Open standards, vertical disintegration and entrepreneurial opportunities: How vertically-specialized firms entered the U.S. semiconductor industry

• This paper analyzes the entrepreneurial activity in the semiconductor industry.
• It took a long time for new de-novo startups to become successful in this industry.
• This paper shows how the emergence of open standards gradually created large numbers of entrepreneurial opportunities for de-novo startups in the semiconductor industry.
• This paper shows how the emergence of open standards provides a better explanation for the success of entrepreneurs in the semiconductor industry than does the theory of technological discontinuities.
• This standardization reduced transaction costs and fostered specialization, thus facilitating the entry of vertically-specialized new ventures.

This paper shows how the emergence of open standards has created large numbers of entrepreneurial opportunities in the semiconductor industry by enabling vertical specialization. Integrating data on firms and technology evolution, we find a gradual increase in the percentage of firms represented by newly-founded “de novo” entrepreneurial startups, instead of “de alio” ones, as open standards emerged in semiconductor products and processes over the life of the industry. This standardization reduced transaction costs and fostered specialization, thus facilitating the entry of vertically-specialized new ventures. Vise versa, the rise of such new ventures further pushed the adoption of open standards, and the vertical disintegration of the industry. Our theory on how standardization creates opportunities for new ventures and our analysis of the semiconductor industry contribute to the technology entrepreneurship literature, as well as the industry architecture literature that has primarily focused on the impact of standardization on the disintegration of vertically-integrated incumbents.