-tion, and the introduction of new products and services The entry ofnew firms into these new economic spaces shook the strategies and fates

cul-of industrial and financial giants In this regard, the Internet poses a nitive reframing of work and entrepreneurship that vies with traditionaljob definitions and aspirations of labor market participants

cog-The Internet economy is also the digital economy cog-The content of tural and material life increasingly became encoded in bits A generation

cul-of children ‘‘growing up digital’’ understood the broad possibilities cul-ofconverting the familiar image, text, and sound to data encoded digitally,

as 0s and 1s.3 Their digital CDs could now be transmitted as a steadystream of binary numbers, transporting the sounds of favorite artiststhrough a digital compressed format called MP3 Businesses such asNapster, which began as a teenager’s hobby, supported these exchangesbetween individuals The Internet culture had its own rhythm, took littleheed of conventional ideas of property rights, and expanded by the par-ticipation of millions of people who pursued their interests in new worldsthat William Gibson called in his novel Neuromancer ‘‘cyberspace.’’

National Systems and Institutional Recoupling

If the Internet was a cultural and economic wave, it broke upon verydi¤erent national shores The rapid expansion of Internet-related busi-nesses challenged national systems consisting of firms, governments,consumers, and workers The Internet appeared deeply engrained in theAmerican model of entrepreneurship and new firms, and threatened theideological foundations of these national systems, already unbalanced byglobal investors and the end of the Cold War The economy of Germany

is organized by corporatist principles: business and labor are represented

by their associations, banks and firms are highly intertwined by holdings, and the government actively supports programs to maintain thecontract of a social economy The Japanese and Korean economies—though quite di¤erent in their economic logics—consist of competingbusiness groups; labor unions are often fragmented, and tax rates arelow, pushing many social programs onto individuals and companies.Dominated by business groups in a historical context of socialist eco-nomic and social policies, India is a classic dual economy, with a back-ward and advanced agriculture (depending on the region) and with abackward retail sector coupled with relatively advanced industries, withpockets of global activity in software design

cross-The United States often appears as the exception in national systemcomparisons Highly decentralized, it has weak business and labor asso-ciations Its government pursues active policies in antitrust, but relativelyweak policies in providing guarantees for health insurance or equal access

to basic education Labor markets are relatively flexible, which alsomeans workers have less job security than in many other countries Tiesbetween universities and companies are unusually strong, and patent andintellectual property law encourages universities to invest in commer-cially relevant research Yet the United States provides an inegalitarianprimary and secondary education, and its deficit of skilled techniciansand engineers is compensated for by an immigration policy, partly im-plemented by university admission criteria Venture capital is predomi-nantly an American institution in its origins Small firm creation is anunusually powerful engine for innovation

Because of the particular role played by Silicon Valley in driving theAmerican Internet economy, the American national system is often called

the ‘‘Silicon Valley model.’’4 This model, for us, consists of a few tinctive elements that might be summarized as an embrace of the insti-tutions that promote new firm innovations These institutions include:

dis-1 Early venture capital financing

2 Equity markets for Initial Public O¤ers (IPOs) of recently foundedfirms

3 Fluid regional labor market for global talent

4 Fiscal policies that lower the costs of starting and operating a business

5 Proximity of university and research institutes within a region

There is, of course, debate over this description Indeed, our larger point

is that the ambiguity around this definition, and the causal claims, mits countries to use such a model as a prototype to influence the nationaldiscourse and struggles The list is also in some respects too short, espe-cially in underestimating the pervasive influence of government militaryand industrial policies In Leslie Stuart’s (2000) phrasing, the US gov-ernment was the ‘‘biggest Angel of all,’’ where an angel refers to the ini-tial investors backing an entrepreneur Surely, an immigration policy thatuses the educational system to screen for world talent and grants visas tothese graduates and other skilled workers, is an essential ingredient Moreimportantly, a list of institutions distracts attention from the arenas ofdiscourse and coordination that are embedded in the social and profes-sional communities.5Whether we call this a network, or social capital, acommunity of practice, or simply ‘‘connections,’’ the business transaction

per-is a strand within a greater social fabric

These regional and national systems exist in a global economy Theworld economy is vastly di¤erent today than a hundred years ago, whenthe revolutionary technologies of the automobile, electricity, and com-munications were developed in western countries The Internet economyconfronted a world that was already networked by communications, bytelevision transmission, and by cross-cultural exposure People sharedcommon learning in their experiences interacting with computers, com-puter games, and software International trade was not only large, butthe network of trade was far more expansive in the number of countriesthan before Multinational corporations span across borders, and theirarteries transport the spread of new technologies and managerial prac-

tices International institutions, such as the World Trade Organizationand the International Communications Union, are transnational actors.The global economy is a networked society, as Manuel Castells (2000)claims, though as I explain in this chapter, these networks still reveal theimportance of place and personal relationships.

