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Innovators are not the only force behind innovation. Innovations are largely driven by the use of innovative prototypes. Practically every innovation that defines today's marketplace has resulted directly from extensive prototyping and simulation: the airplane, the animated motion picture, the transistor, the microprocessor, the personal computer, spreadsheet software, recombinant-DNA biotechnology, junk bonds, the leveraged buyout, the Internet and the Web, financial derivatives and synthetic securities, index funds, yield management. If, indeed, the child is father to the man, then the prototype is the father of innovation. In virtually every significant market in today's economy, prototypes, models, and simulations enable innovation.

There may be a handful of truly successful global companies -- Phillip Morris and Coca-Cola, for instance -- that cannot trace their market leadership directly to prototyping and simulation. But consider the companies that do depend on prototyping to make their projects work: Boeing, Microsoft, General Electric, Gillette, Hewlett-Packard, Sony, IBM, Swatch, Royal Dutch/Shell, Walt Disney, Caterpillar, Federal Express, American Airlines, AT&T, Procter & Gamble, Nokia, Intel, 3M, Merrill Lynch, Toyota, Ford, and General Motors are just a few of the most obvious examples of organizations whose competitiveness utterly depends on a culture of prototyping and simulation.

The inescapable conclusion: In business today, you can't have a culture of innovation without a culture of prototyping and simulation. The future of modeling, simulation, and prototyping is the future of innovation. And the future of innovation is the future of models, prototypes, and simulations. Managing the future of prototyping defines the next great challenge for companies that are seeking to out-innovate the competition.

Microsoft's Win(95)-Win(95) Deal

In August 1995, amid a global frenzy of media hype and consumer anticipation, Microsoft formally launched its much-awaited and long-delayed Windows 95 operating system. The new software had a huge and immediate impact on the marketplace and was one of the most successful launches of a personal-computer program in more than a decade.

Compared with earlier versions of Windows -- and relative to its bulk and awkward design -- Win 95 was remarkably free of bugs. The operating system had been in the works for years, and top Microsoft executives quietly affirmed that Win 95 had cost the company "hundreds of millions of dollars" to develop. Microsoft's technical managers understandably took great pride in the rigorous testing and development initiative that created a new platform for personal computing.

Perhaps more important, the successful launch of Win 95 made that software the operating system of choice, secured the company's dominant position in the operating-systems market, and greatly contributed to the company's overall value. The rapid acceptance of Win 95 also improved the company's stock-market valuation and solidified its position as one of the world's wealthiest and most influential technology companies.

But here's what Microsoft's leadership didn't quite so publicly discuss about its success: The world's wealthiest software company had received a kind of subsidy from many of its best customers -- a subsidy whose value arguably approached $1 billion.