CIAO DATE: 01/02

The Growth and Development of the Internet in the United States

Rarely does a new technology emerge that galvanizes a dramatic rethinking of the nature of commerce. The Internet is such a technology. At this early stage, it is difficult to appreciate fully the importance of the Internet, but some speculate it might be as momentous as the arrival of the telegraph (Cohen et al. 2000; Standage 1999). Radically new communication technologies such as the Internet have multiple applications and often become ubiquitous. As such, the adoption, diffusion, and development of this new technology provide an especially penetrating view of how different national innovation systems have responded to and shaped the commercial possibilities inherent in the Internet. Of course, such an assessment for an economy as large as that of the U. S. is difficult. It is further complicated by the peculiar way in which communications technologies permeate and facilitate connections and relationships. Often the action of such technologies is imperceptible to most of the actors involved and even to aggregate statistics; e. g., better information transfer between customers and suppliers is not manifested in the finished good, though it is embodied in the good in terms of lower cost and/ or higher quality. Given the diffuse nature and the speed of the Internet's evolution, any analysis can only be tentative.

Descriptions of the U. S. national innovation system (NIS) have concentrated upon government funding and research conducted by the established Chandlerian corporations and universities (Lundvall 1992; Nelson 1993). The government and universities played vital roles in the gestation of the Internet in the pre-commercial and early commercialization phases. Many established firms were laggards in the early commercialization process, though ultimately they could become the greatest beneficiaries. The apparent ease of entry encouraged many startups. ₁

National exceptionalism is a difficult argument to advance and validate. Nevertheless, in the case of the commercialization of the Internet, certain unique characteristics of the U. S. political economy contributed to the head start that U. S. firms enjoyed, their ability to grow rapidly, and, after the 2000 NASDAQ decline, the large number of firm failures. With respect to commercialization, the U. S. institution of venture capital played a central role in the rapid formation of new dedicated Internet firms that were established to define and occupy new economic spaces. With respect to the Internet, there were three advantageous features of the U. S. national system of innovation: a unique telecommunications infrastructure, an active government in funding university research, and a capable set of private sector institutions dedicated to funding new high-technology enterprises.

The enormity of the U. S. market and the variety of impacts and uses of the Internet dictate that this discussion must necessarily be a limited examination of the role of the NIS and the development of the Internet. For example, the significant impacts of intranets upon firm organization, internal information flow, and human resources practices, etc. are simply ignored, though they will surely be profound. Chapter XX examines the business-to-business (B-to-B) area in more detail, but this chapter only reflects upon B-to-B issues with respect to the role of the NIS in funding B-to-B startups. One of the most intriguing impacts or initiatives that has emerged from the Internet is not examined, namely the effort in a wide variety of industries to standardize descriptors of all parts of the value chain, so that commerce can be transacted entirely electronically. ₂ Despite these and numerous other omissions, the pervasive nature of the Internet as a communications medium, and the wide variety of experiments underway that are aimed at exploiting the Internet, mean that the scope of this paper remains immense.

Endnotes

Note 1: In certain respects, the commercialization of the Internet parallels the commercialization of university-based biology research in the late 1970s and early 1980s, which led to the formation of a biotechnology industry (Kenney 1986). Back.

Note 2: For developments in the personal computer industry value chain, see Kenney and Curry (2001). Back.

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