Clay Christensen, Jerome Grossman and Jason Hwang on the Personal Computer Revolution

I saw the personal computer revolution firsthand. It all went down very fast. In December 1973, when I was 13, I got a chance to use a calculator for the first time. I was visiting my brother Christian Kimball (1, 2), who was then an undergraduate at Harvard; there was a calculator in one of the Harvard libraries that allowed me to do conversions between 3-dimensional radial coordinates of nearby stars to xyz coordinates so I could better understand the layout of our interstellar neighborhood. A year and half later, in 1975, I learned a little computer programming at an NSF supported math camp at Utah State University. In 1978 and 1979 I had to get special access to Harvard Business School computers in order to run some regressions. But in August 1983, I convinced my father (1, 2)  to help me buy a used Osborne “portable” computer. It wasn’t easy to learn to use, but I did ultimately write my Harvard Ph.D. program economic history paper “Farmer’s Cooperatives as Behavior Towards Risk” (which was ultimately published in the American Economic Review). In 1986 and 1987, when I wrote my dissertation, I was only able to manage to typeset all of the equations because my wife Gail was an ace scientific secretary with access to the needed computers and software. (After I convinced her to marry me and move to Massachusetts, she found a job working as a secretary first for professors at Harvard Business School and then later for Eric MaskinMike Whinston in the Economics Department.) But by Fall of 1987, as a new assistant professor at the University of Michigan, I could typeset equations myself using TeX (not yet LaTeX) on the new desktop computer the University of Michigan had given me.  

In The Innovator’s Prescription (location 316), Clay Christensen, Jerome Grossman and Jason Hwang give this analytical account of the personal computer revolution:

Until the 1970s there were only a few thousand engineers in the world who possessed the expertise required to design mainframe computers, and it took deep expertise to operate them. The business model required to make and market these machines required gross profit margins of 60 percent just to cover the inherent overhead. The personal computer disrupted this industry by making computing so affordable and accessible that hundreds of millions of people could own and use computers.

The technological enabler of this disruption was the microprocessor, which so simplified the problems of computer design and assembly that Steve Wozniak and Steve Jobs could slap together an Apple computer in a garage. And Michael Dell could build them in his dorm room.

However, by itself, the microprocessor was not sufficient. IBM and Digital Equipment Corporation (DEC) both had this technological enabler inside their companies, for example. DEC eschewed business model innovation and tried instead to commercialize the personal computer from within its minicomputer business model, a model that simply could not make money if computers were priced below $50,000. IBM, in contrast, set up an innovative business model in Florida, far from its mainframe and minicomputer business units in New York and Minnesota. In its PC business model, IBM could make money with low margins, low overhead costs, and high unit volumes. By coupling the technological and business model enablers, IBM transformed the computing industry and much of the world with it, while DEC was swept away.

And it wasn’t just the makers of expensive computers that were swept away. The systems of component and software suppliers, and the sales and service channels that had sustained the mainframe and minicomputer industries, were all disrupted by a new supporting cast of companies whose economics, technologies, and competitive rhythms matched those of the personal computer makers. An entire new value network displaced the old network.

The analogy Clay, Jerome and Jason draw to health care is that one need not despair when seeing how the bulk of health care providers are set up to do things in a very expensive way. As long as we don’t let regulations smother new providers, doing things in new, less expensive ways–though perhaps at first in somewhat lower quality ways–there is hope. (See “Clay Christensen, Jerome Grossman and Jason Hwang on the Agenda for the Transformation of Health Care” and “Tyler Cowen: Regulations Hinder Development of Driverless Cars.”)