Here lie the initial questions of our study Does the rapidity by whichthe Internet economy exploded, once and then again, in many countriesmean that borders are inconsequential? Is the evidence that new firmsrose in Germany, France, Sweden, and many other countries contrary tothe traditional logic of their economic systems? Is the Internet an intrin-sically global technology, riding upon the already existing backbone ofthe global communication network?

The simple answer to these questions is that the Internet has borders.The Internet economy developed di¤erently in each country, reflectingdi¤erent national systems of law and regulation, business networks,competition, and technological legacies Each country ultimately facedthe entrepreneurial challenge of developing the competence needed tocompete in this new space Each country ‘‘bootstrapped’’ from their tra-ditional ways by which competence is created through educational insti-tutions and organized and further developed by firms

In some sense, however, the above observation is equivalent to what instatistics is called ‘‘testing the null.’’ After all, should not the expectation

be that national characteristics persist over fairly short durations of time?

A more revealing point of departure for our inquiry is that the globalInternet did pierce borders, but with e¤ects depending upon the nationalspecificities The Internet of the 1990s did not represent a major newtechnological trajectory, for the basic technologies were already known.The Internet instead represented a revolutionary and cultural challenge

to the traditional models by which the relevant competence should beorganized to explore the new economic space Many national modelswere in crisis; many European countries failed to provide growth andjobs during a time of American resurgence in the first two-thirds of the1990s; Korea and Japan were in economic crisis; India had begun toliberalize certain sectors The Silicon Valley model provided proof thatthis space could be filled by new firm creation The slowness of incum-bent actors to exploit the Internet gave an opportunity for entrepreneurs

to bootstrap as well from the American experience The global reach of

venture capital and investment banks invested in these entrepreneurs.Suddenly, traditional national systems were seeded by foreign institutions.

We propose that these national systems are best understood not asrigid templates but as capable of a political and economic process per-mitting a recoupling of institutions that allow for entrepreneurial explora-tion of a global technology Surely, Silicon Valley produced specificinstitutional patterns in which innovation was promoted and sustained

As we will see, the Internet evolved in other countries by very di¤erentmeans and by di¤erent paths of innovative exploration, and yet in defer-ence to other national experiences and the role played by transnationalactors In some countries, the availability of capital to finance entrepre-neurial firms in specific pockets of the economy created enough momen-tum to tip the institutional balance These local pockets of experimentsconstructed bridges by which older systems could migrate toward newinstitutional arrangements of a perceptibly di¤erent logic In most coun-tries, the e¤ects have been transient, with no major changes in the insti-tutional landscape yet to be seen

The Internet

But this is getting ahead of our story Before understanding the nationalexperiences, it is important to pose first the question of what is the Inter-net There are many ways to answer this question, and we will try several

A Modular Technological System

The technological answer is that the Internet is a complex technologicalsystem consisting of a body of protocol agreements that permit individ-uals to use resident software (or middleware) to send and retrieve text, in-formation, and images in a distributed physical network by digital signals.Let’s parse this sentence into its components The Internet is a complextechnological system because it relies upon several essential subsystems:the physical infrastructure, terminals and servers, software, and technicalagreements The distributed network consists of the communication back-bone, the local access points, and local network and packet switches andterminals (including an isolated computer) For individuals behind theircomputers or equipped with other devices that are Internet capable (such

as advanced mobile telephones), they must have middleware such as abrowser to send information in a form that can be recognized by a re-cipient This recipient will very often be using di¤erent equipment andresident software The last elements then are the protocol agreementsthat allow people using di¤erent machines to communicate and thatgovern the transmission of a signal over a distributed network We saydistributed because the transmission does not follow a determined path,but is broken up into packets and sent along multiple paths to be re-assembled at the destination.

