Thursday, May 16, 2013

What Does Your Business Look Like if Access Bandwidth is Not a Constraint?

There is one thread that underlies thinking and business strategy at firms as disparate as Google, Netflix and Microsoft, namely Moore's Law. Even if communications does not scale in the same way as memory and processing, Moore’s Law underpins progress on the communications front, at least in terms of signal compression, the power of network elements and cost of those elements and systems built on those building blocks.  


As Intel CEO Paul Otellini tells the story, Moore’s Law also implied an inverse relationship between volume and price per unit. Over time, processing and memory got more powerful and cheaper in a linear way.


The implication for Intel was that it would have to shift from producing small numbers of components selling for high prices to a market where very large numbers of very cheap components was the context of the business. “Towards ultra-cheap” is one way to describe the progression of retail prices.

You might argue that assumption also drove Microsoft’s decisions about its software business (“what does my business look like if computing hardware is very cheap?”), the confidence Netflix had that broadband would support high-quality streaming (“Will access bandwidth be where it must to support our streaming business?”) and the many decisions Google makes about the ability to support software-based businesses using advertising.

You might argue that the emergence of cloud computing is reshaping existing content and software businesses precisely because of the question “what would my business look like if access bandwidth were not a constraint?”

For Intel, the implications were a radical change in component pricing, reflected back into the way the whole business has to be organized.


Ubiquiti illustrates a related principle, namely the role of disruptive pricing in a market. Ubiquiti has operating expense in single digits where a traditional technology supplier has operating expense in the 30 percent to 60 percent range.


That allows Ubiquiti to sell at retail prices competitors cannot easily match.

source Justin Sullivan/Getty Images

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