Inside/Out: Complexity Science and the Microsoft Case

Just how did this QWERTY keyboard I'm using get its arrangement of keys? And why hasn't a user-friendlier version displaced it? The answer, according to W. Brian Arthur, Citibank Professor at the Santa Fe Institute, and a Coopers & Lybrand Fellow, is twofold. 1) The key arrangement was created to slow typists down so the keys on early machines would not jam and 2) under Arthur's economic theory of increasing returns and market lock-in, once people mastered the complexities of the QWERTY keyboard, they were uninterested in learning anything else. The small event of slowing down early typists sent the keyboard business down a particular path and locked in the market for QWERTY.

Arthur's career is chronicled along with a number of other scientists in an interesting book called "Complexity-The Emerging Science at the Edge of Order and Chaos." Written by M. Mitchell Waldrop and published in 1993 by Simon & Schuster, Inc., it tells the story of the founding of the Santa Fe Institute (SFI at www.santafe.com). SFI is devoted to creating a research community pursuing emerging science, much of which focuses on the science of complexity, which examines underlying patterns and regularities behind a wide assortment of real-world phenomena. Projects at SFI range from communication patterns of ants to the way information spreads across economic markets.

Dr. Arthur was a prime mover in founding the institute and is most well known for his work on the theory of increasing returns. He spent much of the 1980s developing a framework for economic allocation under increasing returns, in particular studying the dynamics of lock-in to one of many possible outcomes. Increasing returns are a form of positive feedback says Arthur. It is the tendency of anything that is ahead in market share to get farther ahead or if something is falling behind in market share to get further behind. He has become particularly interested in this theory as it applies to the high tech industry.

His work attracted the attention of the Justice Department as it was considering the Microsoft case. He has influenced the case with his writings and, although not directly involved, has been in contact with the Department of Justice. While he does not think a monopoly in high tech is necessarily a "bad thing" Dr. Arthur points out that such a monopoly is short-lived, a temporary monopoly. These "lock-ins" survive only until something better is developed. Interviewed by Dominic Gates for PreText Magazine last May, (text at www.pretext.com/may98/columns/intview.htm) Arthur says that the important thing for the consumer in high technology is that innovation continues at a reasonable pace. What he sees as a problem, and what is behind the Microsoft case, is if someone achieves a lock-in and then uses that unfairly in another market.

He wants to see the spotlight remain on innovation and says that while Justice should not try to inhibit firms in the industry trying to lock-in a market, it is important to maintain competitive fairness so that each competitor has an even start in the race to capture a new market. He believes that the Microsoft case will lead to new rules of the game for fairness and to preserve innovation. The government is "not going after Microsoft because it's Microsoft, or because it's highly visible. They don't want to see precedent set in high tech that lock-ins can be levered from one market into another. Or that smaller, weaker competitors can be hobbled."

Brian Arthur's theories describe how the markets operate and are not an explicit criticism of Microsoft. He says that Microsoft itself has used increasing returns theories to justify its position. Locking in a market becomes the prize for innovation and with that comes the big money payoff to the winner. If an unfair environment exists, innovative new technologies may fail to emerge and gain lock-in because smaller players will not compete.

We tend to live in the present and see today's market as static. It is easy to forget the path we have traveled and the high tech lock-ins we have seen come and go. We think the Microsoft lock-in will continue unabated and perhaps it will if the Justice Department fails in its case. On the other hand, if the case creates the wrong set of "rules" going forward, future innovation may be stymied just as surely as if Microsoft wins the case hands down.

After 18 years in marketing and sales at IBM, Bob Diefenbacher founded Denbrook Systems Associates, an IT consulting firm based in Malvern, Pa. denbrook@bellatlantic.net.