The Rise of "Freeconomics"

It's a big day for Moore's Law. I'm not sure anyone else has noticed this, but by my calculations we have in the past few months reached the penny-per-MIPS* milestone. Intel's Core Duo running at 2.13 GHz now costs around $200 at retail (it's around $180 at volume), but can do about 20,000 MIPS. I remember my first 6 MHz 286 PC in 1982 that did 0.9 MIPS. I have no idea what the CPU cost then, but the PC it came in cost nearly $3,000 so it couldn't have been cheap. Say it was around $1,000/MIPS back then. Now it's $0.01/MIPS. I know I shouldn't be astounded by Moore's Law anymore, but that really is something.

I begin my economics of abundance speech with Carver Mead's mind-bending question: "What happens when things get (nearly) free?" His answer is that you waste them, be they transistors or megabytes of bandwidth capacity. You use them profligately, extravagantly, irresponsibly. You shift out of conservation mode and get into exploitation mode. You do crazy things like offering people the ability to put their whole music collection in their pocket, or promising the average email user that they'll never have to delete another message to conserve space. Just as Alan Kay "wasted" transistors to create the graphic user interface, we will all learn how to waste newly abundant resources, retraining our minds to ignore our instincts about costs and scarcity.

Today we have an unprecedented number of resources that are closing in on free when measured in units that were once meaningful to regular folks. Through the 1950s and 1960s Mead watched transistors drop from $100 each to $10, then $1, then $0.10, then a penny. Then, in the 1970s as transistors were integrated into semiconductor chips, they fell to a millicent and then a microcent. They're now nearly down to a nanocent--virtually free. Hard drives now go for about 30 cents per gigabyte, or .03 cents per megabyte (I remember my first 10-megabyte drive, which cost me a few weeks salary at the time). Bandwidth now costs less than ten cents per gigabyte at retail, and it wouldn't surprise me to hear that it's fallen below the penny-per-gigabyte level for big commercial outfits. How long would it have taken you to download a gigabyte of data in the old dial-up days, if you could even keep a connection open that long?

With apologies to Levitt and Dubner, I'll cheekily call the emerging realization that abundance is driving our world "freeconomics". Understanding when to shift out of scarcity mode and start giving away what you once held dear is a core competency for our age. Heck, there might even be a book in it!

My friend Michael Schrage had a good column in the FT that talks more about the power of free, and the policy quandaries it creates. I'll finish by quoting him:

"Never in history has so much innovation been offered to so many for so little. The world’s most exciting businesses – technology, transport, media, medicine and finance – are increasingly defined by the word “free”. Whereas WalMart, the world’s largest retailer, promises “everyday low prices”, entrepreneurs and ultra-competitive incumbents develop business models predicated on providing more for free. It is a difficult proposition to beat."

Indeed.

(* MIPS stands for million instructions per second, and is a standard measure of processing power)

Comments

[Thomas R. Clifford]

For over 23 years as a documentary filmmaker specializing in corporate-image films, I used to edit in edit suites that cost $750,000 or more to buy. Oh...catered lunches, with that, thank you.

Same holds true for cameras and the filming production equipment.

Now, for a few thousand dollars, anyone can grab a camera and be an editor. It's free, in essence...they're giving it away.

So what happens now? Michael Schrage, quoted above, says it's hard to beat free. I think he's right.

Here's how I and my fellow producers/directors in this industry will survive: through the power of a great story.

There are a ga-zillion videos on You Tube...testimony to the power of free. But how many powerful and gripping stories are stored on the ga-zillion storage devices? My bet, very few.

Those who tell a compelling story and those who can capture it in creative and moving ways, may just have a shot of staying alive in these "free times."

Thomas R. Clifford
Corporate-Image Documentary Filmmaker

www. directortom.com

[Fredex]

How does a government tax free? Over twenty years, I got used to the idea that a competent PC was going to cost $2000 or so. My current PC cost $800. I got the best PC I have ever had and the government got 60% less in sales tax.

[Anonymous]

"Then in the 1970s as they were integrated into semiconductor chips they fell to a microcent and then a gigacent."

I'm not sure you actually mean a gigacent. Giga is a prefix that means something big; in fact, a gigacent is 10^9 cents which equals $10,000,000 (ten million).

[somabc]

"Then in the 1970s as they were integrated into semiconductor chips they fell to a microcent and then a gigacent."

I'm not sure you actually mean a gigacent. Giga is a prefix that means something big; in fact, a gigacent is 10^9 cents which equals $10,000,000 (ten million).

Yes you are right as giga is 10^9 you must mean from micro 10^-6 to nano 10^-9

[Chris Anderson]

Somabc,

Good catch! Fixed...

