The Economics of QWERTY

1. The Economics of QWERTY Jan Damsgaard Dept. of Informatics Copenhagen Business School http://www.cbs.dk/staff/damsgaard/ This presentation is based on Paul A. David (1985) Clio and the economics of QWERTY The American Economic Review (75:2), pp. 332-337.

2. Outline This presentation is based on Paul A. David (1985) Clio and the economics of QWERTY The American Economic Review (75:2), pp. 332-337. • The Controversy of QWERTY • The Story of QWERTY • The Lock-in of QWERTY • Lessons learned Jan Damsgaard 2004

3. The controversy of QWERTY • Why QWERTYUIOP and not something else? • For example DVORAK with world records for speed typing? • U.S. Navy showed that DVORAK is faster • Seven other improvements rejected (1909-24) • Apple Computers equipped with switch from QWERTY to DVORAK Jan Damsgaard 2004

4. The Story of QWERTY • 1867 patent for “TYPE WRITER” with QWERTY lay-out • Sales people could type the brand name using the top row only • Reduce the frequency of type bar clashes • Technical problems therefore strategic alliance with Remington (arms maker) • Entire stock of QWERTY 5,000 at the beginning of 1880’s and the annual production was 1200 in 1881 Jan Damsgaard 2004

5. Complex technical system • Actors • Manufacturers • Buyers • Operators • Trainers of operators • All part of an emergent complex technical system of production Jan Damsgaard 2004

6. The lock-in of QWERTY • QWERTY become locked-in due to • Technical interrelatedness • Scale economies • Quasi irreversibility Jan Damsgaard 2004

7. Technical interrelatedness • Systems compatibility between hardware and software • Physical lay-out of the keyboard • Memory of the lay-out by the typists • The buying of a QWERTY keyboard was a positive externality • Increases the likelihood that subsequent users will learn QWERTY Jan Damsgaard 2004

8. System Scale Economies • Decreasing costs conditions • de facto standardization of just one lay-out • Polya Urn Scheme • Traditional economics • Decreasing returns, cost leader or differentiation • Network economics (W. Brian Arthur) • Increasing returns Jan Damsgaard 2004

9. Quasi irreversibility • Sunk cost investments in QWERTY • The cost of hardware was coming down as the cost of software conversion was coming up • Competitors found it beneficial to make hardware compatible with the installed based of QWERTY typists rather than the other way around Jan Damsgaard 2004

10. Lessons Learned • Technical interrelatedness, scale economics, and quasi irreversibility caused a lock-in to the wrong standard • Other examples • Britain's undersized railway wagons • The penalties of taking the lead • Lock-in to the wrong standards is common in the network economy Jan Damsgaard 2004

11. Further evidence? • AOL INSTANT MESSENGER WILL NOT WORK WITH RIVALS • America Online has said that making its popular instant messaging • application compatible with rivals' products is too expensive. The • company will instead focus on establishing contracts with other vendors • allowing AOL to operate instant messaging systems for them. AOL and • other providers of instant messaging, including Microsoft and Yahoo, • have said for several years that they support interoperability, which • would allow their systems to work similar to phone lines, across • various providers. AOL conducted a test of interoperability last • summer. Although the test was successful, AOL said implementing the • system and addressing security would incur significant expense. Some • observers criticized AOL for apparently turning its back on • compatibility, saying AOL is choosing instead to guard its large base • of users. • Associated Press, 24 July 2002 • http://www.nandotimes.com/technology/story/476814p-3810077c.html Jan Damsgaard 2004