Sunday, April 27, 2008


The price of computing has fallen dramatically. The price of computing is falling dramatically. The price of computing will fall dramatically.

Jean-Baptiste Say, a French Businessman who died in 1832, argued that the greater supply of a product, the lower the relative price and thus the greater the demand. Say would have argued against $600 rebates to the public, but for lower taxes on businesses that produce goods. Today, "supply side" economist like to succinctly say, Supply creates its own demand.

Say's Law is certainly applicable today in regard to computing. The price of computing power for many applications has dropped to zero or almost zero! Companies such as FaceBook, Amazon, Microsoft, IBM, Yahoo, Comcast and Google are offering access to powerful "cloud computers" free of charge or nearly free of charge. As the price falls, demand soars, and the demand for free computing is a bit like free ice cream at the circus. I've never seen free ice cream at a circus but I suspect that even the elephants had better not get in the way.

As a result of high demand, IBM, Google, et. al, have become major users of electricity. A few years ago, Google determined that it spends more on electricity to operate a server than it cost to buy one. As such, Google let it be known that it would buy only the more efficient machines.

Google also attacked power consumption from the other direction. It has located its server farms only in areas where electricity is cheap and it has supported a new solar energy company that builds a standardized sun capturing array that is scalable and cheap to install. It is my belief that even the smartest of people are currently suffering from Amara's Law in regard to solar energy. Amara, an engineering PhD and the founder of Institute for the Future, suggested that we tend to over estimate a technology in the short run and underestimate it in the long run. So far, solar energy is too expensive. Governments subsidize it because it is seen as a wonderful clean solution to our energy needs. It will one day live up to the hype, but that one day is still many years away and today only .07% of all electricity produced in the US is solar. There will be a dramatic increase in the supply of electricity as a result of 90 or so new nuclear power plants over the next 20 years but, the increase in supply of electricity will still struggle to keep up with the demand generated by free computing.

Perhaps, I suffer from Amara's Law in regard to computing technology. It does seem to take forever for new computing technology to produce results. Still, I am sure that life will be lived very differently ten years from now.

What is working in regard to computers is a dramatic reduction in the use of power. It is estimated that the power plants themselves can increase efficiency by 7%. Still, 7% is a small number relative to what is happening at the "server farms". IBM is operating servers at room temperature, eliminating the need for air conditioned rooms. This is possible due to continuing improvements in power consumption per chip. Intel just produced a chip that consumes 3 watts of power that will replace a chip that consumers 32 watts.

My point is not that electricity usage will go down. Indeed, I expect the demand for electricity to continue to rise. The point is that the cost of computing is going to continue to fall dramatically such that all the more services will be available for free. More free services will mean a continuation in the purchase and installation of servers and the gear that will connect these machines. GLW is going to sell a lot of fiber optic cable.


It is impossible to know just how many servers are being installed around the globe. It is known that this email is automatically backed up on 6 Google servers but only Google knows exactly where. The indications are that all the major "players" are keeping their numbers well hidden from their competitors. Many service providers have come to understand the Google approach. The winning strategy is to offer thousands of hosting services with massive computing power free of charge because the cost is falling rapidly and the incidental revenue will more than pay for the future cost.

Since I failed to make notes in regard to a recent blog about what 4G speed will do for medical doctors, I cannot offer a link to the blog. The blog was written by a doctor who believes the science of medicine is in for revolutionary change. He says that billions of tiny implantable sensors will be in constant communication with medical server-robots. The diabetic and his doctor will know about a change in status in an instant. If a patient fails to take a pill, the server-robot will know. The revolution is even more powerful than just better information. A heart patient may receive a minor electrical jolt as needed and directed by the server-robot. Of course, the high definition capabilities of 4G will allow the M.D. to view the patient at any location. The 30 minute trip to the doctor will be replaced by the 5 minute video communication.

A couple of years ago, I wrote that IBM is a late cycle stock. I suggested it will do relatively better as the second half of this business cycle progresses. The "rest of the world" is currently sitting on trillions of US dollars and the "rest of the world" needs cheap computing power. American companies will supply the bulk of it. BUY, BUY, BUY!