Moore's Law: Fast, Cheap Computing and What It Means for the Manager

Moore's Law, named for the co-founder of Intel Gordon Moore, defines expected advances in the need for data storage over time. In reality, it defines much more, beyond simply data storage. Read this chapter and attempt the exercises to gain a broader understanding of the importance and costs associated with Information Systems.


Get Out Your Crystal Ball

Faster and cheaper makes possible the once impossible. As a manager, your job will be about predicting the future. First, consider how the economics of Moore's Law opens new markets. When technology gets cheap, price elasticity kicks in. Tech products are highly price elastic, meaning consumers buy more products as they become cheaper. As opposed to goods and services that are price inelastic (like health care and housing), which consumers will try their best to buy even if prices go up. And it's not just that existing customers load up on more tech; entire new markets open up as firms find new uses for these new chips.

Just look at the five waves of computing we've seen over the previous five decades. In the first wave in the 1960s, computing was limited to large, room-sized mainframe computers that only governments and big corporations could afford. Moore's Law kicked in during the 1970s for the second wave, and minicomputers were a hit. These were refrigerator-sized computers that were as speedy as or speedier than the prior generation of mainframes, yet were affordable by work groups, factories, and smaller organizations. The 1980s brought wave three in the form of PCs, and by the end of the decade nearly every white-collar worker in America had a fast and cheap computer on their desk. In the 1990s wave four came in the form of Internet computing - cheap servers and networks made it possible to scatter data around the world, and with more power, personal computers displayed graphical interfaces that replaced complex commands with easy-to-understand menus accessible by a mouse click. At the close of the last century, the majority of the population in many developed countries had home PCs, as did most libraries and schools.

Now we're in wave five, where computers are so fast and so inexpensive that they have become ubiquitous - woven into products in ways few imagined years before. Silicon is everywhere! It's in the throwaway radio frequency identification (RFID) tags that track your luggage at the airport. It provides the smarts in the world's billion-plus mobile phones. It's the brains inside robot vacuum cleaners, next generation Legos, and the table lamps that change color when the stock market moves up or down. These digital shifts can rearrange entire industries. Consider that today the firm that sells more cameras than any other is Nokia, a firm that offers increasingly sophisticated chip-based digital cameras as a giveaway as part of its primary product, mobile phones. This shift has occurred with such sweeping impact that former photography giants Pentax, Konica, and Minolta have all exited the camera business.

Ambient Devices and the Fifth Wave

Pritesh Gandhi almost never gets caught in the rain without his umbrella. That's because Gandhi's umbrella regularly and wirelessly checks weather reports on its own. If the umbrella gets word it will rain in the next few hours, the handle blinks with increasing urgency, warning its owner with a signal that seems to declare, "You will soon require my services". Gandhi is CEO of "fifth wave" firm Ambient Devices, a Massachusetts start-up that's embedding computing and communications technology into everyday devices in an attempt to make them "smarter" and more useful (the weather-sensing umbrella was developed while he helmed the firm).

Ambient's ability to pull off this little miracle is evidence of how quickly innovative thinkers are able to take advantage of new opportunities and pioneer new markets enabled by Moore's Law. The firm's first product, the Orb, is a lamp that can be set up to change color in real time in reaction to factors such as the performance of your stock portfolio or the intensity of the local pollen count. In just six months, the ten refugees from MIT's Media Lab that founded Ambient Devices took the idea for the Orb, designed the device and its software, licensed wireless spectrum from a pager firm that had both excess capacity and a footprint to cover over 90 percent of the United States, arranged for manufacturing, and began selling the gizmo through Brookstone and Nieman Marcus.

Ambient has since expanded the product line to several low-cost appliances designed to provide information at a glance. These include the Ambient Umbrella, as well as useful little devices that grab and display data ranging from sports scores to fluctuating energy prices (so you'll put off running the dishwasher until evening during a daytime price spike). The firm even partnered with LG on a refrigerator that can remind you of an upcoming anniversary as you reach for the milk. 


Moore's Law inside Your Medicine Cabinet

Moore's Law is about to hit your medicine cabinet. The GlowCap from Vitality, Inc., is a "smart" pill bottle that will flash when you're supposed to take your medicine. It will play a little tune if you're an hour late for your dose and will also squirt a signal to a night-light that flashes as a reminder (in case you're out of view of the cap). GlowCaps can also be set to call or send a text if you haven't responded past a set period of time. And the device will send a report to you, your doc, or whomever else you approve. The GlowCap can even alert your pharmacy when it's time for refills. Amazon sells the device for $99, but we know how Moore's Law works - it'll soon likely be free. The business case for that? The World Health Organization estimates drug adherence at just 50 percent, and analysts estimate that up to $290 billion in increased medical costs are due to patients missing their meds. Vitality CEO David Rose (who incidentally also cofounded Ambient Devices) recently cited a test in which GlowCap users reported a 98 percent medication adherence rate.

