Chapter 14Industry Structure

*

Contents

Page

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .....................147

Computer Hardware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . = . . . . . . . . . .148

Auxiliary Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..............151

The Data Communication Industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .154

Special Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..............157

Computer Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..:...... +.160

Information Services. . . . . . . . . . . . . . . . . . . . . . .....+... . ..............163

LIST OF TABLES

Table No. Page

9. Top 20 EDP Companies in1979 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..14710.Computer Industry Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ...14911. Desktop and Personal Computer 1980 Worldwide Shipments. . ........15012. Minicomputer and Small Business Computer 1980 Worldwide

Shipments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .= ..........15013. Computer Mainframe 1980 Worldwide Shipments . . . . . . . ............15014. Auxiliary Equipment Industry Structure . . . . . . . ...................15215. Data Communication Industry Structure . . . . . . . ...................15516. The Ranking and Revenues of the Top l0 Manufacturers of

Data Communication Hardware. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...15717. The 10 Leading Carriers of Digital Data and Their Data

Communication Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......15718. Special Applications Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...15919. The Computer Services Industry Structure . .......................16120. Estimated 1979 Revenues for the Top Five Independent

Computer Service Companies. . . . . . . . . . . . . . . . . . . . . . . .......;. ....16221. Industry and Revenue Structure Of Computer Services Industry. .. ....16222. The Information Services Industry Structure. . .....................166

Chapter 14

Industry Structure

IntroductionIn less than 30 years the electronic data

processing (EDP) industry has grown to be amajor economic sector of the economy. Thetotal revenues for the industry worldwidewere estimated to have been over $60 billionin 1979. The U.S. industry share of this mar-ket was about $46 billion.

The top 20 domestic companies in theEDP business in order of size are listed intable 9. Some of these firms are also engagedin other types of business, but only theirEDP revenues are shown. The total EDPrevenues in 1979 of the leader, IBM, wereover $18 billion, nearly eight times those ofthe next largest company, Burroughs. Reve-nues of the eighth company, Hewlett-Pack-ard, were nearly twice those of the ninth,Memorex.

The top eight companies are those market-ing full lines of general purpose computers,

referred to in both the industry and thisreport as mainframe computers. The restsucceed, in general, by focusing on a morelimited market sector—very small machines,very large machines, specialized peripheralhardware, or various types of computer serv-ices.

The companies examined in this studyrange widely in size. While the market isclearly dominated in terms of size by the topeight (70 percent of the total revenues),much of the significant market shifting andinnovation that will affect the future of com-puter use are taking place among the smallercompanies. It has been estimated that thereare over 4,000 firms in the EDP industry.

Growth in the hardware side of the indus-try will continue but not spectacularly. Rap-idly decreasing prices for hardware will bemore than offset by increased sales. How-

Table 9.—Top 20 EDP Companies in 1979

1979 EDP Percentage

r e v e n u e s Domestic PrincipalRank Company

1 IBM,2 Bur roughs3 N C R4 C o n t r o l D a t a5 S p e r r y R a n d .6 D i g i t a l E q u i p m e n t7 Honeywell .,8 H e w l e t t - P a c k a r d9 M e m o r e x

1 0 D a t a G e n e r a l1 1 S t o r a g e T e c h n o l o g y12 Xerox13 TRW :1 4 T e x a s I n s t r u m e n t s

1 5 C o m p u t e r S c i e n c e s16 Automatic Data Processing1 7 G E18 E lec t ron i c Da ta Sys tems1 9 3 M2 0 N o r t h e r n T e l e c o m

SOURCE: Datamation, July 1980, pp. 98-99.

($ million)

$18.3382,4342,4042,2732,2702,0321,4531,030

664540480475440425

415401350312310300

market

46 %59466855626752517388857782

889279968165

product

Mainframe computersMainframe computersMainframe computersMainframe computersMainframe computersMainframe computersMainframe computersMinicomputersMemoriesMinicomputersMemoriesPeripheralsServicesMinicomputers, terminals, and

consumer goodsServicesServicesServicesServicesPeripheralsPeripherals

147

148 ● Computer-Based National Information Systems: Technology and Public Policy Issues

ever, those companies using new computerand communication technologies to provideinnovative information services to individ-uals and business will grow the most rapidly.

The advent of the microcomputer and low-cost digital communication opens new op-portunities to entrepreneurs. Microproces-sors lower the cost of system implementa-tion to a mass-marketable level; and readilyavailable, inexpensive communication tech-nology provides a mechanism for mass dis-tribution that has been lacking in the past.

These developments do not necessarilyimply that the principal participants willchange drastically over the next 10 years.The large EDP and communication corpora-tions have been highly adaptable, and can beexpected to move into these new services.The traditional information firms, research-ers, and publishers are merging with thenewer, high technology computer and com-munication companies. For example, ABChas bought MacMillan Press. On the otherhand, Dun & Bradstreet, an establishedretailer of information, has purchased Na-tional CSS, Inc., a major supplier of com-

puter programing and time-sharing serv-ices, and Readers Digest has purchased TheSource, a new on-line information service.

This emergence in the 1980’s of technol-ogy-based information service industries asa major business sector is significant bothwith respect to an overall analysis of markettrends and for this assessment. The natureand social consequences of these new serv-ices are likely to have a major impact on Fed-eral policies concerned with information andinformation processing. The form and avail-ability of these services will, in turn, be af-fected by Government policy.

A final important characteristic of theU.S. computer and communication industryis its major role in the international market.International sales are concentrated amongthe top nine corporations, which averagefrom 40 to 50 percent of all the foreign sales.The smaller firms are much less active inter-nationally, probably because they view thedomestic market as adequately rewardingand because of the high cost and uncertaintysurrounding the marketing of high technol-ogy abroad.

Computer HardwareThe computer industry has been highly

segregated along product lines for sometime. Several companies manufactured so-called “super computers. ” Along with a fewother firms, they produced a full line of smallto large systems. Others specialized inminicomputers. However, the lines betweenthese major categories have blurred as manyintermediate size systems, both general andspecial purpose, have arisen to fill the gaps.The needs of computer users have alsoshifted substantially, creating more op-portunities for small specialized companiesto develop.

This evolutionary shifting of products,producers, and user needs makes difficultany attempt to chart historical trends for aparticular class of machine. For example, the

minicomputer of today is, in some ways,more powerful than a large computer ofseveral years ago. Companies such as TexasInstruments, that used to sell only electroniccomponents for computers, now market en-tire systems.

The principal characteristics of the com-puter hardware industry are summarized intable 10 (also see tables 11, 12, and 13). Foranalytical purposes, the industry has beendivided into six sectors. Although theboundaries between them are vague, thesesectors are generally recognized by the in-dustry.

The principal characteristics of change inthe c o m p u t e r h a r d w a r e i n d u s t r y a r e t h e f o l -l o w i n g :

Table 10.—Computer Industry Structure

Nature and size ofpresent market Future trends

—-

Nature of present industry—. ——— —Characteristics of hardware Purpose and/or use—MicrocomputerThe smallest sized computers; Used as “intelligent” compo-

can fit on one circuit board, nents for games, appliances,and soon on a single silicon watches, etc., or as the heartchip; inexpensive. of larger general computing

systems.

Growth rate between 30 to 40percent per year. Salesgrowth from $100 million in1977 to $1 billion in early1980’s. Small firms being ac-quired by large internationalconglomerates.

Explosive growth of market innext few years. Possible ac-quisition by large consumerproduct firms and retailersemulating Tandy success.

