Modularity

Modularity is a powerful concept. There’s more in it than is immediately visible.

In this very interesting paper, the authors argue that a poor understanding of the implications of modularity nearly killed IBM. IBM created a modular computer because the modularity made it easier for them to manage the design process. But IBM’s executives failed to recognize that a modular design makes it possible to experiment with many more system configurations, at low cost and with low risk. They didn’t leverage this advantage of modularity but their competitors did, and quickly found that there were many ‘flavors’ of IBM compatible PC that were possible and desirable.

The modularization of the design of the computer led to a rapid decentralization of the computer industry, and a corresponding increase in innovation and growth in market value. IBM lost market hegemony and nearly disappeared altogether as hundreds of new specialist firms sprang up, each producing modules rather than entire computer systems with unique architectures. No single firm has ever come near to the market dominance once enjoyed by IBM.

Modularization is made possible by the creation of standardized system architectures, with design rules and interface specifications. Standards are a first step toward modularization. Open standards and open system architectures make it easier and less risky to innovate. This opens the door to massive competition.

There is a tradeoff that modern technology companies face: Use proprietary standards and tightly-bound system architectures to avoid competition, or use open standards and modular designs to enable rapid innovation and free support from your competitors (in the form of their innovations that make your products more valuable), but risk being eaten alive. I think the obvious answer is that with complex systems the benefits of modularity and open standards are so great that the proprietary model is not viable in a competitive market. Even well-funded and powerful firms simply cannot compete in innovation and quality with the huge and dynamic markets that grow up around a good open architecture. That’s why Apple computers are now being built from IBM compatible parts.