How Moore's law stabbed us in the back
Tue, 1 Jan 2002 20:21:05 -0500
It might be the wrong equation, of course.
One relevant one is:
Revenue = Units Sold * Price per Unit
Units Sold = K (Price per Unit) ^ (- N)
[K normalizes the inital price, plus other stuff]
Put them together (although it should really be a diff eq if N isn't a constant)
Revenue= K (Price per Unit) ^ (1 + N)
This is the elasticity equation; basically, staples (salt, flour) are N < 1, luxuries are N >> 1. And with N = 1, revenue is constant as price changes. Now, the problem with this equation is that for larger changes in price, N isn't going to be constant for a lot of goods. Computing is clearly one of them. For most of the computer age, I'd bet that N was fairly large -- revenues continued to increase even though (and because) cost (and usually price) per unit kept dropping. If we've been screwed, it's because computing is no longer a price-sensitive luxury. It's a staple, and not likely to see a major increase in demand regardless of price.
Of course, the real issue for an investor is the change in earnings (profit), not revenue. And what we've seen is easily predicted: any sort of constant 'c' due to support costs, advertising, administration, and, yes, research will be squeezed unmercifully as cost per unit drops since there is no longer any increase in unit sales to hide the overhead.
From: Adam L. Beberg [mailto:email@example.com]
Sent: Tuesday, January 01, 2002 5:13 PM
Subject: How Moore's law stabbed us in the back
So lets get right to it, Moore's law is fierce beast we lost control
oh and his invisible hand punched us in the face, among other places.
A simplification of price is:
Price = Demand / Supply.
Moores law controls supply, making it double every so often - 18 months is
the usual number. The problem with this, is that to maintain the price
demand has to rise just as fast. Remember how the computer you wanted was
always $5,000 no matter what? You really wanted it to, you demanded it, your
friends mocked you if you had last years model.
But no Moore. My computer does more then I can possibly use it for. I can't
click the mouse fast enough to slow it down no matter how much Microsoft
tries. A PDA packs enough power to do anything I need, just needs a reala
keyboard and monitor, forget the desktop PC.
Demand stopped. People have all they can use. No new killer apps in sight.
You know it, I know it. Moore knows it too. If i want to talk to someone I
use my free phone minutes. If I want video I turn on the satalite box - not
some broadband device. They are shipping CD's in cereal boxes now which
preaty much means they are next to free, 64MB of RAM is $3, with $11 of
shipping. Moving a couple grams of atoms pays, moving bits doesnt.
So that new PC you're drooling over might be $700 w/17" monitor included.
And this is going to half every 18 months or so. Soon the PC will come in
the cereal box, and they will be a choking hazard to boot!
Now, if what your selling is going down in price, your supplies better be
dropping to. Since the only variable cost in the tech industry (moore
controls the cost of atoms) is human labor... guess what.
Have a nice day now.
- Adam L. "Duncan" Beberg