Network-based industries cannot exist without standards. For firms competing in such industries the outcome of standards contests can determine success or failure. Entire industries can emerge to exploit a standard, e.g. the Internet. In standards contests business strategy can be of critical importance (Cusumano et al. 1992). This paper draws upon the work by von Burg (2001) to explain the outcome of the local area networking (LAN) adoption contest that began in the early 1980s and essentially ended in the early 1990s with the de facto ubiquity of the Ethernet standard. Upon initial examination, traditional economic explanations, emphasizing increasing returns and strategic decisions made by individual firms or actors as critical in the process, would appear sufficient to predict the ultimate success of Ethernet. We challenge this explanation and argue that it is insufficient. Equally important to Ethernet's success was the ability of its sponsors to create a vibrant community of firms, which continually lowered prices and upgraded the technology. Standard setting in the LAN industry is particularly interesting for four reasons. The first reason is that there was no government involvement in the process, the process occurred entirely in the private sector. The second reason is that there were a number of proprietary standards and two standards were even approved by the same standards-setting body, the Institute of Electrical and Electronic Engineers (IEEE). In other words, there were two de jure standards, of which one, Ethernet, would become the de facto standard. The third reason is that the standards had to evolve technologically to handle the increasing amount of data that customers wanted to communicate. This meant that those adhering to the standard had to agree on changing the standard. The fourth reason is that this process is a case study in the results of a situation in which a dominant vendor, IBM, backs an open standard against a community of smaller vendors backing an open standard. In this case the standard backed by the smaller vendors emerged victorious.
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