Energy markets are not alone in experiencing atomization. Defined as the disintegration of an industry chain into ever smaller segments and niches, atomization is also visible in the computer industry, among others.

In computing, the integrated business system represented by traditional players such as IBM and DEC has evolved into a disintegrated form in which specialized challengers like Intel and Microsoft have the advantage. And as disintegration gives way to atomization, hundreds of even more narrowly focused competitors are emerging (Exhibit A).

What is bringing about this transformation? Broadly speaking, it is those features of an evolving market or industry that boost efficiency and allow smaller, more focused challengers to emerge and thrive. Examples include the opening up of industry standards, the growth of spot markets, the emergence of business webs, and the advent of sophisticated financial instruments (Exhibit B).

Such developments make it easier for new entrants to bring their innovations to market. Price and capacity forward markets, for example, help to protect challengers from price and volume volatility, providing a form of market "insurance" to hedge business risk. "Fabless" design houses (for example, Cirrus Logic) have locked up long-term fabrication capacity with players like Taiwan Semiconductor Manufacturing. If...