Growth rate will slow to 25 per-cent per year; relative flatten-ing of market in 1980’s; soft-ware gaining in importance.Fewer new entrants.

Continued steady growth, withno major changes in relativepositions of the top sevencompanies. Increased foreigncompetition.

Risky market, very sensitive toIBM product and price an-nouncements. Not likely tobecome a significantly largeindustry, but to prod big com-panies through competition.

Market growing more diversi-fied. Will continue to be im-portant but relatively small.IBM may bring in a totallynew system; potential growthof foreign sales.

Modest to small companies interms of electronic data proc-essing revenues.

Growing rapidly; over $1 billionby the early 1980’s. UnitedStates leads with increasingcompetition from West Ger-many and Japan.

Personal or desktop computer (see table 11)Many small entrepreneurs—”acottage industry. ” Very suc-cessful entry by a consumerelectronics retailer, Tandy(Radio Shack).

Individual users. Storefront andmail order sales. 1979 sales of$500 million.

Small, but fully capable com-puter systems, costing sever-al hundred to a few thousanddollars.

For use by individuals in thehome, in business, or inschool.

Minicomputer (see table 12)Small computer systems sell-

ing for less than $50,000.Mix of large and small com-panies. Has provided opportu-nities for new entrepreneurssuch as Prime Computer.

Designed to be used for a ded-icated set of applications withinformal, hands-on access.

Shipments of $4.3 billion in1979. Worldwide marketgrowth rate for past severalyears of 35 percent.

Mainframe computer (see table 13)Medium- to large-scale com-puter systems, costing from afew hundred thousand dollarsto several millions.

General purpose computers,usually serving several usersand applications.

Dominated by several largecorporations, with IBM therevenue leader by a widemargin.

The bulk of general computersales—$8 billion in 1979.

Plug compatible computerElectronically equivalent to theequipment of other manufac-turers—usually IBM.

A very few companies concen-trating narrowly on particularmarket opportunities.

Same as above, but with poten-tially better performance, bet-ter delivery, or lower pricethan IBM offers.

Appears to be surviving newIBM product announcementsand growing. Strongestgrowth is in specialized sys-tems.

SupercomputerExtremely large, powerful com-puters.

Predominantly for scientificand technological applica-tions requiring large amountsof computing and data analy-sis, e.g., meteorological fore-casting.

Small, specialized market, esti-mated at about $500 miIIion.

A few companies—most spe-cialize in this type of system.

SOURCE: Off Ice of Technology Assessment

150 . Computer-Based National Information Systems: Technology and Public Policy Issues

Table 11 .—Desktop and Personal Computer1980 Worldwide Shipments

Table 13.—Computer Mainframe1980 Worldwide Shipments’

By units 444,000 units totalT a n d y - R a d i o S h a c k . , . . . . 2 5 %

Commodore . . . . ... . . 23Apple. . . . . . . . . ... 17Hewlett-Packard ., . . . . ., ., 6IBM . . . . . . . . . . . . . . . 2Others. . . . . . . . . . . . . . . . . . . . . . . 27

By revenue $1.9 billionHewlett-Packard . . ., ... ., 21%Apple. . . . . . . . . ., . . ., 10IBM . . . . . . . . . . . . . . . . . . . . . . ,., ,.,,,. 9Tandy-RadioShack ...,., . . . . . . 7Tektronix . . . . ..., ..., ., ., . 3Others. . . ..., ..., ., 50

SOURCE International Data Corp.—

1981 Computer Indusfry Briefing Session,p.D-8

Table 12.—Minicomputer and Small BusinessComputer 1980 Worldwide Shipments

—Minicomputer a

By units 137,000 unitsD i g i t a l E q u i p m e n t C o r p . , . , . , . . . , 44%Data General ..., . ., ., 14Hewlett-Packard ., ., ..., ., . . ., ., ., 8IBM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Honeywell Information Systems. . . . . . 4Others . . . . . . . . . . . . . . . . . ., ,, ., .....,, 23By revenue $6.35 billionDigital Equipment Corp., . . . . . . . . . . . . . .,, 34%Hewlett-Packard ,...,., . . . . . . . . 16Data General ....,.., . . . . . . . . . . . . . . . . 11H o n e y w e l l i n f o r m a t i o n S y s t e m s . . ,lam. ..,.....,,,,,.,,. . . . . . . . . . . . . ,., ;Others ..,..,, . . . . . . . . . . . . . . . . . . . . ,., 26

Small business computerb

Byunits 71,000 unitsIBM, ., ., . ., . .,,.,..,, . . . . . . . . . . . . . . . . 33%Others . . . . . . . . . . . . . . . . . . . ., . .,..,,.,, 23Digital Equipment Corp., ,, ,,..,, ., ....., 12National Cash Register . . ..., . . . . . . 11Wang . . . . . . ..., ..., ., . . ..., 8Burroughs . . . . . . . . . . . . . . . . . . ., ., .,, . . 7Data General . . ..., . . . . . . . . ., ., 6By revenue $3 billionOthers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33%IBM ...,....,,...,.,., . . . . . . . . . . . . . . . . 28National Cash Register ., . . . . . . . 10Wang . . . . . . . . . . . . . . . . ..., ,, . . . . . . 10Digital Equipment Corp.. . . ., ..., ,., . . 8Burroughs ., ., ., . . . . ., ..., 7Data General . . . . ~. . . . . . . . . . . . . 4

alnternational Data Corp 1981Computer industry Briefing Session, p. D-4.bInternational Data Corp 1981Computer Industry Briefing Session, p. D-6

RevenuesRank Company ($millions) Percent

1 IBM . . . . . . . . . . . . . . . . . . . . $10,650 62.4%2 H I S , ....,.,,,,., ,, ., . . 1,550 9.13 Sperry Univac,,, . , ,...., 1,410 8.34 Burroughs. , . . ..., 1,000 5.95 NCR. ,, . ., . ., ..,.,..,. ., 480 2.86 C D C . .....,,,, ,., 400 2.37 A m d a h l .,,,..,, ,,, ,.,,, 380 2.28 D E C ..,,.,,,,,. .., ,,.,, 205 1.29 Nat iona l ,,,,,,, ., ....,, 190 1,1

10 C a y . . . . . . , , , , , , , . . 50 0.311 M a g n u s o n . . . . , . . 35 0.212 IPL.,. ,,. . . . . . . 10 0.1lb] Compatible peripherals, ., 700 4.1

Totals ,,, ,, .,,,..,.,,. $17,060 100.070

aShipments of large general purpose computers only Companies Iisted mayderive significant additional revenue from shipments of other types of com-puter systems

bValue of shipments of plug-compatible peripherals produced by many smallercompanies

SOURCE International Data Corporation 1981 Computer Industry Briefing Ses-sion, p C-3.

The mainframe business is still the ma-jor component of computer sales andwill be for the foreseeable future. IBMhas the largest market share by far, andthere is no evidence that its lead isshrinking.The growth rate for sales of very smallsystems–desk-top or personal comput-ers—will be very high, while the histori-cally high rates of growth for larger sys-tems will level off somewhat.In response to the changing nature ofthe computer marketplace, more em-phasis will be placed on retail marketingand customer services. Retail firms nottraditionally associated with computerswill enter the small computer field.The explosive growth of the microproc-essor industry maybe slowed by limitedproduction capacity and by the increas-ingly high costs of design and toolingfor new applications.There has been recent evidence of atrend toward acquisitions of small semi-conductor companies by large firms.According to one report, of 36 new semi-

Ch. 14—industry Structure 151

conductor companies formed since1966, only seven remain independent.Many of the acquisitions have been byforeign firms: French, West German,Japanese, Canadian, and Dutch.

