Moore’s law says that computer power doubles for the same cost about every two years, implying rapidly falling cost, increased power and proliferation. If this continues, the equivalent price of a $600 iPhone would be $18.75 in 2020, $0.59 in 2030 and overall power or cost improving 1,000,000 times by 2050. How should we account for this possible scenario in our investment strategies and plan for potential impact? What products and services have good present potential but could be enormous if Moore’s law continues?
Intel (Nasdaq: INTC) Co-Founder, Gordon Moore, wrote an article for Electronics magazine in April 1965, describing his thesis that the number of transistors that can be placed on a chip will roughly double every two years – meaning that computing power also doubles. He saw that this could lead to some revolutionary advancements:
Integrated circuits will lead to such wonders as home computers - or at least terminals connected to a central computer, automatic controls for automobiles, and personal portable communications equipment.
- Gordon Moore, Electronics magazine, April 1965
It is an amazing vision. He was still with Fairchild Semiconductor and Intel would not be founded for another three years. I am sure it seemed preposterous. Even Electronics magazine poked fun at him, placing this cartoon appeared in the original article.
I recently wrote an article, “Mobile Apps: The Wave of the Past,” which generated some good discussion about how mobile computing capabilities might be expected to progress. It reminded me of the importance of looking at the technology on the horizon – an important lesson that I learned in a consulting job interview during business school. The interviewer asked me an open ended question about the future of the PC and how that might impact a particular company. I described at length, what was happening at present. When I was finished, he paused, waited and said, “You need to look at technology in terms of what is coming, not just what is.” I didn’t get the job, but learned a powerful lesson. While technology present is important, you also need to look ahead. Easier said than done.
Just five years ago, how many people predicted that Apple (Nasdaq: APPL) would be poised to become the world’s most valuable company by producing an affordable, powerful, connected pocket computing device? Looking back the signs were there. Twenty years ago Apple made the Newton, ten years ago we had Blackberry’s and Pocket PCs, and the first iPod in 2001. Just put these things together and extrapolate.
It’s just not that easy. In 1943, Thomas Watson, chairman of IBM and no slouch in terms of technology vision, was famously reported to have said, “I think there is a world market for maybe five computers.” His thinking was somewhat logical. In 1943 there just was not that much computing going on, so five computers ought to satisfy the market. (You can find many other similar quotes here.) Obviously, one missing piece here was that the availability of computing power would create demand and falling prices would cause that demand to continue to grow.
Intel has been able to keep up with the pace predicted by Moore the past forty years. What if this pace continues for the next forty years?
The table below shows the projected relative computing power if Moore’s Law continues at its current pace:
If this technological progress continues for another forty years, computing hardware in 2050 will be more than one million times more powerful than today. And that’s building on a base that already seems amazingly advanced.
To put this in perspective, if someone in gave you a penny in 1970 and its value doubled every two years like Moore’s Law, today you’d have over $10,000 - a nice return, but not life changing money. If you could give that $10,000 to your children and it kept doubling in value every two years, in forty years (2050) it would be worth more than $10 billion. Now we’re talking real money.
From the computing power standpoint, we are sitting here marveling at the change that the first $10,000 has brought. What happens over the next forty years when it turns into $10 billion? My point here is not to launch into my own futurist vision, but to suggest that as an investor or executive you need to think about how business and products might change based on massively falling cost and increased computing power. One way to approach the problem is by formulating questions based on this scenario.
While Moore’s law is often expressed and discussed in terms of power, it has also worked on the cost side of the equation. Every two years we get the same computing power for half the cost. Not only has this seemed to hold for Intel’s chips but other electronics as well.
In 1972, Hewlett-Packard (NYSE:HPQ) introduced its first pocket calculator, the HP-35, retailing for $495, about $2,600 in today’s dollars. You can buy a scientific calculator today on Amazon (NASDAQ:AMZN) for $0.69 plus shipping. Basic calculators cost even less. Extrapolating Moore’s law from 1972, cutting the price by 50% ever two years yields a projected price $0.005 today. Accounting for non-electronic components, assembly and shipping, brings it close enough to make my point.
As another example consider the Kindle. It was introduced in November 2007 for $399. A better model now retails for $189 - a drop of more than 50% at retail in three years.
At this rate a $600 iPhone without contract would be $18.75 in 2020 and $0.59 in 2020. The table below shows this extrapolation for iPhone and Kindle:
While Moore’s Law applies specifically to integrated circuits, other components decline as well. As we’ve seen in a range of electronic equipment from televisions to mobile phones, if you keep capabilities as a constant prices drop like a rock. I am not categorically predicting that this will happen, but suggesting that this is a possible future scenario that requires exploration.
Computing power is the dimension many people usually think of with regard to Moore’s Law. Each generation of desktop, laptop, and mobile give more power for the same price and size. Do we reach a limit where we just don’t need any more power?
Similar to the progress in desktop publishing, home printing, digital photography, home video, spreadsheets, all of which have been around for more than twenty years, but only became widespread with increases in computing power, what applications could exist that are not practical or at least just not good enough for primetime today?
I had Dragon Naturally Speaking for speech-to-text ten years ago, but it was below adequate, required training and was cumbersome to use. Occasionally, I use a much better version on my iPhone today. Can a voice interface all but replace the keyboard in the near future?
What happens to Google’s (Nasdaq: GOOG) revenue if artificial intelligence improves search to the point that you get what you want on the first page with just one query?
These few examples are all visible today and with a 32 X improvement in computing power in ten years or 1000 X in 20 years, seem within reach. What are the implications in forty years with a possible 1,000,000 X increase in computing power? What is made possible by having incredibly small but inexpensive and powerful hardware that can be everywhere and control anything electronic?
I understand that this is very complicated and Moore’s Law does not impact the cost of software design, product design, capital cost for plants increases significantly, and batteries are not included. At the same time, I have not seen much written about how we might plan today to invest in products and services that leverage the possibility of Moore’s law continuing.
I am very interested in a dialogue on this. To seed the conversation, consider commenting with your thoughts on the following questions.
- What is the probability that Moore’s Law will continue at pace for the next 10, 20 and 40 years?
- Where can very inexpensive but small and powerful computing be applied in the future?
- What is the impact on hardware manufacturers? Apple, Dell (Nasdaq: DELL), Hewlett-Packard
- Will massive benefits accrue to the companies that produce software and databases to harness this power? (Microsoft (Nasdaq: MSFT), Oracle (Nasdaq: ORCL)
- What is the impact on CPU manufacturers? Intel, AMD (NYSE: AMD)
- Is there a limit to the need for computing power?
- What capabilities could exist with more power that are not practical or at least just not good enough for primetime today?
- What other implications in forty years with a possible 1,000,000 X increase in computing power for today’s price?
- What products and services have good present potential but could be enormous if Moore’s law continues?
- What happens to Google’s revenue if artificial intelligence improves search, you get you what you want more quickly?