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Thursday, September 8, 2005

Do Markets Work? Comparing Computing and Communications over the Past Decade
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I never ceased to be amazed at the staying power of "Moore's Law." Moore's Law, of course, states that the number of transistors on a chip doubles roughly every 18 months to two years. This "law" continues to hold and most experts continue to believe it will hold for at least two more decades.

As a result, computers today can be found just about everywhere, even in places we don't realize. Intel's website, for example, notes that "A musical birthday card costing a few U.S. dollars today has more computing power than the fastest mainframes of a few decades ago." That's right, that silly singing birthday card you bought for your grandma last month probably had more computing power than the machines that sent man to the moon in the 1960s. Crazy, isn't it?

And don't forget about "Kryder's Law," which argues that Moore's Law holds for computer storage capacity as well. Indeed, according to a recent report in Scientific American, the density of information on hard drives has been growing at an even faster rate than semiconductor power. The article notes that:

"Since the introduction of the disk drive in 1956, the density of information it can record has swelled from a paltry 2,000 bits to 100 billion bits (gigabits), all crowded in the small space of a square inch. That represents a 50-million-fold increase. Not even Moore's silicon chips can boast that kind of progress."

Again, just amazing, don't you think? OK, maybe you don't get as easily turned on as I do by numbers such as these, but let me explain to you what makes this nerdy stuff so darn cool for even the average, non-techie consumer. What is really impressive about Moore's Law and Kryder's Law is that these laws have translated into absolutely stunning efficiency gains and price savings for every single American.

They Just Don't Make 'Em Like That Anymore
Let's start by imagining that it is the summer of 1995 again and you are in the market for a new laptop computer. You want something with respectable speed, power, battery life, connections, and a great screen to boot. OK, let's go shopping.

It just so happens that on the last page of the September 6th issue of PC Magazine (yes, I am a dorky regular reader of several PC mags) includes an entertaining 10-year retrospective of some of the predictions the magazine made a decade ago. The end of the article makes mention of a highly-touted laptop they reviewed in 1995: the Toshiba Satellite Pro 400. Here were the key specs for that machine:

* a 75-MHz Pentium CPU;
* 8 MB of RAM;
* a 770 MB hard drive;
* an infrared port;
* a quad-speed CD-ROM drive;
* a 10.4 inch display;
* and, a lithium ion battery that provides over 2 hours of use.

Folks, this was a blazing fast machine back in 1995. Many of us would have given one of our arms to have this machine--except then we wouldn't have been able to type on it or play video games, but that's beside the point. The point is, the sacrifice of an appendage would have been in order for most of us to get one of these fine machines because few of us back then probably would have been able to afford its staggering $4,899 price tag! Do you believe that? $5000 bucks for this old tank (it probably weighed a ton) which, as the PC Magazine article jokes, can now probably be found on E-Bay for 99 cents. Frankly, if someone was giving this machine away for free I doubt that it would even be worth the shipping cost because this thing couldn't even load or run some of today's most basic software and Internet services without crashing repeatedly.

Anyway, the reason this specific example really hit home with me was because earlier this year I purchased a Toshiba Satellite M45 laptop, a descendant of the above-mentioned unit. My new Toshiba M45 is a beautiful machine that I'm using right now to pen this blog entry (and simultaneously monitor 3 web browsers, listen to my MP3s, and play a few games of chess on an international web site in between spurts of writing). Here are the specs for my new Toshiba:

* a 1.6-GHz (that's 1600 MHz) Pentium M CPU with integrated Centrino wi-fi capabilities;
* 1024 MB of RAM;
* a 100 GB hard drive;
* 3 USB connections, a FireWire port, an Ethernet port, a PCMCIA card port, and a few other connections I've never even used;
* a DVD (Double Layer) SuperMulti drive (with CD capabilities, of course);
* 15.4" WXGA TruBrite screen with stunning (1280x800) better-than-HDTV resolution (plus, it includes powerful video and audio cards and a Harmon/Kardon speaker system);
* a battery that provides well over 3 hours of use;
* and, in addition to the Microsoft XP operating system it came pre-loaded with, it has more software and applications bundled into it than I have time to mention or use.

Now here's the real kicker: my Toshiba Satellite M45 isn't even close to being the fastest machine on the market today. Regardless, it absolutely blows the doors of its Toshiba Satellite predecessor mentioned above. That 10-year-old Toshiba Satellite was a tricycle with square wheels compared to this new Ferrari of a machine I own now. And the best thing: I picked up this new Toshiba for $1300 but then found a $200 promotional mail-in rebate to bring the cost down to roughly $1100. And today, about six months after I bought it, this thing now sells for under $1000 bucks. If you go for a stripped-down version of the Toshiba Satellite line, you can get the cost below $800.

To really put things into perspective though, you have to understand that that old Toshiba Pro 400 computer didn't even have the storage capacity of the USB "key" that fits in your pocket today. These increasingly popular little USB storage devices are quickly replacing CDs, DVDs, floppy discs, and all those other old storage tools. These USB keys prove that Kryder's Law is at work on many different levels and with a vengeance. (In a sense, "storage" is a rapidly evolving notion; soon we won't need any physical storage medium at all. We'll just zap everything to some sort of massive storage bin in the sky.)