● While foreign competition has madesome inroads in electronics sales, andcomputer manufacturers are wary, par-ticularly of Japanese competition, noevidence of any substantial impact on

the domestic computer hardware mar-ket exists at present. The microproc-essor and personal computer marketsseem to be most vulnerable to suchthreats.Particularly in the small machine andspecial application markets, there ap-pears to be wide opportunity for entre-preneurs to innovate and make a suc-cessful market entry.

Auxiliary EquipmentMany companies have successfully com-

peted in the computer market by providingthe peripheral equipment—terminals, memo-ries, and the like—that extend the capabil-ities of existing computer systems. This in-dependent peripheral market can be roughlydivided into two parts–equipment in directcompetition with that offered by the systemvendor, and specialized hardware not com-monly manufactured by the mainframe com-panies.

Most mainframe computer companies sella wide range of peripheral devices for in-formation storage and for input and outputof data. However, other manufacturers claimthat by specializing in some specific cate-gory of device they can offer better qualityat a lower price. Often, in fact, these unitsare sold to the computer system manufac-turer, which in turn puts its own name onthem. The total auxiliary equipment marketis estimated at around $7 billion or more.Thus, even though the major mainframemanufacturers take a large portion of thatmarket, the remainder is well worth com-peting for.

The categories of equipment shown intable 14 below are not a complete list. Therange of accessory equipment sold for com-puters is extremely wide.

The industry for auxiliary equipment hasthe following principal characteristics:

●

●

●

●

All of the major manufacturers offer awide assortment of peripheral equip-ment for use with their systems, andthe sale of this equipment constitutes amajor portion of the market. However,there is an active and profitable groupof independent manufacturers sellingequipment of all types. In many cases,the large computer corporations havean agreement whereby they purchasethis independent hardware and puttheir own brand name on it.Users are more likely to accept new andimproved devices as they come on themarket, because it is much easier tochange auxiliary equipment with mini-mum disruption of their operations.Furthermore, different auxiliary equip-ment can perform an identical functionwith a greater variety of possible inter-nal technologies and designs. These twoadvantages lead to market opportu-nities for inventors and, hence, to profit-able new enterprises.Much of the interest in the area of datastorage is concentrated on large and in-expensive bulk memories. Current ac-tivity is in bubble memory and floppydisk technology, although the use of thevideo disk for very cheap data storageis also being explored and appears likelyin a few years.The terminal industry is growing quick-ly, matching the growth in the use of

Table 14.—Auxiliary Equipment Industry Structure— — —.-. .— .——., .

Future trendsCharacteristics of hardware Purpose and/or use Nature and size or present industry Nature and size of present market

Random access memory devicesHigh-speed, usually uses large-scale The main storage for data while beingintegration technology (500 + used by the computercircuits on a single chip), recentlyIBM Introduced very large-scaleIntegration (VLSI) technology(several thousand circuits on asingle chip) Connects directly to thecomputer processor

Bulk memory devices (a) Magnetic tape and fixed head disksCommunicates with the central An auxiliary memory device to hold

processor through an Intermediary data not currently being used by thecontroller, has slower access times systemand larger capacity.

(b) Floppy disksInexpensive, easy-to-handle, andreliable form of bulk memorystorage

(c) Very large memoriesStores trillions of bits of InformationA few very different technologies areused, e.g., video tape and laserphotographics

Originally developed by IBM as acontrol memory for the System 370series of computers At present, It IS

the medwm-of-choice for smallcomputer systems, Intelligentterminals, word processing systems,and similar applications

Acts as an archive for very largequantities of data, where theinformation IS rarely changed andInfrequently accessed

Graphical display equipment: (a) Video graphicsPicture displayed on a cathode ray Presents computer output graphicallytube with the capability to display for such applications as computer-color and fully shaded solids. aided design. Users can interact

with the display to controlcomputation or put information intothe system

All computer manufacturers sell theseas an integral part of their systems,also sold by some independents,mostly as IBM compatibleequipment

Several Independent manufacturers,very competitive. Major suppliersInclude firms such as Memorex,Storage Technology, 3M, Xerox, andAmpex

Successful area for smallentrepreneurs Leading Independentproducer IS a small, California-basedcompany, founded in 1973–with$18 million in sales that yearPresently, more than a dozen largeand small manufacturers in the field

Very few manufacturers, principallyAmpex and IBM

Has been domain of a few, smallcompanies selling relativelyexpensive systems to a narrowrange of users. As cost ofelectronics has dropped and moreefficient graphics software has beendeveloped, cost of graphics systemshas decreased markedly.

Market for Independent vendors hasdeveloped, especially for IBM- com-patible products

Independents can serve a largerpotential customer base than anymainframe vendor, because they candesign high-performance equipmentthat can be Interfaced with a varietyof computer makes Over $1 5billion in sales

Because of applications to small com-puters (see Purpose and/or use col-umn), its market IS somewhat dif-ferent from the markets for thepredominantly medium- and large-scale systems for magnitude tape andfixed-head disks

Limited, special purpose market

The market for full video graphics IS

growing rapidly as graphics-orientedapplications are becoming moreaccepted by users

Independents are motivated todevelop products faster to competewith IBM cheap VLSI technologyThe market IS risky due to theuncertainty over IBM plans

Some Improvements are stall likely,but major breakthroughs are unlike-Iy It wiII still be a commontechnology during the next decade,but wiII eventually be replaced byelectronic technologies

The technology IS developing rapidly,driven by competetive pressures, andthe demand IS growing due to theproliferation of small computers

The demand for this type of storagewiII grow, but rapid growth wiII de-pend on the development of newtechnologies, such as holographicstorage, and appropriate softwaretechniques

The further Iowering of prices due tothe economy-of-scale effect, alongwith the accumulation of experienceare expected to Increase marketdemand inexpensive systems areIncreasingly being incorporated intoremote data terminals Theprediction IS that by 1983, themarket for all graphics displayterminals wiII reach $500 millionannually, and for graphical displayequipment wiII grow to a billiondollars or more from the presentquarter of a billion

.

Characteristics of hardware

(b)Plotter graphicsPicture IS drawn by a mechanicallycontrolled pen

PrintersAn alphanumeric text IS printed on

paper Offers a wide range ofspeeds and technologies fromimpact printing to photo XeroxImaging

Data entry systemsIncludes these products Keypunches(cards) Keyboard to tape and diskTerminals–wdeo and typewriterOptical readers–bar code, marks, orcharacters Magnetic characterreaders Direct data recorders Voice

data entry

Table 14.—Auxiliary Equipment Industry Structure (continued). . . . —-—

Purpose and/or use——

Gets graphical information out of acomputer in the form of hard copy

The principal means of producingprinted reports from a computer onpaper

Gets information into computers,optical and magnetic readers as wellas direct data recorders transmitdata directly to the computer fromthe source For readers, the sourceIS a machine-readable code, e g ,magnetic characters on a bankcheck and printed bar codes ongrocery items For recorders, directmeasurements are made of physicalproperties, e.g., temperature andpressure Voice recognizers convertoral communication to computercode

SOURCE Off Ice of Technology Assessment

Nature and Size of present Industry-.