From this engineering perspective, the Internet consists of severallayers, illustrated in figure 1.1 These technological layers have experi-enced dramatic increases in functionality, with technological progress inone layer driving the complementary engine of change in other layers.These technologies provide the enabling capabilities that constitute theInternet

Figure 1.1

The Internet as a technological system

Source: Based on Feldman 1999.

Political Economy of the Infrastructure

The Internet, however, is not simply the product of technological utions There are many competing and complementary technologies,the creation and success of which are indelibly tied to the actions anddecisions made by firms, consumers, and governments For example, thedistributed network could consist of fiber optic lines owned by a tele-phone company and leased to Internet Service Providers (ISP) TheseISPs might be the telephone company, owners of the backbone, or com-panies that specialize in these services An example of a private ISP isAmerica Online (AOL) An individual must rely upon an ISP, or a webserver, in order to access the Internet Who provides the ISP service isnot a technological question

sol-It is common that conflict exists between the specialized ISP companiesand the ISP services provided by a regulated or state-owned telephonemonopoly Because the telephone companies often control local access

to the home (often called the ‘‘last mile’’), historically they have hadmonopoly powers in providing connection In addition, telephone com-panies owned the vast proportion of the infrastructure and ISPs, so othertelephone operators were forced to rely on leased lines for transmission.Governments and courts have been active in regulating the fees thattelephone monopolies can charge In some countries, such as the UnitedStates, consumers pay these fees as part of the fixed charges for telephoneaccess; no fees are usually imposed on local calls In other countries, such

as many European countries, there is also a fee for the time connected,even for local calls In fact, one of the major problems in pricing forInternet services is that there is no standardized measure of usage (e.g.,how much information is sent and received) other than access time Inthe United States, even access time is not charged, as long as the dial-upaccess call is local Thus, an American consumer does not pay for basictelephone charges for time connected to the Internet, whereas a Euro-pean pays for the time connected to the Internet by telephone lines.Internet usage was clearly promoted in countries that have unmeteredpricing, as in Australia, Canada, New Zealand, and the United States(OECD 2000, 30)

Given the initial di‰culty of accessing the home (and the currentchallenge of providing high-speed connections), three new ways of link-

ing people to the Internet have emerged that avoid the telephone pany leased lines The first is cable that had often already been installed

com-in people’s homes to provide television programmcom-ing By com-installcom-ing adigital coder and decoder that is connected to a computer at the prem-ises, the cable company can also o¤er Internet services Cable can be ex-pensive because it requires investment to connect physically the home oro‰ce premises to the cable company Satellite transmission also works

on the same principle insofar that signals are sent by radio waves andthen decoded However, because individuals do not have the equipment

to send signals with adequate power to reach space, they still rely uponterrestrial stations connected to a local exchange Thus the telephonecompany again is able to charge for access

The last way to avoid the telephone access charges is wireless mission Wireless transmission avoids the costly investment in installinglines and equipment at the local premises The wireless device (such as amobile telephone) is itself a coder and decoder that has su‰cient energy

trans-to send and receive signals between itself and a local station This stationmight then be connected to the backbone owned by the telephonecompany (or companies) or by a third-party vendor or by the companyproviding the mobile transmission service Newer technologies bypassthe wireline network entirely for short-distance transmission Not surpris-ingly, for many countries, new competition has arisen quickly in mobiletransmission services

For the consumer, the choice among these competing services oftenappears complex and is influenced by a combination of price and qualityelements An important element in quality is the speed of the transmis-sion ‘‘Broadband’’ refers to the transmission of signals at high speeds,measured in the number of bits transmitted per second Conventionalphone lines using a modem can send data up to 56,000 bits per sec-ond (kbps) Broadband transmits at speeds 10–100 times as fast Thisspeed enables video or television programs, for example, to be sent at aspeed that can be seen at a high quality at home Telephone companies,

or operators leasing telephone lines, provide high-speed connections

by installing expensive digital subscriber lines (DSL) exchanges Cableoperators are already sending television programs at fast speeds, andare expanding into data transmission Recent developments in mobile

telephony enable wireless transmission at fast speeds The introduction ofbroadband access has permitted companies to break from the tari¤ rates