Real World Implications
More broadly, as the birthday card example above proves, the benefits of rapid increases in processing power and storage capacity -- matched with the corresponding price decreases for both -- are being realized in many other sectors of the economy.

Take an industry millions of us come in contact every day: shippers like FedEx and UPS. Remember all the stupid paperwork you use to have to fill out before the delivery man would put the box in your hands? I spent a few summers working in an warehouse shipping orders and I can tell you that it used to be a paperwork nightmare. Today, by contrast, you just sign a little computer screen with a digital pen and everything is magically done in seconds and registered back at the main office. (Sometimes you don't even have to do that, of course). Better yet, from the moment you make an order, you can usually trace your package's progress from the warehouse to your doorstep with remarkable precision. This has improved efficiency and convenience for businesses and consumers alike.

A similar example lies in airline reservations and flight tracking. Just think what you can do today on your own to book or monitor a flight. None of it was possible just 15 years ago. Remember flight agents? Me neither. I haven't used one in a decade.

Or, returning to the mundane for a moment, computer chips in birthday cards may sound goofy, but how about computer chips in a bag of potato chips? That's happening today to as RFID tagging goes mainstream and retailers begin using miniature computers if every item they stock to track inventories and ensure stable supply. That'll help drive costs down too.

And, in case you have noticed lately, cars these days are becoming computers on wheels. I'm an old gear head who grew up with his head under the hood anytime it wasn't in a book. These days, however, instead of taking a wrench out to work on my car, I take a computer. You can actually plug it right into modules in your car and reprogram the way many things -- including the engine itself -- work in the car. And for those less adventurous, miniature computers in your car still help you in ways you can't even imagine. Whether it is pop-up displays, tire pressure sensors, oil level warnings, fuel-management / conservation techniques, on-board communications and navigation devices, and so on, little machines are helping you get from point A to B safer than ever before.

I could go on and on with a litany of examples, but you get the point: Increased computing power and storage capability in combination with relentlessly falling prices have helped revolutionize the American economy and benefited every consumer in the nation. Lower costs and more (and better) choices for everyone has been the end result.

The Moral of the Story: Let the Public Define "the Public Interest,"
OK, so where am I going with all this. Well, frankly, I just like to pen columns like this on occasion to remind all the myopic, market-hating morons of the world that amazing things can happen when you get government out of the way and let markets work their magic. The computer industry has greatly benefited for several decades of almost complete laissez-faire, cutthroat capitalism. It is difficult to imagine how we'd be better off if an imaginary Federal Computer Commission oversaw this sector and determined what was "in the public interest."

Sadly, however, that's the game we're still letting policy makers play with communications and media markets. We let a handful of unelected bureaucrats down at the Federal Communications Commission and in state public utility commission divine what is "in the public interest" by basically telling us what is in our collective best interest. Isn't that just lovely? Think about it: They believe they know what's in our best interests and they get paid to put that nannyism into action. Good work if you can get it! Whether it's what we pay for cable TV, what we get to listen to on broadcast radio or TV, how many sets TV manufacturers can make with or without digital tuners, how a holder of spectrum can use that resource to serve the public, how many hours of "educational" televisions that broadcasters have to air per week, how many commercials can be shown when that "educational" programming is on, and so on... it's all the same story: in each case a handful of mere mortals get to figure out for all the rest of us how the world should work.

It's sheer folly, of course. Competition is a process, not an end-point. Competition cannot be "created" by merely implementing and enforcing one regulatory edict after another. There is no optimal number of competitors in a given market. There is no way to even adequately define what "the market" even means anymore. And there are no "perfectly competitive" industry sectors. Every market suffers from short-term setbacks and sub-optimal scenarios now and then. There are no "fair prices" either. There are only the terms which producers and consumers can agree to. And, most importantly, there is no single standard which can adequately define what truly lies "in the public interest." The public interest is whatever millions of consuming Americans say it is as determined by their interaction with suppliers in the marketplace.

Still, this is the game the FCC wants to play: Defining markets; establishing the proper number of competitors; setting the terms of service; gauging fair prices; and pretending they have the God-like ability to gauge what lies in the public interest.

Again, sheer folly. You would think the legitimately well-intentioned folks in Congress and down and the FCC would have the good sense to look back on 70 years of experience regulating communications and media markets and then compare that track record against the computer industry's 30-year record of uninhibited growth, innovation and price reductions. Instead, the agency is locked into a myopic "the-sky-will-fall" mentality that rejects as crazy-talk any suggestion that they should loosen the chains that bind communications and media. They still think they know what's best for us.

All I know is, I thank God that they don't have the authority to cast their regulatory net over the computing sector as well or else I might be typing this essay on that old Toshiba Pro 400 from 1995 and you might not be reading it over the Internet right now.

posted by Adam Thierer @ 1:01 AM | General , Innovation , Mass Media , The FCC

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