And there might also be a chip inside the pills, too! Proteus, a Novartis-backed venture, has developed a sensor made of food and vitamin materials that can be swallowed in medicine. The sensor is activated and powered by the body's digestive acids (think of your stomach as a battery). Once inside you, the chip sends out a signal with vitals such as heart rate, body angle, temperature, sleep, and more. A waterproof skin patch picks up the signal and can wirelessly relay the pill's findings when the patient walks within twenty feet of their phone. Proteus will then compile a report from the data and send it to their mobile device or e-mail account. The gizmo's already in clinical trials for heart disease, hypertension, and tuberculosis and for monitoring psychiatric illnesses.E. Landau, "Tattletale Pills, Bottles Remind You to Take Your Meds," CNN, February 2, 2010. And a pill with built-in smarts can identify itself to help guard against taking counterfeit drugs, a serious worldwide concern. Pills that chat with mobile phones could help promote telemedicine, bringing health care to hard-to-reach rural populations. And games and social apps based on this information can provide motivating, fun ways to nudge patients into healthy habits. The CEO of Proteus Health says that soon you may be able to think of your body as "the ultimate game controller".

One of the most agile surfers of this fifth wave is Apple, Inc. - a firm with a product line that is now so broad that in January 2007, it dropped the word "Computer" from its name. Apple's breakout resurgence owes a great deal to the iPod. At launch, the original iPod sported a 5 GB hard drive that Steve Jobs declared would "put 1,000 songs in your pocket". Cost? $399. Less than six years later, Apple's highest-capacity iPod sold for fifty dollars less than the original, yet held forty times the songs. By that time the firm had sold over one hundred fifty million iPods - an adoption rate faster than the original Sony Walkman. Apple's high-end models have morphed into Internet browsing devices capable of showing maps, playing videos, and gulping down songs from Starbucks' Wi-Fi while waiting in line for a latte.

The original iPod has also become the jumping-off point for new business lines including the iPhone, Apple TV, iPad, and iTunes. As an online store, iTunes is always open. ITunes regularly sells tens of millions of songs on Christmas Day alone, a date when virtually all of its offline competition is closed for the holiday. In a short five years after its introduction, iTunes has sold over 4 billion songs and has vaulted past retail giants Wal-Mart, Best Buy, and Target to become the number one music retailer in the world. Today's iTunes is a digital media powerhouse, selling movies, TV shows, games, and other applications. And with podcasting, Apple's iTunes University even lets students at participating schools put their professors' lectures on their gym playlist for free. Surfing the fifth wave has increased the value of Apple stock sixteenfold six years after the iPod's launch. Ride these waves to riches, but miss the power and promise of Moore's Law and you risk getting swept away in its riptide. Apple's rise occurred while Sony, a firm once synonymous with portable music, sat on the sidelines unwilling to get on the surfboard. Sony's stock stagnated, barely moving in six years. The firm has laid off thousands of workers while ceding leadership in digital music (and video) to Apple.

Table 5.1 Top U.S. Music Retailers

1992 2005 2006 2008
1. Musicland 1. Wal-Mart 1. Wal-Mart 1. iTunes
2. The Handleman 2. Best Buy 2. Best Buy 2. Wal-Mart
3. Tower Records 3. Target 3. Target 3. Best Buy

4. Trans World Music


7. iTunes

4. iTunes, Amazon tie


4. Amazon, Target tie


Moore's Law restructures industries. The firms that dominated music sales when you were born are now bankrupt, while one that had never sold a physical music CD now sells more than anyone else.

Table 5.2 Tech's Price/Performance Trends in Action: Amazon Kindle and Apple Music Storage

Amazon Kindle Apple
First Generation Fourth Generation iPod iCloud
250 MB 2 GB 5 GB 5 GB
November 2007 September 2011 October 2001 October 2011
$399 $79 $399 Free

Amazon's first Kindle sold for nearly $400. Less than four years later, Amazon was selling an updated version of the Kindle for one-fifth that price. Similarly, Apple offered 5 GB of music storage in the original iPod (also priced at roughly $400). By the iPod's tenth birthday, Apple was giving away 5 GB of storage (for music or other media) for free via its iCloud service. Other factors influence price drops, such as being able to produce products and their components at scale, but Moore's Law and related price/performance trends are clearly behind the price decreases we see across a wide variety of tech products and services.