of the phone system to charge for value-added services

Competition among these di¤erent ways of transmitting signals is fluenced strongly by the regulatory and legal environment In some coun-tries, the state or regulated telephone monopoly is permitted to control orcompete in mobile and, less frequently, cable transmission Even if thetraditional monopoly company is not permitted to compete, governmentsusually control licenses to companies that can compete in cable or wire-less The methods by which licenses are granted vary dramatically acrossmarket and geography Increasingly, market-based mechanisms such asauctions have been used to allocate licenses Still, an important issue ishow many licenses a government will permit to provide service to a geo-graphical area, and whether the monopoly company will be permitted tocompete in these new services

in-In addition, the state or regulated monopoly is often permitted tooperate ISP services in competition with private companies A new ISPcompany faces the problem of how to be paid Some companies, such asAOL or Earthlink in the United States, charge a fixed rate Others do notcharge a fee, but try to earn revenues by selling advertising For the tele-phone company, this problem is often solved by o¤ering free ISP servicesthat can be subsidized by charging access and connection fees It alsoearns money from fees when users connect to other ISPs Clearly, thetraditional telephone monopoly operator has an advantage that can deternew competitors As a result, in the European Union, the United States,and other countries, there have been intense conflicts between the tradi-tional monopoly and new competitors

Standards, Protocols, and the Internet

The Internet is not simply the physical infrastructure It also consists of abody of protocol agreements that permits the exchange of data betweencomputers and other devices in a distributed environment The physicalinfrastructure provides interconnection so that people with the appro-priate equipment can be connected to a common network The physi-cal infrastructure does not, however, guarantee interoperability, or theability of people with di¤erent types of equipment to communicate Toenable interoperability, protocols are needed

Protocols establish a set of rules, which when obeyed, allow cations to be sent, received, and understood Protocols are ubiquitous.

communi-A protocol is used to start even simple appliances and may look thing like this: press the button of the dishwasher There may be a secondprotocol that says: if the dishwasher does not start, press again If thedishwasher itself is ‘‘intelligent,’’ it might also be programmed to light up

some-a red button to indicsome-ate thsome-at the door is not closed Perhsome-aps the esome-asiestexample of a protocol is: shake hands when you meet someone Or is itbow to someone? Or is it kneel down? This plurality of ways to greetsomeone is emblematic of the problem of choosing a protocol

Protocols then are rules that govern the interface among people anddevices Some of the rules are simple as illustrated above Some arecomplex, involving rules about how to represent data When one tech-nology relies upon an interface with other technologies, technologicalchange frequently requires changes in protocols or new protocols Even

in the absence of conflict and competition, establishing protocols requirescoalitions Sometimes these coalitions are built through private initia-tives, frequently ratified subsequently by governments or their delegates.Sometimes they are created directly by o‰cial standard bodies created

by treaty or by law by governments In all cases, standard setting facesthe problem of who has jurisdictional control and how broad this juris-diction is

Two sets of protocol are especially important for the Internet The first

is TCP/IP The second is HTML and HTTP These protocols havemany competitors, and many people created them However, particularpeople succeeded in implementing these protocols because they were able

to have them accepted as standards, often under the control of particularstandard-setting bodies

The TCP/IP is a compilation of rules that guarantee interoperability.The Internet Architecture Board (IAB) standardizes these protocols, andchanges to them The Transmission Control Protocol establishes the rulesfor the packaging of data, their transmission, and assurance of their re-ception The TCP software verifies ahead of transmission to arrange forreception and to guarantee that the packet will arrive The sendingand receiving computers ‘‘handshake’’ and establish a control number forthe incoming packets and a clock to control the permitted transmissiontime

The Internet Protocol manages the addressing system by recognizingindividual network nodes and providing information to route packages

in the network Thus, the Internet Protocol operates closely with an dressing system called Domain Names These names describe a tree-likestructure to locate the final address Top-level names include edu (edu-cational institution) and org (non-profit organization), which form thesu‰x to addresses There are also more than two hundred country suf-fixes, such as fr (France) or kr (Korea) These addresses are stored onservers located throughout the Internet

ad-The Internet Protocol is the background to important issues regardingprivacy and secure transmission of data A computer, or any Internetdevice, need not be assigned a permanent IP address When it is turned

