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This paper analyzes the diffusion of internet-based distance education technology (NETDE) among the US associate colleges. The study finds that an institution with experience in using an earlier generation distance education technology is more likely to adopt NETDE than an institution without such an experience. The finding supports the view of Cohen and Levinthal (1990) that an organization's 'absorptive capability' plays a significant role in its innovative activities. Institution size also facilitates the adoption of NETDE. We relate this size effect to market power because the size effect is partly caused by customer switching costs present in the NETDE market. Finally, we find that, among public institutions, the presence of close competitors motivates an institution to adopt NETDE earlier.