The “good enough” netbooks

The Economist notes here that Moore's Law is getting flipped upside down as customers choose "good enough" technology.   Instead of buying new notebooks or desktops packed with more computing power, they are choosing "netbooks" with much less capability.  

Any discussion of business models must include a basic understanding of the underlying technology that makes the business possible — for example, the internal combustion engine in the automotive industry or injection molded plastics in the toy industry. 

In the technology industry, Moore's Law of transistor density and cost has been the driving force for the past several decades.  The basic unit of computing power is the transisitor.  The more transistors you have, the more power you have to handle complex computing tasks.   By packing more and more transistors on a semiconductor chip, the power increases.   By manufacturing these chips in large volumes, the unit cost of computing power goes down. 

Moore's Law, first coined by Gordon Moore, a co-founder of Intel, notes that the number of transistors on semiconductors doubles every 18 months.  In other words, the amount of computing power at a certain price doubles every 18 months.

 What does this mean for business models?  Think about how you purchased PCs or Notebooks over the past ten to 15 years.  Most people would spend a fixed amount, say $2000, for a desktop PC.  This PC would include a processor, graphics card, and a hard drive. 

When it came time to replace your PC in three years, customers would still spend $2000 — but they would get a much faster processor, faster graphics, and much bigger hard drives.  Moore's law at work.  This upgrade cycle was reinforced by Microsoft, who pushed out bigger (though not necessarily better) versions of its operating system and applications.   As computing power becomes cheap, supply creates demand. 

But now that model is getting flipped in certain segments of the market.  Instead of spending $2000, I might spend $200.   Just give me the bare bones I need for email and web-browsing.  Thus the rise of the netbooks.  As the article notes, this is like buying the model from 3 years ago at a much lower price.  It will be interesting to see how this phenomena reshapes the technology industry and beyond.