Dominated by California ComputerProducts (Calcomp) The plotterssold by most major computervendors are made by this company(Vendors put their own names on )

Mainframe manufacturers dominate,but there are some successfulentries by Independents Theprincipal Independent manufacturersare Centronics and Dataproducts

Numerous small companies. IBM’sdomination through the emphasis onpunched cards IS fading as new,better technologies are coming intouse

—

Nature and size of present market Future trends——————_—. -.—

The revenues of Calcomp exceed$100 million

The revenues of the principalIndependent manufacturers areabout $100 million each

Sales, which were about $1 77 billionin 1977, are growing at about 15percent per year The market forvoice recognizers has beensurprisingly good

The market IS expected to reach $36billion by 1985 The development ofa reliable printer in the 1980’s thatwould sell below $1,000 would taprapidly expanding small computermarkets, and would not competedirectly with industry giants

The market IS expected to growrapidly in the 1980’s as thetechnology improves Data recordersWiII become more Important ascomputers are used for controllingprocesses both m industry and inthe home

154 ● Computer-Based National Information Systems: Technology and Public Policy Issues

●

communication-based computer appli- toward the use of other media such ascations. The current trend is toward magnetic disks. The most significantgraphical display, and putting more trend in the 1980’s will be toward sys-computer processing logic in the ter- tems designed to capture informationminal itself. directly from the source by voice recog-Data entry has been moving gradually nition, by image analysis, and by directaway from the use of punched cards and measurement.

The Data Communication IndustryThe data communication industry pro-

duces goods and services necessary totransmit digital data between computers orbetween computers and a terminal. For con-venience, the industry is split into two sec-tors, the hardware manufacturers and thecarriers, as shown in table 15. (The descrip-tion of the industry presented in this studypresents an information processing view.The OTA report on TelecommunicationTechnology and Public Policy, in press,presents a common carrier view of the datacommunication industry. )

The magazine Datamation estimates thetotal data communication industry to berunning currently at over $4 billion per year,and to be growing rapidly. The carriers havemost of the action, nearly three-quarters ofthe market; AT&T has the biggest individ-ual share, about 56 percent of the total mar-ket. The top 10 companies (other thanAT&T) in the data communication hardwaremarket are listed in table 16, and the top 10data carriers in table 17. All revenue esti-mates are from Datamation.

The following comments about the datacommunication industry appear pertinent:

● The most apparent characteristic of thedata communication hardware marketis the continued presence of IBM at thetop of the list. Even though only oneproduct covered in the survey is offered,a communication front-end processor,IBM’s revenues are more than doublethose of the next largest company. Yet

●

●

●

this income represents less than 1 per-cent of IBM total corporate income.There appear to be many healthy smallfirms in the communication hardwarebusiness. Generally, they specializevery narrowly along specific productlines. Six of the 10 companies listed intable 16 are small firms earning most orall of their income in the data commu-nication field.The entire market for data communica-tion is still not very large comparedwith that for other services, principallyvoice. It is estimated at between $2billion and $3 billion. Accurate numbersare hard to get, because the carriersthemselves do not always know whentheir lines are being used to carry voiceor data.Most experts expect a major explosionof the market for data communicationover the next two decades. The most in-teresting developments are the plans ofsome very large corporations for pro-viding sophisticated data communica-tion services in the near future. Al-though behind schedule, AT&T’s ACS(Advanced Communications System),should begin operation soon. IBM andAetna are underwriting a new corpora-tion, SBS (Satellite Business Systems),to provide such services. Exxon is re-puted also to be planning services ofthis kind. A highly flexible system willbe offered by these companies that isdesigned specifically for high-speeddata transfer in many forms—e.g., com-

Table 15.—Data Communication Industry Structure

Characteristics of hardware Purpose and/or use.Hardware manufacturers (table 16) (a) FrorU-errd processorsSmall specialized processors

dedicated to controllingcommunications they are locatedbetween the main computer and thecommunication network

(b) Modems and multiplexorsModems change the electriccharacteristics of the data signal tobe transmitted on the communicationIine from digital to audio–to matchthe requirement of a communicationsystem to transmit voice

Multiplexors mix multiple datamessages into a single stream ofinformation down the wtre

(c) Network/node controllersThese are a recent concept which

look and perform very much likefront-end processors They arelocated within the communicationnetwork

Control communications by handlingall the messages between the maincomputer and the terminals

Adapt computer systems andterminals to the communicationsystems designed to carry voice

Principally control data flow through acomplex network of computers andcommunication lines

Nature of present Industry

IBM dominates w i th the 370Xprocessor for it's own machinesOther major computer vendors arealso principal suppliers The twolargest Independents are Comtenlnc., with over $37 million in front-end processor revenues andComputer Communications Inc.with over $17 million The numberof minicomputers bought to serve inthis capacity cannot be estimated

AT&T IS a major supplier of modems(estimates are that Bell has as manyin use as the entire Independentmarket)

Mutiplexors are supplied mainly byIndependent manufacturersprincipally Motorola Racal-Mtlgo,General Data Comm Paradyne andRixon All but the first one are smallcompanies with their principalrevenues from this market

Supplier picture IS not clear Itappears to be dominated by twoIndependents, Comten and ComputerCommunications Inc.

Nature and size of present market

Total sales approached $400 millionin 1979 Due to the growth ofCommunication based applicationsan independent industry IS anslng tomarket these processors which formany years mainframemanufacturers have been prowdlngas standard add-on equipment fortheir machines

1979 Independent market estimatedat over $450 million.

A new market motivated by theevolution of distributed processingsystems containing severalcomputers Interconnected on acommunication network In 1979sales were about $70 million

Future trends.—

WiII grow rapidly paralleling thetrend toward the application ofIntegrating data communication andcomputer systems

Similar to above, except that thesefunctions may be Included to someextent in new data communicationservices

Similar to above

-.

Table 1 S.—Data Communication Industry Structure (continued)

Characteristics of hardware Purpose and/or use Nature of present industry Nature and size of present market Future trends(d) TerminalsAny human-operated input-output

device through which informationcan enter or leave a communicationnetwork

(e) Other devicesA miscellaneous group of relatively

cheap specialized devices, formanaging and testingcommunication network

Data carriers (see table 17)The medium that IS used to transport

or carry communication data orinformatlin, e.g., AT&T long Iines,satellites

Connect a human user with acomputer

These are for setting up andmaintaining a data communicationnetwork Includes such devices asthose for monitoring communicationlines for data accuracy andperformance and those for tracingerrors in a network system, alsovoice response units that interface acomputer on one end of a telephoneline with a human on the other

To transfer data such as computerdata, electronic mail, facsimile. andvideo conferencing with a highdegree of flexibility at high speeds

Appears to range from large,mainframe manufacturers to smallspecialist companies, Some mergingmay be possible between smallcomputer and terminal industries, asterminals become more ‘‘Intelligent’and small computers gam morecommunications capability

Racal-Milgo and Northern Telecom,which largely produce testequipment, are the principalsuppliers

Currently, AT&T is the principal dataearner Most other major carriers(see table 17) also predominantlysupply telephone service Acompetitive industry of pure datacommunications IS developing Thehigh capital requirement wiII keepthe competition to a few large firms

Estimated to be large–over $1billion-and growing rapidly. A vastmarket exists for high-quality, low-cost hard-copy printed output, nowtoo costly relative to the smallcomputer to which it may beattached A high demand isanticipated for terminals,concomitant with a projectedexplosive market growth for smalland networked systems

A still quite small market relative tothe entire communication market,but amounts to over $100 million

A large data communication market,($4 billion in 1979) but stillrelatively small when compared withvoice Accurate figures are difficultto obtain since earners often cannotdistinguish whether their lines arecarrying data or voice

