Open Standards, Vertical Disintegration and Entrepreneurial Opportunities: How Vertically Specialised Firms Entered the U.S. Semiconductor Industry

Abstract

This paper shows how the emergence of open standards has created large numbers of entrepreneurial opportunities in the semiconductor industry by enabling vertical specialization. Integrating data on firms and technology evolution, we find a gradual increase in the percentage of firms represented by newly-founded “de novo” entrepreneurial startups, instead of “de alio” ones, as open standards emerged in semiconductor products and processes over the life of the industry. This standardization reduced transaction costs and fostered specialization, thus facilitating the entry of vertically-specialized new ventures. Vice versa, the rise of such new ventures further pushed the adoption of open standards, and the vertical disintegration of the industry. Our theory on how standardization creates opportunities for new ventures and our analysis of the semiconductor industry contribute to the technology entrepreneurship literature, as well as the industry architecture literature that has primarily focused on the impact of standardization on the disintegration of vertically-integrated incumbents.