Timing, diffusion, and substitution of successive generations of technological innovations: The IBM mainframe case

Abstract

Based on the behavioral assumptions of diffusion theory, this article proposes an extension of the Bass diffusion model that simultaneously captures the substitution pattern for each successive generation of a durable technological innovation, and the diffusion pattern of the base technology. Normative guidelines based on the model suggest that a firm should either introduce a new generation as soon as it is available or delay its introduction to a much later date at the maturity stage of the preceding generation. The decision depends on a number of factors including the relative size of the market potentials, gross profit margins, the diffusion and substitution parameters, and the discount factor of the firm. This "now or at maturity" rule is thus an extension and generalization of the "now or never" rule of Wilson and Norton [25]. Empirical and normative implications of the proposed model are explored for four successive generations on IBM mainframe computers: first generation (vacuum tubes); second generation (transistors); 360 family (integrated circuits); and 370 family (silicon chips). The model describes the growth of these generations well. The application of normative guidelines suggests that IBM introduced the two successive generations of 360 and 370 families too late, i.e., their time to market should have been shorter. Limitations and further extensions of the model and the application are discussed.