While the change in hard drive prices isn't directly part of Moore's Law (hard drives are magnetic storage, not silicon chips), as noted earlier, the faster and cheaper phenomenon applies to storage, too. Look to Amazon as another example of jumping onto a once-impossible opportunity courtesy of the price/performance curve. When was founded in 1995, the largest corporate database was one terabyte, or TB in size. In 2003, the firm offered its "Search Inside the Book" feature, digitizing the images and text from thousands of books in its catalog. "Search Inside the Book" lets customers peer into a book's contents in a way that's both faster and more accurate than browsing a physical bookstore. Most importantly for Amazon and its suppliers, titles featured in "Search Inside the Book" enjoyed a 7 percent sales increase over nonsearchable books. When "Search Inside the Book" launched, the database to support this effort was 20 TB in size. In just eight years, the firm found that it made good business sense to launch an effort that was a full twenty times larger than anything used by any firm less than a decade earlier. And of course, all of these capacities seem laughably small by today's standards. For Amazon, the impossible had not just become possible; it became good business. By 2009, digital books weren't just for search; they were for sale. Amazon's Kindle reader (a Moore's Law marvel sporting a microprocessor and flash storage) became the firm's top-selling product in terms of both unit sales and dollar volume. The real business opportunity for Amazon isn't Kindle as a consumer electronics device but as an ever-present, never-closing store, which also provides the firm with a migration path from atoms to bits. By 2011, Amazon (by then the largest book retailer in North America) reported that it was selling more electronic books than print ones. Apple's introduction of the iPad, complete with an iBook store, shows how Moore's Law rewrites the boundaries of competition - bringing a firm that started as a computer retailer and a firm that started as an online bookstore in direct competition with one another.

Bits and Bytes

Computers express data as bits that are either one or zero. Eight bits form a byte (think of a byte as being a single character you can type from a keyboard). A kilobyte refers to roughly a thousand bytes, or a thousand characters, megabyte = 1 million, gigabyte = 1 billion, terabyte = 1 trillion, petabyte = 1 quadrillion, and exabyte = 1 quintillion bytes.

While storage is most often listed in bytes, telecommunication capacity (bandwidth) is often listed in bits per second (bps). The same prefixes apply (Kbps = kilobits, or one thousand bits, per second, Mbps = megabits per second, Gbps = gigabits per second, and Tbps = terabits per second).

These are managerial definitions, but technically, a kilobyte is 210 or 1,024 bytes, mega = 220, giga = 230, tera = 240, peta = 250, and exa = 260. To get a sense for how much data we're talking about, see the table below.

Table 5.3 Bytes Defined

  Managerial Definition Exact Amount To Put It in Perspective
1 Byte One keyboard character 8 bits 1 letter or number = 1 byte
1 Kilobyte (KB) One thousand bytes 210 bytes 1 typewritten page = 2 KB
1 digital book (Kindle) = approx. 500 - 800 KB
1 Megabyte (MB) One million bytes 220 bytes 1 digital photo (7 megapixels) = 1.3 MB
1 MP3 song = approx. 3 MB
1 CD = approx. 700 MB
1 Gigabyte (GB) One billion bytes 230 bytes 1 DVD movie = approx. 4.7 GB
1 Blu-ray movie = approx. 25 GB
1 Terabyte (TB) One trillion bytes 240 bytes Printed collection of the Library of Congress = 20 TB
1 Petabyte (PB) One quadrillion bytes 250 bytes eBay data warehouse (2010) = 10 PBC. Monash, "eBay Followup - Greenplum Out, Teradata > 10 Petabytes, Hadoop Has Some Value, and More," October 6, 2010. Note eBay plans to increase this value 2.5 times by the end of 2011.
1 Exabyte (EB) One quintillion bytes 260 bytes  
1 Zettabyte (ZB) One sextillion bytes 270 bytes Amount of data consumed by U.S. households in 2008 = 3.6 ZB

Here's another key implication - if you are producing products with a significant chip-based component, the chips inside that product rapidly fall in value. That's great when it makes your product cheaper and opens up new markets for your firm, but it can be deadly if you overproduce and have excess inventory sitting on shelves for long periods of time. Dell claims its inventory depreciates as much as a single percentage point in value each week. That's a big incentive to carry as little inventory as possible, and to unload it, fast!

While the strategic side of tech may be the most glamorous, Moore's Law impacts mundane management tasks, as well. From an accounting and budgeting perspective, as a manager you'll need to consider a number of questions: How long will your computing equipment remain useful? If you keep upgrading computing and software, what does this mean for your capital expense budget? Your training budget? Your ability to make well-reasoned predictions regarding tech's direction will be key to answering these questions.

