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)