‘‘on’’ and ‘‘connected’’ to the Internet, it is assigned a temporary IP dress that is returned to the system when the device is no longer logged

ad-on Because it slows the system to send data that will be reused every time

a computer logs on and is assigned an address, a server often sends a

‘‘cookie’’ to be installed in the memory of the user’s computer Thesecookies provide log-on information or identification mechanisms to per-mit secure transactions, and they often expire after a period of time.However, because companies want to know the preferences of potentialcustomers, they also send cookies that monitor the Internet activity of theusers Some of the information is just to tell the company that a previoususer is back online; the IP address cannot do this, as a new one is assignedevery time Some cookies serve as a common key that identifies the usersacross sites, allowing for a consumer research company to profile a cus-tomer There have been proposals to provide permanent IP addressesthat are encoded in the microprocessor Permanent addresses would in-crease e‰ciency and permit more security in doing online purchases, butthey also make it easier to track users

The second set of protocols is the rules for addressing documents andformatting data Browsers and other middleware software operate ontop of the operating system of a computer and manage the TCP and IPinterface with the net When a user issues a request for information from

an address, the browser sends a request encoded in the HypertextTransfer Protocol (HTTP) to a web server The web server sends a script

of Hypertext Markup Language (HTML), along with embedded graphicsand other scripts The browser reads and executes the script, recreating

the page on the computer screen For this system to work, both computerand servers must be able to recognize and transmit the scripts.

National and Global Webs of People

In retrospect, protocols and standards needed to operate the web seem soobvious that it is a wonder that they were not invented all at once fromthe very beginning This point brings us to an alternative way of under-standing the Internet as a complex system that evolved in response tothe e¤orts of particular people who pieced the various parts together Asexplained in chapter 3 by Martin Kenney, the Internet evolved out ofmany actions that often sought only to resolve a local problem Theimplications for a large system that provided interconnection and inter-operability among distributed computers emerged only over time InPaul David’s phrasing, the Internet was the consequence of the ‘‘acci-dental evolving information super-highway’’ (2001)

It is useful to review aspects of this history—treated also briefly byKenney in his chapter—to highlight the importance of national andglobal communities to the evolution of Internet technology (For a morecomplete history, see hhttp://www.isoc.org/Internet-historyi and Abbate1999.) The story of the creation of the Internet is unmistakably about therole of the U.S government and a few remarkable people But it is alsoabout the creation of a computer science, and sometimes hacker, com-munity, and the expansion of this community across national borders.Indeed, the history suggests that the technological capabilities, and some

of the innovations, were not exclusive to the United States The UnitedStates got there first because of massive physical investments to support

an already existing community of researchers that had the technical pertise and hence the political power to shape the technology

ex-Designed and Emergent Innovation The Internet as a concept didnot arise out of the commercial sector It is somewhat stunning to realizethat even as late as 1990, there were very few who understood thepotential to create interoperability among computers The Internetstemmed from the e¤orts of the U.S military under the AdvancedResearch Projects Agency (ARPA) program to connect its researchinstallations and university partners and to build a communication sys-tem that would be robust to the destruction of part of the system For this

latter purpose, the transmission of data by packets that could be routedthrough a network had clear advantages over a network optimized tosend data through a centralized and hierarchical communication struc-ture It was this purpose that TCP/IP addressed.

The concept of distributed nodes and routing by ‘‘packet’’ switching

is often attributed to Paul Baran, a researcher at RAND, an Americanthink-tank that consulted heavily for the military The conventionalapproach to switching was to set up a direct communication between twoparties Starting about 1959, Baran realized that with the advent of dis-tributed computing, communication could be digitized and broken upinto discrete packages that were addressed to the final destination; thenthe switching nodes would allocate a route At the destination, the pack-ets were reassembled, with appropriate testing to verify that all packetswere received This idea was proposed a little later by Donald Davies

of the National Physical Laboratory (NPL) outside of London, who wasunaware of Baran’s work Davies understood from the start that thisdistributed system could support interactive computing in a distributednetwork

The United Kingdom did not have the resources to implement theidea, but the United States did under ARPA The NPL via the Univer-sity College of London became an ARPANET node by 1972—threeyears after the first one was established at the University of California atLos Angeles—but almost lost the honor due to the lack of funding andduty relief to import the necessary equipment The French governmentestablished in 1969 the Cyclades program that was to create a networkamong public administrations Under the direction of Louis Pouzin,the Cyclades program pioneered a more software-based approach tonetworking, relying for example on dynamic addressing rather than onphysical addresses Pouzin also insisted on a more hierarchical systemthat was contrary to the ARPANET design (Abbate 1999) In the 1970s,joint European e¤orts also succeeded in building a packet switching datanetwork among the U.K., Swiss, French, and Italian sites, called EIN.6

