 a market are interconnected, as confirmed also by Wang (2006) who provides a hypothesized relationship between the supply side tracking industry lifecycle theory and the demand side focused innovation diffusion theory: He proposes that the decrease in demand in the maturity phase of an innovation's diffusion actually affects the number of firms of that industry. Thus demand characteristics should be taken into account when analyzing industries' lifecycles. In his results, he shows that faster technological learning, higher mean income and larger market size cause a faster diffusion process and subsequently an earlier industry shakeout. 4 Vertical and Horizontal Industry Evolution Macher and Mowery (2004) have studied the evolution of the structure of indus- tries. They look at the vertical specialization in three mature but high R&D level industries: The chemicals, computers and semiconductor industries. They define Theories Related to Vertical Software Industry Evolution vertical specialization as "[...] the restructuring of industry-wide value chains, such that different stages of the development, production, and marketing processes are controlled by different firms, rather than being vertically integrated within the boundaries of individual firms." The Old Vertical Computer Industry (~1980) Salesand Distribution Application Software Operating System Computer Chips Sperry Univac The New Horizontal Computer Industry (~1995) Sales and Retail Distribution Stores Superstores Dealers Mail Order Application Software Perfect Operating System DOS for Windows Packard Hewlett- Computer Compaq Packard Chips Intel Architecture Motorola RISCs Fig. 4 The old and new structure of the computer industry (Bresnahan 1998) L. Frank Bresnahan (1998) provides an example of vertical specialization in his analysis of the competitive nature of the computer industry. His presentations of the structural change in the computer industry show that the structure has changed from vertically integrated firms to a vertically disintegrated or s