(Stanford BUS-21)Martin Westhead

Mastering Marketing

Free is changing

How to make money by giving things away

Overview

Cost reduction in CPU, Storage and Bandwidth Why Moore’s Law works Atoms vs. Bits Inflection point in exponential growth Impact of Cloud computing

Triple play of technologies

Transistors (CPU)- Part of the computer that does the calculations

Storage- Computers memory

Bandwidth- Network that allows computers to exchange

information All three are falling in price exponentially

Transistors

In 1961 a single transistor cost $10- 2 years later it was $5- By 1965 it was $2.50- 1968 $1- 1975 $0.10- 1982 $0.01

Today - Intel 62-Core Xeon Phi: 5B

transistors- $2500 -> 0.00005 cents- 16Gb flash drive 64B- $10 -> 0.00000002 cents

http://en.wikipedia.org/wiki/Transistor_count

Gordon Moore

Rounding down

Early 60’s Fairchild Semiconductor 1211: $100 Competing with vacuum tubes: $1.05 Robert Noyce, Jerry Sanders rounded down

- Knew that volume production would lower price- Offered transistors for $1.05 from the start

“We were going to make chips in a factory we hadn’t built, using a process we hadn’t developed but the bottom line was that we were out there next week quoting $1.05. We were selling into the future.”

Hard drives

Flips magnetic alignment on a spiral of spinning disk

Head floats 10s of nm over the platter

Platter spins at 4,000-15,000rpm Performance improvements

from:- Faster speeds- Higher power magnetic heads- Closer to the disk- Higher quality magnetic surface

Spinning disks replaced with Solid State Disks- No moving parts

Kryder's Law – price performance of storage doubles every 18 months

Bandwidth

Speed of optical switching Ultimate speed limited

- Speed of light Can squeeze more colors down a

single fiber Building fast switches that work

purely with light Doubling in price performance

every 9 months – 1 year

Why Moore’s Law Works

Learning curve- One person gets better with practice- 10-15% for each doubling in production quantity

Experience curve- Many people get better together- 25% for each doubling in production quantity

Technology innovation- 1970’s saw 12 doublings in transistor production- Experience curve predicts 1/13- Actually observed: 1/1000 (!) - Ideas based businesses- Sustained improvement through continuous innovation

Atom vs. Bit Economy

Rules are different for atoms New Free is about bits not atoms

- Falling cost of storing, processing and delivering bits- Bits can be copied perfectly almost for free- Near zero marginal cost

Price of digital goods is will fall towards to zero

2nd Half of the Chessboard

Grains of wheat on a chessboard Double the grains for each square

- (1 + 263)grains Lesson in the unexpected nature of exponential growth First half of the chessboard numbers are small Second half (inflection point) numbers go crazy CPU, Storage and Bandwidth are entering the 2nd half of the chessboard No indication that they are slowing down

Reach for the clouds

Scale important to reduce fixed costs 8 years ago had to buy servers The Cloud changed the equation

- Start-ups can take advantage of economies of incremental server costs

- Web start-up needs only a credit card- Costs scale with service- Not as cheap as google but

- when users numbers are small costs remain manageable

- New entrants to free have an advantage

Summary

Cost reduction in CPU, Storage and Bandwidth Why Moore’s Law works Atoms vs. Bits Inflection point in exponential growth Impact of Cloud computing