In other words, European countries had the technological capabilitybut lacked the public commitment of resources and orchestrating visionthat yet did not stifle local experimentation They also made an impor-tant strategic error in trying to coordinate development around an ‘‘openstandard,’’ the X.25, that rivaled the IP/TCP and was promoted by

the national telecommunication operators The Cyclades project was notsponsored by the French government, because the telecom monopolyfavored a digital network called Transpac that later became the back-bone to the first commercialization of digital services in the world, theMinitel Davies’s e¤orts at the NPL, which had been a leader in Internetdevelopment, were similarly neglected The British pushed instead theX.25 to be implemented by the Post O‰ce The U.K academic commu-nity developed a network called JANET that for the first five years wasregistered to the Queen because the royal family did not need a license tooperate a private network (Gillies and Cailliau 2000) In both the UnitedKingdom and France, the institutional logic was to develop a networkthat would permit payments through metering of use, similar to the model

of circuit switching The X.25 protocol was adopted throughout Europe.The American net did not simply follow a technological blueprint;

as in the European case, it emerged within a specific institutional anddecentralized context The European experience recapitulated in manyways Thomas Hughes’s (1983) description of the creation of large tech-nological systems, such as the electrical grid For reasons linked to therelationship of a strong and independent university system and militaryindustrial policy, the ARPANET did not evolve out of a hierarchical butrather a modular design that focused on common interfaces.7AdvancedResearch Projects Agency wanted to reduce its large outlays for com-puters and hence proposed the ARPANET as a way to connect researchcenters and to exploit better the computer resources in a distributed en-vironment The visionary head of the information-processing unit atARPA, Joseph Licklider, appointed Lawrence Roberts from Lincoln Lab

to coordinate the e¤orts to build the ARPANET Roberts understoodthat the ARPANET would require the cooperation of headstrong com-puter scientists managing the various research sites (Abbate 1999) Partly

in response to this political reality, Roberts recognized the importance ofallocating the major responsibility to the local centers In practice, thismeant keeping the network itself simple and letting the intelligence reside

in locally controlled computers Roberts thus decided not to impose mogeneous choices of computers and software on all the centers Instead,

ho-he focused on creating a system that would integrate tho-he diverse centers

by relying upon common protocols

Intermediate to the computers and the network were switching nodesthat represented the additional layer created by the ARPANET Indeed,

the notion of ‘‘layers’’ (as seen in our fig 1.1) derived from the ARPAexperience as an engineering design principle to assign responsibilities tothe local hosts and to the switches Thus, the system was modular: com-ponents (the centers) could be treated as black boxes as long as theyworked with a common interface dictated by the protocols This systemwas first demonstrated in 1972.

The growing complexity and the diversity of demands on ARPA lead

in the 1980s to a number of changes Advanced Research ProjectsAgency spun o¤ the military net (milnet) into its own domain and theyear after, in 1984, handed the management over the system to the Na-tional Science Foundation, which re-named it the NSFNET In 1990, theNSF announced it intended to privatize the net, and it withdrew entirelyfrom its management by 1995 During this time, the ARPANET grew toinclude NATO partners linked by satellite transmission to the NSFNET,which linked an international research community, including the NPLand the University College of London, Cyclades in France (which con-tributed several important design ideas), and CERN in Geneva Becausethe infrastructure was built by and around institutional actors (such asBolt, Beranek & Newman (BBN), which received a dominant share of theearly contracts to develop and build the network), many of them becamemajor players in providing the backbone services to the Internet Therole of U.S government funding cannot be underestimated; Langlois andMowery (1996) calculate that NSF and DARPA funding between 1956and 1995 amounted to over a billion constant dollars

