Flexible Specialization Path of the Internet

________________________________________________________________________ The Internet provides a new paradigm for the evolution of communication industries, one that facilitates the emergence of new types of flexible organization structures. This is due in part to the philosophy and technology behind the Internet Protocol (IP), and also to the current stage of industrial development and convergence of communications media. We argue that the forces that have heretofore compelled vertical integration of telephone and cable television apply with weaker force to the Internet. Moreover, the inherent design features of IP allow it to serve as a separating spanning layer that decouples the innovation and provisioning processes for applications and the underlying facilities infrastructure. This reduces the asset-specificity inherent in earlier infrastructure and service architectures and enables industry participants to more flexibly organize and re-organize firm-specific assets, resulting in a proliferation of viable business strategies. The fulfillment of this process is likely to be an industry of both integrated and nonintegrated firm types, coexisting and using new types of emergent wholesale markets (e.g., IP transport services) to share assets across infrastructure and service provider platforms. This paper makes the case for why the Internet paradigm is substantively different from earlier communications technologies by analyzing trends in the technology and industry structure, and the economic forces driving those trends. The research presented here reflects the further elaboration and synthesis of work presented in Lehr (1998), Kavassalis, Bailey, and Lee (1998), and Kavassalis and Lehr (1998).