Interfaces, Modularity and Ecosystem Emergence: How DARPA Modularized the Semiconductor Ecosystem

Scholars have identified the pivotal role that modularity plays in promoting innovation. Modularity affects industry structure by breaking up the value chain along technical interfaces, thereby allowing new entrants to specialize and innovate. Less well-understood is where modularity comes from. Firms seem to behave consistently with the theory in some settings, especially the information technology sector, but not in others, such as automobiles. Here we show how the government has a role to play in generating open interfaces needed for modularity, utilizing a case study of the semiconductor industry from 1970 to 1980. We show how the Defense Department's support for this effort aligned with its mission-based interest in semiconductors. We thus contribute a new source of open standards to the modularity literature, as well as a new analytical perspective to the public research funding literature.