This short technical history of the ARPANET misses, however, twoimportant aspects relating to the role of community Roberts, in charge

of creating the ARPANET, understood that the job of creating the netwould lead to cooperation across the di¤erence centers and disciplines.The researchers involved in these e¤orts, many of them doctoral stu-dents, would later come to populate the regulatory associations that gov-erned the assignment of domain names, decisions on new protocols, andbroad policy issues These people included Robert Metcalfe, whoinvented the Ethernet while at Xerox PARC; Paul Mockapetris of theUniversity of Southern California (USC), who proposed the DomainName System; Vinton Cerf and Robert Kahn at Stanford, who designedthe TCP/IP interface as well as the idea of ‘‘gateway’’ switches thatbridged di¤erent national and commercial networks; and such legendary

figures in Internet history as Jon Postel, a graduate student at USC Thestrength of this community is pervasive in the history of the Internet.Thus the company Cisco, which leads the market in the provision ofrouters to support packet switching, came out of Stanford University; theBerkeley version of UNIX early on incorporated the TCP/IP function-ality, allowing for individual e¤orts to experiment with local networks.The other important aspect of the ARPANET experience was the pri-mary role played by the user in a distributed environment.8 Once userswere able to use the net for communication, they began to send messages.

It was e-mail that quickly dominated use on the early net and it has neversince then relinquished its place E-mail is ‘‘asynchronous’’; a party cansend a message that can be retrieved later at the will of the recipient.These messages provided an exchange of partly tacit knowledge thatwould otherwise remain local, or be exchanged at conferences They alsointimated the explosive implications of the net for the social engagement

of users E-mail predates the early ARPANET, but the date of 1971when Ray Tomlinson of Bolt, Beranek & Newman sent the first e-mailmessage on ARPANET represents a critical juncture

The USENET is another example of a spontaneous innovation Itarose at Duke University and the University of North Carolina whenthree computer scientists met to establish a news server in 1978 The yearafter, the first MUD (multi-user dungeon) was invented at the Univer-sity of Essex For the designers of the ARPANET, the network intermediatedbetween computers The emergent reality imposed a di¤erent conception: thenetwork intermediated between people

The ARPANET vision dominated alternatives because of these gent properties Distributed computing and public financing were notunique to the United States, though the size of the ARPANET budgetdwarfed European e¤orts in this particular domain (We should recall,though, the massive European and national government support for thecomputer and electronic industries.) The American Internet expandedbecause its protocols emerged everywhere: in routers, software lan-guages, operating systems, local area networks (such as Ethernet), anduser groups This distributed model of innovation and di¤usion over-whelmed the coordinated e¤orts of computer companies and telecom-munication operators in Europe and the United States to build a network

emer-by design The irony is that this model of distributed innovation is

evi-dent in historical hindsight; it was not planned but driven by a growingcommunity of users.

The Web It is not surprising, in this perspective, that the Internetmoved from research community to popular use once technologies weredeveloped that facilitated broad access The demand for social com-munication trumped the technocratic vision of file transfer and remotecomputing The ARPANET had developed the principles of distributedand modular design and built an infrastructure to permit digital packetswitching The Internet was subsequently launched out of two importantcontributions that addressed the popular user: the software that permitsdocuments to be addressed and found, and the browser software thatpermits an easy interface between the local computer and the retrievedcontents from the Internet

The first contribution consisted of the creation of HTML and HTPP as

a standard used in the scientific community A British computer scientist,Tim Berners-Lee, largely deserves the credit for this contribution, thoughmany of the components were assembled from pre-existing solutions.After his education in the United Kingdom, Berners-Lee was employed

at the physics research laboratory CERN, located in Geneva, land CERN, as a research institute, was connected to the NSFNET (It isimportant to note that the ARPANET branched overseas in 1973 when itconnected to the University College of London in the United Kingdom,and the Royal Radar Establishment in Norway; at that time, the number

Switzer-of US nodes consisted only Switzer-of a dozen or more sites) Berners-Lee took

on the task of improving the ability of researchers to send hypertextdocuments to each other Hypertext is a defining feature of the Internet,

in which a user can begin one document and easily find related ments, if a word or concept is linked.9He called his software the ‘‘WorldWide Web.’’ A key element to Berners-Lee software was the creation of aUniversal Resource Identifier that can be used to find anything on theweb using an HTTP address (The standard term now used is the Uni-versal Resource Locator, or URL.) In 1991, Berners-Lee released the firstversion of his software, which could be installed at no charge on anyserver that was connected to other servers, either by dedicated lines or bytelephone using a modem The code was open source, meaning anyonecould use and alter the code It use as copyleft was protected by a license