Word Processing has a root in the invention of technology, in the 18th century, for producing the impression of typed characters. It led to the innovation of typewriters. Over a century, innovators kept redesigning this machine. The journey of improving mechanical performance led to adding memory units and changing the technology core. Subsequently, a dedicated computer-based Word Processing machine emerged in the 1970s. However, the provision of distributing Word Processing software on floppy diskettes for running on PC reduced the entry barrier. Moreover, the zero cost of copying software offered a high-scale advantage, forming a natural tendency of monopoly. Among many wordprocessing software startups, Microsoft took the scale advantage to succeed to monopolize the industry. The invention and monopolization of Word Processing offer valuable lessons indeed.
Bill Gates is the wealthiest person in the world. His business success is in developing and trading software applications. In fact, word processing software is a major source of his newfound wealth. However, he did not invent it. His success has been in the monopolization of the word processing industry. The journey of invention and monopolization of word processing offers us valuable lessons. It depicts the factors which have been driving the transformation of major products and also industries. It also shows how such transformation changes the business opportunities, including monopolization. Particularly, the transformation of the technology core, starting from mechanical and leading to electronic and software, offers us valuable insights about systematic options of generating ideas for improving innovation and changing the competitive landscape.
The journey of invention and monopolization of word processing also provides insights to envision similar transformation in other industries. It’s worth noting that Apple’s success in the smartphone is primarily due to the success of the monopolization of software-centric mobile handsets, which started the journey as an electronic device.
The journey of invention and monopolization of word processing began as the mechanical machine
Human beings started writing with hands, even using a finger as a pen. In 1714, Henry Mill obtained a patent for a typewriter type machine for increasing the speed and quality of writing. However, after almost 150 years, Christopher Latham Sholes, with two colleagues’ assistance, invented the first successful manual typewriter in 1867. It was purely a mechanical machine. A gun manufacturing company, E. Remington and Sons, started manufacturing and marketing it in 1874. Like many other innovations, it emerged in primitive form. Like many other great innovations, the acceptance of the primitive emergence of the typewriter was slow at first, demanding various improvements. This writing innovation went through several major improvements over 20 years before started diffusing in business establishments. Businesses found their paperwork could be done more quickly and legibly on the typewriter. In the early 1900s, portable models emerged, making typewriting within reach of families and individuals.
The incremental innovation approach kept making the typewriters increasingly better and also less costly to produce. However, all such improvements were taking place in the mechanical domain.
Redesign through the changing of mechanical roles to electronic—opening the door for monopolization
The dawn of the 20th century started observing the delegation of some roles from mechanical parts to electrical components. In the 1930s, IBM introduced IBM Electromatic. This electric typewriter “greatly increased typing speeds and quickly gained wide acceptance in the business community.” Soon after, M. Shultz Company introduced a typewriter with automatic storage of information for later retrieval. Perhaps, it was the greatest step from the physical typewriter towards modern word processing. It had the feature of punch-coding text onto paper rolls and using the role for producing printouts of the typed document. With this feature, it was possible to produce multiple typed copies without the intermediary of carbons, photocopiers, or typesetting.
In 1964, IBM brought a major improvement in typewriter innovation. It was the MT/ST (Magnetic Tape/Selectric Typewriter). Magnetic tape was used as the first reusable storage medium for typed information. It offered the option of editing typed material without having to retype the whole text or chop up a coded copy on paper tape. This development marked the beginning of word processing as it is known today. With the release of MT/ST, IBM also started popularizing this update as a word processing machine. Subsequently, in 1972, Lexitron and Linolex developed a word processing system similar to IBM’s MT/ST, but it included video display screens and tape cassettes for storage. With the screen, the text could be entered and corrected without having to produce a hard copy. In the early 1970s, IBM also introduced a floppy diskette capable of holding 80 to 100 pages.
Software on Disks created discontinuity, opening the entry of software startups in the word processing industry
In 1973, Vydec introduced a dedicated word processing system using floppy disks for storage, a video terminal for display, and software having editing facilities. In addition to portability and storage of documents, floppy diskettes offered the option of storing programs for word processing. Programs on diskettes made it practical to develop software packages for use with personal computers. This technology development created a discontinuity in the word processing industry. The separation of the software from the hardware reduced the entry barrier. Subsequently, it opened up the field to individuals and startups. Independent software markers started offering word processing software applications, running on general-purpose machines, like personal computers.
