Since so many people and machines are interlinked in overlapping feedback loops, virtuous circles form. One, two, three, four, it all adds up to more.
- Expanding knowledge makes computers smarter.
- As computers get smarter we transfer some of that intelligence to the production line, lowering costs of goods and raising their perfection--including chips.
- Cheaper chips lower the cost of setting up a competing enterprise, so competition and spreading knowledge lowers the prices yet more.
- The know-how of cheapness spreads throughout industry quickly and makes its way back to the creation of better/cheaper chip and communication tools.
That virtuous circle feeds itself voraciously. So potent is compounding chip power that everything it touches--cars, clothes, food--falls under its spell. Prices dip and quality rises in all goods; not mildly, but precipitously. For example, between 1971 and 1989 a standard 17-cubic foot refrigerator declined in price by a third (in real dollars) while becoming 27% more energy efficient and sporting more features, such as ice-making. In 1988 Radio Shack listed a cellular phone for $1,500. Ten years later they list a better one for $200.
Most of the increase in value we've seen in products comes from the power of the chip. But in the network economy, shrinking chip meets exploding net to create wealth. Just as we leveraged compounded learning in creating the microprocessor revolution, we are leveraging the same amplifying loops in creating the global communications revolution. We can now harness the virtues of networked communications to directly and indirectly create better versions of networked communications. When quality feeds on itself in such a manner, we witness discontinuous change: in this case, a new economy.
Almost from their birth in 1971, microprocessors experienced steep inverted pricing. The chip's pricing plunge is called Moore's Law, after Gordon Moore, the Intel engineer who first observed the amazing, steady increase in computer power per dollar. Moore's Law states that computer chips are halving in price, or doubling in power every 18 months. Now, telecommunications is about to experience the kind of plunge that microprocessor chips have taken--but even more drastically. The net's curve is called Gilder's Law, for George Gilder, a radical technotheorist, who forecasts that for the foreseeable future (the next 10 years), the total bandwidth of communication systems will triple every 12 months.
The conjunction of escalating communication power with shrinking size of jelly bean nodes at collapsing prices leads Gilder to speak of bandwidth becoming free. What he means is that the price per bit transmitted drops down toward the free. What he does not mean is that telecom bills drop to zero. Telecom payments are likely to remain steady per month in real dollars as we consume more bits, just as those bits sink in cost.
The cost per bit sinks so low, however, that the per unit cost to the consumer closes in on the free. The cost follows what is called an asymptotic curve. In an asymptotic curve the price point forever nears zero without ever reaching it. It is like Zeno's tortoise: with each step forward, the tortoise gets halfway closer to the limit but never actually crosses it. The trajectory of an asymptotic curve is similar. It so closely parallels the bottom limit of free that it behaves as if it is free.