Terminal costs wiII fall, but not asfast as electronics “lntelligentterminals” will dominate the 1980’smarket, and be indistinguishablefrom small computers withcommunication capabilities Therewill be a shift to more sophisticatedgraphics terminals capabilities,including color and half-tone, will bebuilt into terminals, thus obviatingthe need for putting them on themain computers

This will continue to be a relativelysmall market

A major explosion of the datacommunication market IS predictedover the next two decades Somevery large corporations are movingtoward providing sophisticated datacommunication services m the nearfuture. New services wiII be basedon communication networks withsubstantial built-m ‘‘Intelligence’allowing data storage for futureretrieval

SOURCE : Office of Technology Assessment

Ch. 14—lndustry Structure ● 157

Table 16.—The Ranking and Revenues of theTop 10 Manufacturers of Data

Communication Hardware

Rank

123456789

10

1979Company revenues ($ million)

IBM . . . . . . . . . . . . . . . . . . . . $ 1 5 8 Racal-Milgo. . . . . . . . . . . . . 121NCR . . . . . . . . . . . . . . . . . . . . 82Motorola . . . . . . . . . . . . . . 81Memorex. . . . . . . . . . . . . . . . 543M . . . . . . . . . . . . . . . . . . . . . 49General Datacom. . . . . . . . 42Paradyne. . . . . . . . . . . . . . . . 41Control Data.... . . . . . . . . . 40Rixon. . . . . . . . . . . . . . . . . . . 36

●

SOURCE: Detamation, June 1980, pp. 120-121.

Table 17.—The 10 Leading Carriers of Digital Dataand Their Data Communication Revenues

1979Rank Company revenues ($ million)

1 AT&T. . . . . . . . . . . . . . . . . . . . . . $2,3092 GTE. . . . . . . . . . . . . . . . . . . . . . 7983 Western Union . . . . . . . . . . . . . . 4514 lTT World Communications . . . 1705 United Telecommunications . . 686 TAR T . . . . . . . . . . . . . . . . .. . . . 287 Tymnet . . . . . . . . . . . . . . . . . . . . 248 Continental Telephone.. . . . . . 219 Central Telephone . . . . . . . . . 20

10 WUI . . . . . . . . . . . . . . . . . . . . . . . 16

SOURCE: Datamation, August 1980, p. 107

puter data, electronic mail, facsimile, orvideo teleconferencing.These services will be based on commu-nication networks that will have sub-

stantial “intelligence” built into them;thus, the services will not easily beclassified as pure data carriage or as in-formation processing. Since one indus-try (communication) is regulated andthe other (data processing) is not, acorn-plicated regulatory problem is created,the resolution of which will allocate amultibillion dollar market among com-peting industrial giants.

The computer industry has two strongbut contradictory reactions to thesedevelopments. They see the evolution ofthese new services as providing excitingpossibilities for new computer-com-munication applications, some linked ona worldwide scale. Many of the new ap-placations being planned will serve largemultinational corporations or consor-tiums of smaller users, such as stock-brokerage houses.

On the other hand, some fear that a bigwinner of this competition for the data com-munication market would be a monopolycontrolling all data communication servicesworldwide. While the carrier business is nota game for small players, such massive domi-nation by one supplier could be threateningto the hardware and service sectors that arecurrently promising for the creative smallbusiness entrepreneur.

Special ApplicationsThe emergence of microprocessor technol-

ogy has led to a new type of industry that in-corporates the processor into a device thatperforms a specialized function. This type ofindustry will grow rapidly during this dec-ade, fueled by growing consumer demand forcomputerized products. Eventually, suchmarkets for computers may dominate the in-dustry and become analogous to those forelectric motors. Few consumers purchasethem directly, but buy many products inwhich they are incorporated.

Some of these products will be full com-puter systems programed to perform spe-cific jobs; for example, the word processingapplications discussed later. Others, such asthe popular computer games, incorporate in-telligence but do not look like computers.These applications are also distinguishedfrom the incorporation of microprocessors incommon consumer goods such as microwaveovens and automobile engines. The applica-tions discussed here are new products, offer-ing new, intelligence-based capabilities to

158 . Computer-Based National Information Systems: Technology and Public Policy Issues

their users. It is impossible to describe suchan industry generically; therefore a few cur-rent examples are provided (see table 18)that illustrate the variety of ways in whichthis set of industries will develop. Clearly,the opportunities are endless for inventivenovel applications of this new technology.The analogy mentioned above with the elec-tric motor is particularly useful in picturingthe future potential of this industry sector.

Array Processors: An array processor is aspecial purpose computational unit designedto solve specific types of mathematical prob-lems. (See ch. 5.) It is normally attached to ageneral purpose computer system or mini-computer that sets up the data, feeds theproblem to the array processor, and puts theanswer out in appropriate form. Array proc-essors have become particularly popular forresearch and engineering applications thatinvolve signal processing or the modeling oflarge physical systems.

Over 15 firms market these units, rangingfrom IBM to small companies for which sucha processor is the only product. The proc-essors cost between $5,000 for a small uniton a printed circuit card to several milliondollars for Control Data’s Star computer.Many small companies (such as FloatingPoint Systems) and larger ones (such as Ray-theon and Westinghouse), which don’tengage in the general purpose computerbusiness, have found the lower end (up to$150,000) of the array processor market tobe attractive, and have thus far successfullycompeted in it.

Speak and Spell”: This is a specific prod-uct invention of Texas Instruments, which isa leading manufacturer of microelectronics.Unlike some of the other semiconductor com-panies, which sell their devices wholesale toother manufacturers for incorporation intoproducts, Texas Instruments also producesa line of consumer devices that use their ownelectronics. These are largely centered onelectronic hand and desk calculators and arecently announced personal computer.

In 1978, Texas Instruments produced asmall hand-held device that combined theirmicrocomputer technology with some newspeech synthesis capabilities to produce acombination toy and teaching aid called“Speak and Spell® .“ The device speaks aword and the learner types the word into themachine on a small keyboard. “Speak andSpell”” was an instant success, encouragingTexas Instruments to plan not only im-proved versions of the original but to findother specialized products that combinespeech synthesis and microcomputers.

Translators: The hand-held languagetranslator is a new consumer device that hasbeen appearing in the stores over the last 2years. It resembles a pocket calculator buthas an alphabetic keyboard and a somewhatlonger display window. A person types in aword or phrase in one language and reads thetranslated phrase on the display.

The machine was invented by a smallgroup of entrepreneurs who were not in theelectronics business at the time. Forming acompany called “Friends Amis, ” they devel-oped the design and specifications of thelogic chip required. They then contractedwith a microprocessor manufacturer to pro-duce the specialized electronics, and ar-ranged with a distributor of consumer elec-tronics to retail them under the distributor’sbrand name.