Such applications started to emerge in 1977. In fact, the first word processing program for PC was Electric Pencil, from Michael Shrayer Software, which went on sale in December of 1976. Subsequently, in 1978, WordStar appeared and started dominating the market because of its many new features. Furthermore, the focus of innovation changed from improving hardware to adding and upgrading software-based features.
As opposed to Vydec’s Word Processing System costing $12,000 at the time, (about $60,000 adjusted for inflation), the 3rd party software makers started offering word processing software applications on disks at a fraction of this cost. The growth of the underlying hardware also started accommodating increasingly computationally complex features without slowing down the typing or editing operations. Many features were introduced over the next ten years, starting from spell checkers to mailing list programs. One of the notable features was Xerox’s Star Information System, which allowed working on more than one document at a time on the same screen.
Word processing startup rush
The availability of increasingly powerful PC at decreasing cost, coupled with very low entry barriers for the 3rd party software makers, triggered a startup rush in offering numerous word processing applications. By 1986, there were more than thirty software packages for use with various computers. Among the notable packages running on PC were WordPerfect, WordStar, WordVision, and Microsoft Word. The emergence of additional applications like VisiCalc and Lotus 1-2-3 for spreadsheet processing also contributed to expanding the word processing market.
Monopolization due to scale, scope, and externality effects
The emergence of word processing software as a 3rd party application changed the economics of the business model. The first one is the economies of scale advantage. Due to the zero cost of copying software, and negligible cost in distribution, word processing software producers started experiencing a high scale advantage. Hence the competition began in R&D for adding and also improving features for increasing the appeal of the application to a growing number of customers.
The next one is the economies of scope advantage. Smart producers found that the offering of complimentary software applications like a spreadsheet would create the economy of scope advantage. Moreover, ease of data and also how to use knowledge sharing offered the opportunity of exploiting the externality effect. As there was no limit to exploit these three factors, the word processing industry was bound to be the target of getting monopolized–due to the natural tendency of monopoly.
On the one hand, PC was getting increasing popularity, reaching every office desk, and even household. On the other hand, it happened to be that the dominant operating system provider got involved in word process software. Hence, Microsoft got an upper hand. Microsoft aggressively started investing in R&D to add all conceivable features to Microsoft Word and develop complementary applications like Excel for leveraging economies of scope. Moreover, the Microsoft Word development team also got a first-hand experience about the future direction of Windows. In a nutshell, Microsoft’s technology insights and business strategy led to the monopolization of the word processing industry by exploiting the economies of scale, scope, and externality effects.
Unfolding software-centric business model transformation
As it has been explained, word processing emerged through the invention of the mechanical machine. Over the century, it kept improving. At any point in time, there were dozens of producers of this machine all across the world. The major discontinuity came with the emergence of offering word processing applications as standalone software instead of a dedicated machine. This discontinuity was accentuated with the rapid quality improvement and cost reduction of PC, leading to accelerated diffusion. Hence, this development triggered a startup rush in offering word processing software on the PC.
However, economies of scale, scope, and externality changed the underlying competition dynamics. Due to these effects, the natural tendency of monopoly became the word processing industry’s inherent characteristic. Subsequently, Microsoft capitalized on this attribute and emerged as the global monopoly in offering a word processing application. This success also led to making Bill Gates the richest person in the world.
Like word processing, the mobile handset also emerged as the hardware product in the mid-1980s. Over the years, software-centric components started growing. Apple took advantage of it by increasing the role of software further. By capitalizing on economies of scale, scope, and externality effects, like Microsoft, Apple has also succeeded to monopolize the high-end smartphone industry.
By following Microsoft and Apple’s footsteps, Tesla has been attempting to monopolize the global automobile industry by changing the focus of innovation from hardware to software. Many other products are also facing similar prospects. Innovators should draw a lesson from the invention and monopolization of word processing to predict the unfolding future and respond accordingly. Such likely transformation from hardware to software offers opportunities for new entrants, and also Kodak moment to non-observant incumbents.