Tech for the Poor

Nicholas Negroponte, the former head of MIT's Media Lab, is on a mission. His OLPC (One Laptop per Child) project aims to deliver education to children in the world's poorest communities via ultralow-cost computing devices that the firm has developed. The first offering, the XO laptop, costs roughly $175, although a sub-$100 tablet is in the works. The XO sports a rubberized keyboard and entirely solid-state design (flash RAM rather than hard drive) that helps make the machine durable. The XO's ultrabright screen is readable in daylight and can be flipped to convert into an e-book reader. And a host of open source software and wiki tools for courseware development all aim to keep the costs low. Mesh networking allows laptops within a hundred feet or so to communicate with each other, relaying a single Internet connection for use by all. And since the XO is targeted at the world's poorest kids in communities where power generation is unreliable or nonexistent, several battery-charging power generation schemes are offered, including a hand crank and foldout flexible solar panels. The OLPC Foundation delivered over 2.4 million laptops to children in twenty-four countries. The XO is a product made possible by the rapidly falling price of computing.

While the success of the OLPC effort will reveal itself over time, another tech product containing a microprocessor is already transforming the lives of some of the world's most desperate poor - the cell phone. There are three billion people worldwide that don't yet have a phone, but they will, soon. In the ultimate play of Moore's Law opening up new markets, mobiles from Vodafone and Indian telecom provider Spice sell for $25 or less. While it took roughly twenty years to sell a billion mobile phones worldwide, the second billion sold in four years, and the third billion took just two years. Today, some 80 percent of the world's population lives within cellular network range (double the 2000 level), and the vast majority of mobile subscriptions are in developing countries.

Why such demand? Mobiles change lives for the better. According to Columbia economist Jeffrey Sachs, "The cell phone is the single most transformative technology for world economic development". Think about the farmer who can verify prices and locate buyers before harvesting and transporting perishable crops to market; the laborer who was mostly unemployed but with a mobile is now reachable by those who have day-to-day work; the mother who can find out if a doctor is in and has medicine before taking off work to make the costly trek to a remote clinic with her sick child; or the immigrant laborer serving as a housekeeper who was "more or less an indentured servant until she got a cell phone" enabling new customers to call and book her services.

As an example of impact, look to poor fishermen in the Indian state of Kerala. By using mobile phones to find the best local marketplace prices for sardines, these fishermen were able to increase their profits by an average of 8 percent even though consumer prices for fish dropped 4 percent. The trends benefiting both buyer and seller occurred because the fishermen no longer had to throw away unsold catch previously lost by sailing into a port after all the buyers had left. The phone-equipped fleet now see more consistent pricing, spreading their catch more evenly whereas previous fisherman often inefficiently clustered in one market, overserving one population while underserving another. A London Business School study found that for every ten mobile phones per one hundred people, a country's GDP bumps up 0.5 percent.

Bangladeshi economist Mohammed Yunus won the Nobel Peace Prize based on his work in the microfinance movement, an effort that provides very small loans to the world's poorest entrepreneurs. Microfinance loans grew the market for Grameen Phone Ltd., a firm that has empowered over two hundred and fifty thousand Bangladeshi "phone ladies" to start businesses that helped their communities become more productive. Phone ladies buy a phone and special antenna on microcredit for about $150 each. These special long-life battery phones allow them to become a sort of village operator, charging a small commission for sending and receiving calls. Through phone ladies, the power of the mobile reaches even those too poor to afford buying one outright. Grameen Phone now has annual revenues of over $1 billion and is Bangladesh's largest telecom provider.

In another ingenious scheme, phone minutes become a proxy for currency. The New York Times reports that a person "working in Kampala, for instance, who wishes to send the equivalent of five dollars back to his mother in a village will buy a five-dollar prepaid airtime card, but rather than entering the code into his own phone, he will call the village phone operator and read the code to her. [The operator] then uses the airtime for her phone and completes the transaction by giving the man's mother the money, minus a small commission".

South Africa's WIZZIT and GCASH in the Philippines allow customers to use mobile phones to store cash credits sent from another phone or purchased through a post office or kiosk operator. When phones can be used as currency for purchases or payments, who needs Visa? Vodafone's Kenyan-based M-PESA mobile banking program landed 200,000 new customers in a month - they'd expected it would take a year to hit that mark. With 1.6 million customers by that time, the service is spreading throughout Africa. The "mobile phone as bank" may bring banking to a billion unserved customers in a few years.