The translators were an instant hit,enough so that Texas Instruments and Lex-icon have been drawn into the market.Despite the competition, Friends Amis hasbeen a success, turning an initial investmentof $1 million into an $8 million profit lastyear on sales of $30 million. Still growing,the company soon plans to market a hand-held computer through an agreement withMatsushita. The Japanese corporation willprovide the marketing capability the smallcompany lacks. Besides making money,Friends Amis has, in the words of Fortunemagazine, “managed to’ father a new branchof consumer electronics. ”

Characteristics of hardware

Array processorsSpecialized units for very economic

and fast solutions for particularmathematical problems Usually at-tached to a mini- or general-purposecomputer for control and input/output

Speak and Spell nConsumer electronics device-small

hand held combining the manufac-turer's (Texas Instruments) microcomputer technology with speechsynthesis capabilities

Language translatorsConsumer electronics device–a hand

held language translator with an al-phabetic keyboard and a displaywindow similar to but larger thanthat on normal calculators

Word processorsA computerized ‘Intelligent’

typewriter that stores a documentelectronically as it is entered, anddisplays the image on a cathode rayscreen

—SOURCE Off Ice of Technology Assessment

Table 18.—Special Applications Industry (examples)

Purpose and/or use

Research and engineering applicationsinvolving signal processing or mod-eling large physical systems

Combination toy and spelling teachingaid—machine speaks word thenchild types it on small keyboard

Type in word or phrase– read offtranslation on display

Allows operator to edit and correcttext directly in memory, andautomates repagination, hyphen-ating and justification Some sys-tems can correct spelling

Nature of present Industry

Units marketed by over 15 firms fromIBM to small companies with proc-essor as their sole product costfrom $5000 for smallest unit onprinted circuit card to several milliondollars for the Iargest size op-portunities for small entrepreneurs

Specific product invention of TexasInstruments

Developed by entrepreneurs originallynot in electronics business who con-tracted electronics to microprocessorfirms

Principally companies that make orhave made computers e g Wang,IBM, and Digital Equipment Corp.Other firms are now entering, il-Iustrating new opportunities beingopened by cheap electronics, e gLamer Business Products, a leaderin Dictaphone sales Also major firmssuch as Xerox and Exxon are devel-oping strong positions

Nature and size of present market— .

Research and engineering designlaboratories are principal users

Instant consumer success

Consumer electronics success– com-pany that developed product had$30 million in sales in 1979 on anInitial Investment of $t million

Over 80 percent growth in 1979growth expected to continue over 50percent in t 980

Future trends

More specialized designs targeted. alunique types of calculations Thepotential large revenues from suchspecialization wiII stimulate growth

The manufacturer wiII improve pres-ent product and develop additionalspecialized products combiningspeech synthesis and microcompters.

Consumer electronics market sti l lgrowing–several electronics com-panies are entering The umt mayevolve into a more general hand-held personal computer

In 1980’s Integrated office systemswiII display sophisticated capabilitiesfor correcting grammar and for-matting text They wiII merge withnew data communication servicesIinking geographically separated of-fices through high speed data com-munication networks offering video,audio, and computer conferencing.and distributed information proc-essing. Electronic archival storagefor storing and retrieving informationefficiently and easily wiII be offered

160 Computer-Based National Information Systems: Technology and Public Policy Issues

Word Processing Systems: These are im-portant new applications around which a ma-jor industry will grow in the 1980’s. Wordprocessing systems, the first entry in the of-fice automation trend, are designed to in-crease the productivity of information han-dling by automating its preparation andflow. The applicable technologies will bedrawn from both computers and communica-tion, and the trend will be toward the in-tegration of document preparation, storage,and transmission.

For now, the principal offering on the com-puter side is the word processor. It is essen-tially a computerized, intelligent typewriterthat stores a document electronically as it isentered, displays the image on a cathode rayscreen, and allows the operator to edit andcorrect the text directly in its memory.Tedious tasks such as repagination, hyphen-ating, and justification are taken care ofautomatically. Some systems even correctspelling, and some observers expect systemsin the 1980’s to display sophisticated in-telligence for correcting grammar and for-matting complicated text. The market forsophisticated word processing systems grewover 80 percent last year, and next yearmarket growth should still be over 50 per-cent.

The principal actors in the word process-ing business have tended to be companiesthat make or have made computers, such asWang, IBM, and Digital Equipment Corp.However, other firms are now entering themarket, illustrating the opportunities fornew entries being opened by cheap elec-tronics. Lanier Business Products, for exam-ple, a leader in the sale of dictaphones, has

entered with both stand-alone systems andthose using a shared computer that servesseveral terminals. Lanier, principally viewedas a firm with marketing expertise, pur-chased interest in a small data products com-pany, AES Data Ltd., that designs and man-ufactures the word processing equipment.

The most important trend that expertsthink will dominate in the 1980’s is the merg-ing of these word processing systems withthe new data communication services beingplanned, such as SBS or AT&T’s ACS.Using these new services, geographicallydistributed organizations will be linkedtogether through a very high speed datacommunication network offering video andaudio conferencing, computer conferencing,and distributed information processing.

The final ingredient for the integrated of-fice systems of the next decade is the devel-opment of electronic archival storage. Thehardware base exists for storing informationat a cost lower than that of filing paper. Theneed now is for appropriate software thatwould allow the user to store and retrieve in-formation efficiently and easily. Some sys-tems are on the drawing broad. Systems De-velopment Corp. and Datapoint have an-nounced prototypes for systems they willsell in a year or so.

As these trends merge, whether smallfirms can continue to successfully developand compete in the word processing marketmay depend on the degree to which inter-faces become standardized, allowing com-petition for particular components of an in-tegrated office system. Major firms such asXerox, IBM, and Exxon have taken aim atthe automated office market, and competi-tion will be severe.

Computer ServicesThe computer services industry, sum-

marized in table 19, performs a wide varietyof tasks that make the computer more ac-cessible, more usable, and/or less expensive

for computer users. Some companies selltime on their own computers; others provideprograming or operations services (includingtraining, consulting, and facilities manage-

—Table 19.—The Computer Services Industry Structure

Services provided

Processing services-

These firms called service bureausprovide access to computer timeThey also provide access 10 pro-grams designed for specific controlapplications

Professional software products and services.Prewritten programs to do specifictasks that can be leased or purchas-ed by users Because heavier program development costs can be writ-ten off against multiple users, thiscommercial software can be moresoundly based mathematically, moreflexible more reliable, and betterdocumented than a home-grown pro-gram would be In additlon, the ven-dor assumes the burden of the con-tinued maintenance and improve-ment of the package

(b) Software servicesProvides programing expertise to

develop a specific program for a par-ticular user

Other servicesThe Industry provides a variety of

support services to users

Purpose and/or use

For computer users preferring to pur-chase computer time from outsidefirms rather than owning and op-erating their own systems

(a) Software productsThe majority are for applications

although some are designed to improve the operation of the user’ssystem They tend to be large andcomplex designed for broad appli-cability e g large data manage-ment and file Inquiry systems op-timization programs, and packagesof sophisticated statistical routines

For a user’s own projects, and toassume the responsibilty for themajor development efforts for whichthe customer does not have the ap-propriate staff

——Nature o f Indus t ry Nature and size of market

A relatively few very large companies About $67 billion worth of computerand a large number of small but time was purchased in 1980 andprofitable Operations (See table 21 ) the market iS growing at nearly 20Good opportunity for small com- percent per yearpanies to compete successfully bytaking advantage of specialized serv-ices targeted at a market in whichthey have particular expertise

A large number of small firms Over For the total software products in90 percent of the companies fit into dustry, the market iS estimated atADAPSO’s category of those that are over $1.5 billion per yearsmallest in size The large hardwarevendors also sell some softwareproducts tailored for their machines

A few small companies specialize in A market about equal to that forprograming Many large firms, hard- prewritten packages It iS estimatedware manufacturers, service bureaus at around $1 billion per yearetc., offer programing services tosupport their customer’s needs

For consulting, for operating the Mostly very small firmscustomer s computer center, formaintaining the hardware and forIntegrated hardware/softwaresystems

No soild estimates of market sizecould be comparable to that of pro-fessional software support market

—.— ——SOURCE: Office of Technology Assessment and Association of Data Processing Service Organizations

-— .—

Future trends—

The coming generation of cheap com-puters will be a threat to those com-panies that just provide computertime without adding market value inthe form of application packages andconsulting Consequently the moveiS toward providing programing andother support activites that are lesssensitive to the specific source ofcomputer power

The growth rate for the next 5 yearsfor this unusually fast growing industry iS estimated at 30 percent

The industry predicts substantialgrowth of over 20 percent annuallyfor the next few years, depending inpart on the continued scarcity ofskilled talent, which makes it costly,thus discouraging users from estab-lishing their own staff of applicationprogrammers More market segmenta-tion and specialization seems Iikely

A new service Industry iS developingproviding books, magazines, soft-ware, exchange services, employeeeducation, and consulting, for smallcomputer users. With the increase inthe use of small computers in the1980's, some major growth potentialmay exist for services designed tomake these new systems most use-ful to a new class of inexperienced

users——

162 . Computer-Based National Information Systems: Technology and Public Policy Issues

ment) to users who own their systems. Stillothers sell prewritten programs or provideaccess to those programs on a service bureaucomputer. Most recently, some companiesoffer processing services through integratedhardware/software systems.