Chris

[Bill Olen]

Thanks for the gift of this post and this blog!

[Carl Tashian]

"Waste" can innovate, for sure. But in your embrace of freeconomics, don't forget that we've been applying this principle to the entire planet for a while now. In the face of apparent abundance, we have vastly overconsumed for centuries, assuming negligible impact. When is freeconomics really just scarcity in disguise? And are we watching "free" music slowly erode the music industry just as our use of "free" resources have eroded the environment?

[Hashim]

When things in entertainment become free, the "cost" I pay for consuming them is my time and attention. The question changes from "how do I want to spend my limited money?" to "how do I want to spend my limited time?"

In that world, recommendation engines get all the value, not producers.

[E Morisse]

What happens when computing power become near free? For the largest organizations, this is already the case, at least in proportion to man power costs. We see these organizations wrestling with the next bottlenecks in consuming computing resources: electricity, HVAC, space; we see hardware vendors addressing the manual complexity of wiring w/blades; and we see customers replicating entire operating environments with virtualization software to take advantage of flexibility without compromising required horsepower.

Computing resources at the boundary of possibility (supercomputers, the largest databases, etc.) have grown significantly faster than Moore's law for at least the past half-decade I measured. With this in mind, maybe MIPS is no longer the constraining factor, but expertise or complexity?

So, what happens when computing power become near free? That's a great question; and who will be able to take advantage of that free computing power?

[Barry Ritholtz]

FYI: Moore's law is dead.

Who says so?

Gordon Moore:
Moore's Law is dead, says Gordon Moore

See this also:
Moore's Law is dead, says Gordon Moore

[Thomas Claburn]

In terms of attention, the new rich are those with time on their hands: the young and the unemployed. It's open to question whether they're better off for all this digital abundance. From the look of it, the fracturing of monolithic media culture offers more choice at the expense of cultural coherence. Despite the proliferation of computer networks, our worlds are increasingly less connected and less comprehensible to one another.

I'll be interested in seeing whether "freeconomics" has an impact on social responsibility. Does an abundance of distractions make people more or less inclined to give a damn about what's going on in the world? Does all the swooning over Second Life cast a shadow in real life?

Congratulations, your fifteen minutes of fame comes with fifteen minutes of outrage.

[ian]

how can you all say computing power is approaching "free"? This illustrates the fallacy of looking at $/MIPS as the measure of the "cost" of computing. The fact is, as the cost per "unit" of computing continues to fall, we just demand more computing power.

Even though it may seem trivial, there's a big difference between $0.01 and *free*, or $0.000001/MIPS and free for that matter.

It comes down to supply and demand, the cheaper a good, the more quantity of that good that people demand. If Intel couldn't make money on their new CPU, they'd go out of business. It's absurd to say that computing is becoming "free".

My last laptop cost $2000+.

[Greg O'Byrne]

Re: Moore's Law is dead from Barry Ritholtz.

Well Gordon Moore may say it is dead and he may be right about the narrow prediction surrounding integrated curcuits, but Ray Kurzweil has an interesting deeper definition that refutes the larger claim surrounding the future of computational power.

http://www.kurzweilai.net/meme/frame.html?main=/articles/art0134.html

Specifically this section:
"Moore's Law Was Not the First, but the Fifth Paradigm To Provide Exponential Growth of Computing
Each time one paradigm runs out of steam, another picks up the pace."

Read the whole article, it is fascinating if a bit out there.

[Dan L]

My own $2000 example of freeconomics and technological ubiquity is our family's sewing machine. It was genuinely free--took it from a trash pile 15 years ago, works perfectly, came in an attractive cabinet and was state-of-the-art 85 years ago. To buy it brand new then would cost about $2000 in today's dollars.

[Chris Wisehart]

I once spoke to an economist in DC about the Wisehart Vending Machine, you know the one that all the trash in the world feeds into, that produces so much power we have to pay people to take it and also any car, truck or train can pull up to it, push the Antimony, Beryllium... Gold... Platinum, Zinc or other button, enter the tonnage needed and after registering his qualifications and preparedness to properly handle the said material have it loaded and ready to go for free. This economist gave me that look of real horror that cannot be faked and cried "that would destroy the economy". It will get built anyway! That's Wisehart's Law.

By the way Wisehart's inside Intel too.

[Pam]

I'm very interested in how all of this might impact on education which is always crying out for free out of necessity. Do you see any large-scale impact outside of open-source software (which carries many less-obvious support issues that have great cost)
see http://devel2.njit.edu/serendipity/index.php?/archives/547-Freeconomics.html