Path Creation in the Software Industry—The Case of Software AG

Abstract

Keywords: software industry, computer industry, computing millieux, history of computing,Nowadays it seems natural that young software and IT startups can become international players within a few years of existence, but this was different in the early years of the software industry.Normally new founded companies operated in their home markets and it took considerable time before they started to internationalize. But as stated by Martin Campbell-Kelly in his history of the software industry, there was one exception from this pattern. Already in the 1970s there was one German software company, which had considerable success as an independent software product company in the United States. 1 The company, called Software AG, was located in Darmstadt, in the middle of Western Germany. The early success of the company continued as the company was in 1985 listed at position 13 among the 15 leading independent software product companies in the US.Already in 1981 they were listed as number one of the independent European software product companies. And in 1989, the year where the company celebrated its 20 th anniversary, the company was by far the biggest software company in Germany with sales significantly higher as SAP AG, the second biggest company at that time. 2 But only a few years later the situation had changed.While SAP became a world leading software product company, the growth of Software AG stagnated and the management had to deal with severe issues. Altogether, this development raises several questions: How was it possible that the company entered the American market so early?Why did they succeed in this market? How did this success affect the development of the company in the future? Why does the growth stagnate in the early 1990s?2 To answer these questions the article will use the concept of path creation developed by Garud et al.in the last decade. 3 It refers to the concept of path dependency, which is well known in the history of technology and business. It was initially developed through the seminal works of Arthur and David and describes how previous decisions influence further decision and thereby leads to a stable path of development, the so-called path dependency. One important aspect of it is that a stable path can lead to "lock-in" effects, which makes it nearly impossible to leave it. 4 Normally, it is understood as a process with different phases, where the passage from phase to phase is triggered by different kind of events and the overall process is according to Arthur driven by self-reinforcing mechanisms such as the principle of increasing return and positive feedback. Most notably is the assumption that once a "lock in" is reached, it can be only broken up by exogenous shocks. 5 The concept was taken up in several other areas such as organizational studies, economics or political sciences. 6 Accordingly, the concept experienced several expansions and interpretations and Beyer for example identifies at least seven self re-enforcing mechanisms used such as increasing returns, sequences,...