The Association of Data Processing Serv-ice Organizations (ADAPSO) is the principalorganization representing this industry.They define the role of their industry as add-ing “value to the computer hardware utilityby integrating into the service people, exper-tise, products, distribution networks, andeducation. The structure of the computerservice industry as discussed here reflects,in part, that used by ADAPSO.

The largest publicly held independentcomputer service corporations along withtheir estimated 1973 revenues from com-puter services are shown in table 20.

Table 20.—Estimated 1979 Revenues for theTop Five Independent Computer

Service Companies

Estimated 1979Company revenues ($ million)Automatic Data Processing . . . . . . – $372 – - -

Computer Sciences Corp. . . . . . . . . . . 343Electronic Data Systems. . . . . . . . . . . 274Tymeshare . . . . . . . . . . . . . . . . . . . . ., 193Bradford National. ... , . . . . . . . . . . . 120

aThe three Companies with the largest computer services revenues — IBM, Con-trol Data Corp., and Burroughs—derive their primary revenues from hardwaresales and thus are excluded from this list

SOURCE Association of Data Processing Service Organizations

Table 21 shows the structure of the com-puter services industry in terms of size offirm.

The following observations can be madeabout the computer services industry:

●

●

●

●

The availability of inexpensive capablecomputer hardware will put pressure onservice firms that only provide custom-ers with access to computer time. Evenso, most observers do not expect thecomputer service bureaus to fold up.The service bureaus are showing a trendtoward offering an integrated set ofservices based not only on access topure computing services, but also tospecialized programs and data basesalready present in the company’ssystem.The service industry seems to be char-acterized by a few large firms andmany, equally profitable, very smalloperations serving very specializedmarkets (such as law firms, pharmacies,and civil engineering firms). The devel-opment of new data communication fa-cilities will make more of this type ofspecialized service possible by pro-viding a national marketplace for it.A new industry will develop to supportthe personal and desk-top systems nowbeing marketed. These services will of-fer maintenance, programs, consulting,and education specifically oriented toowners of these very small systems.

Table 21 .—Industry and Revenue Structure of Computer Services Industrya

1979 grossNumber of 1979 revenues profit Growth rate

Size of operation companies ($ billion) margin (percent) (percent)

Over $25 million. . . . . . . . . . . ~ . . . . . . . . . ‘“ - --40 ‘- $ 4.0 1 0% 200/0 -

Between $10 million and $25 million . 70 1.5 7 23Between $2 million and $10 million . . . . 450 2.0 9 22Under $2 million. . . . . . . . . . . . . . . . . . . . 3,500 2.5 9 22

Total . . . . . . . . . . . . . . . . . . . . . ... 4,060 $ 1 0 . 0 —

aThis table includes estimated revenues for computer services provided by Independent computer service companies and computer hardware manufacturers. Numbersare rounded off

SOURCE: Association of Data Processing Service Organizations

Ch. 14—industry Structure ● 163

Information ServicesSelling information is a centuries-old

business; however, the computer is forcing aradical change in the character of this in-dustry. The nature of the information sold,the way it is provided, and the principalorganizations supplying information serv-ices are all changing rapidly, which willshape a new type of industry in this decade.

The traditional information industry hasalways been predicated on the assumptionthat some information has tangible economicvalue and can be treated as a commodity.The industry, taking this traditional ap-proach, views itself as similar to any otherindustry in structure. That is, it is dividedinto producers, distributors, and retailers.For example, an author might be a producer,a publisher, a distributor, and the bookstorethe retailer. Similarly, in broadcasting thereare show producers, networks and syndi-cates that distribute the programs, and thelocal stations that broadcast them intohomes.

Now the industry is computerizing. Tradi-tional information organizations such asDun & Bradstreet, Macmillan Press, and theKnight-Ridder newspaper publishers are ex-ploring new uses of information technologyto expand their offerings. On the other hand,computer service bureaus, as pointed out inthe previous section, are moving away fromoffering pure computer time and toward pro-viding program and data services that arecertainly classifiable as information serviceseven by the most traditional standards.Finally, new companies such as Data Re-sources, Inc. (now part of McGraw-Hill)have been formed specifically to providecomputer-based information services. Thecomputer’s impact is being felt by all threesectors of the information industry.

In the production of information, in-creased computerization of social activitiesmeans that there is a swiftly growing pool ofinformation of all kinds that can be read by acomputer. Financial information, airline res-

ervations, stock transfers and commodityprices, and even wire service news, are ex-a m p l e s o f i n f o r m a t i o n a l r e a d y a v a i l a b l e i ne l e c t r o n i c f o r m . M u c h o f i t i s a l r e a d y t r a n s -m i t t e d o n c o m m u n i c a t i o n l i n e s .

T h e n e x t d e c a d e o r t w o w i l l s e e m o s t o ft h e i n f o r m a t i o n n e e d e d t o r u n p e o p l e ’ s l i v e sa n d b u s i n e s s e s o r i g i n a t e d a n d s t o r e d i n c o m -p u t e r s . T h i s t r e n d w i l l s t i m u l a t e t h e d i s -t r i b u t i o n a n d r e t a i l i n g o f i n f o r m a t i o n , b e -c a u s e p u t t i n g t h e i n f o r m a t i o n i n t o c o m p u t e rr e a d a b l e f o r m i s a m a j o r c o s t o f c u r r e n ta u t o m a t e d i n f o r m a t i o n s e r v i c e s .

Data communication technology is chang-ing the rules for the distribution of informa-tion. Traditional distributors such as broad-c a s t n e t w o r k s , b o o k p u b l i s h e r s , a n d c o m m o nc a r r i e r s a r e l o o k i n g c a r e f u l l y a t t h e p o t e n t i a la d v a n t a g e s o f f e r e d b y d a t a c o m m u n i c a t i o n .The publishers see a new mechanism to dis-tribute newspapers, books, and magazines,in addition to possible new services; the com-mon carriers and broadcasters see new usesfor their facilities as vehicles for theseservices.

Many of these services will soon be re-tailed directly to the home or office viatelephone, television, and cable. Precursorsto these services already exist in a few localcable systems, and experiments such as therecently canceled AT&T Electronic Informa-tion Service provide an automated telephonedirectory and a selection of other informa-tion systems over a telephone line to a hometerminal.

Some information services are trans-formed by the use of technology, others arecreated. It is the new computer-based serv-ices that are of particular interest to thisstudy.

The Information Industry Associationidentifies nine categories of information in-dustry. These are:

1. producers of primary information(books, journals, research studies, etc.);

164 . Computer-Based National Information Systems: Technology and Public Policy Issues

2. producers of secondary information (in-dexes, bibliographies, data bases, mi-croforms, directories, etc.);

3. communication companies (broadcast,cable, switching, etc.);

4. information distributors, agents, orbrokers (on-line service, sales represent-atives, dealers, etc.);

5. information transactors (banks, lendinginstitutions, investment houses, etc.);

6. consultants or contract suppliers of in-formation (designers, developers, etc.);

7. information retailers or outlets (on-demand services, search services, etc.);

8. equipment or supplies companies (com-puters, micrographics, text processing,graphic arts, etc.); and

9. popular media organizations (news, edu-cation, advertising, etc. )

Some of these classifications are of par-ticular interest to the computer and com-munication industry.

Producers of Primary Information: Forsome time, the intermediate processes ofpublishing have been undergoing auto-mation. Computerized typesetting, on-lineediting and other uses of word processing,and digital communication of edited text arebeing widely adopted and should increaseproductivity substantially.

For the time being, the final product willcontinue to be in paper form. However, thefuture widespread use of the video disks andhigh-speed data communication systemsmay gradually lead to products being pub-lished in digitized formats as well.

Producers of Secondary Information:Many producers of bibliographies and in-formation directories now regularly preparethem on computers. Some even offer thefinal product on-line from a computer. Theuser dials in from a remote terminal to getthe desired information.

These industries have found the computerto be useful not only to automate the moreroutine aspects of their operations, but alsoto provide more sophisticated analyses andcustomized arrangements of the information

they maintain. Since a large on-line database can be searched far more effectively bycomputer than by hand, the services pro-vided by such a producer are qualitativelydifferent from those provided by a tradi-tional bibliographic service.

Such information, however, is currentlyvery expensive to prepare. Persons mustfirst read the printed material, then analyze,index and otherwise code it, and put it intomachine-readable form. In the future, whenmost printed text will originate on computer-based text processors, automated computer-ized indexing systems will eliminate most ofthese tasks.

This high labor cost, coupled with the factthat the initial significant market for suchsystems is the research community, meansthat most bibliographic systems now avail-able were originally supported, at least par-tially, by the Federal Government. Some arenow self-supporting, while others continue tobe subsidized, depending on their purposes.Bibliographic information is the hardestcase, however.

There have been some successful entre-preneurial experiments in providing otherforms of on-line data service. Data Re-sources, Inc. (DRI) is one of the best known.Founded by the well-known econometrician,Otto Eckstein, DRI provides econometricdata and access to sophisticated computer-based models to economists, particularlythose in private industry. Most of the majorcorporations in the United States nowsubscribe to DRI services.

There are a number of such firms thathave been founded to provide computerizeddatabank services. Many are still quitesmall, specializing in particular types of datato serve narrowly targeted markets. Therange of services is quite broad. One in-dustry analyst identified 22 different cate-gories of databank service.

Data Transactors: There are many firmsthat create useful information in the courseof their business, although they may not bein the primary information business. For ex-

Ch. 14—Industry Structure ● 165

ample, banks, stockbrokers, airlines, andcredit card companies all create transac-tional information. More and more of this in-formation is in computer-readable form and,furthermore, is possibly valuable to someother party. This firm or individual may bein a related business, or may have no connec-tion with the principal field of the originaldata collector.

The market for such data is likely to growsignificantly over the next decade. Pools ofdata from transactions will accumulate incomputer systems, and new enterprises willspring up to collect, organize, and sell them.The transactors will find that wholesalingtheir data pools to such firms will be a prof-itable side business. When that happens,pressures may well build to increase theamount of information collected beyond thatnecessary to serve the immediate trans-action, thereby increasing the resale value ofa company’s data pool. These firms will thenbecome principal actors in the informationindustry.

Information Retailers: Information re-tailers provide computer-based informationproducts directly to the business or privateconsumer. They may also be the producers,or they may simply retail other producers’products. So-called “videotext” service pro-viders, which offer in-home information overbroadcast or cable television channels, usual-ly serve as brokers, making their facilityavailable to anyone who wants to provide an

information service, in the same way that agrocery store carries soup made by differentproducers.

Many of the databank providers discussedin the section on secondary producers offervery complicated systems that require sometraining and experience to use. Therefore,these services are often provided through anintermediary, such as a consultant, librarian,or stockbroker. In a sense, these personsserve as retailers of the information service,marketing it to individual users. The charac-teristics of the information services sectorare summarized in table 22.

The following conclusions can be madeabout the information services sector:

●

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Traditional information producers suchas book publishers, newspapers and net-work broadcasters will be convertingtheir services into computer and tele-communication-based offerings.New information services will be trans-mitted to the home over telephone,cable, and broadcast carriers. Some ofthese services may be integrated within-house computer systems and videodisk and tape units.Libraries will extend their services be-yond mere provision of books into offer-ing computer-based services. Such newactivities may conflict with the newcommercial in-house services mentionedabove.

166 ● Computer-Based National Information Systems: Technology and Public Policy Issues

Table 22.–The Information Services Industry Structure

How Information Nature of IndustryNature of the Information iS provided and/or market Future trends

Producers of primary informationPublished materials For time being in paper form Traditional book, magazine and

newspaper publishers

Producers of secondary informationBibliographies, information dir-ectories, econometric data, andother particular types of data thatserve narrowly targeted markets–over 22 different categories of databank services have been identifiedMost are prepared on a computer

Data transactorsFirms create useful transactional in-formation in the course of carryingout their business, e.g., banks,stockbrokers, airlines, and creditcard companies

On Paper and on-line from a com- Most bibliographic systems availableputer. The user dials in from a were originally supported, at least inremote terminal to get the desired part, by the Federal Government.Information because their initial chief market

was the research community Someare now self-supporting, others, de-pending on their purpose, continueto be subsidized Data Resources,Inc., iS an example of a successfulentrepreneurial experiment in pro-viding other forms of on-line dataserwces-econometric data and ac-cess to sophisticated computer.based models for economists Manysmall firms have been founded toprovide a broad range of computer-ized data bank services

Most IS in a computer-readable form Currently, the number of transactorsthat may be of value to some other IS growing but there iS only a smallfirms or individuals market for their data

Information retailersComputer-based Information products Directly to businesses or private con- Retailers may also be information pro-

sumers. ducers or may just retail the prod-ucts of other producers, e.g., so-called ‘‘videotext services that of-fer in-home information over broad-cast or cable television channelsusually serve as brokers who maketheir facilities available to anyonewanting to provide an informationservice

The Increasing adoption of computerizedtypesetting, on-line editing and otheruses of word processing, and digitalcommunication of edited text shouldsubstantially increase productivity Thefuture widespread use of video disksand high-speed data communicationsystems may gradually lead to the publi-cation of products in other dlgitized for-mats such as in-home video Informationsystems

Most of this data wiII reside in computersystems to be called up as needed bycustomers

Pools of data from transactions wiII ac-cumulate in computer systems, and newenterprises wiII spring up to collect,organize, and sell them. Transactorswho profit from wholesaling their datapools to such firms, wiII be motivated toincrease the quantity of Information col-lected in order to raise the resale valueof their data pools These firms will thenbecome principal members of the in-formation industry.

Computers are having the effect of blurr-ing the distinction between the productsand services offered by the computer in -dustry This new hybrid industry wiII of-fer new forms of information services,marketed in new ways, to new users

——SOURCE: Office of Technology Assessment

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