Cheapeners make life really fantastic for all of us – the radical cost reductions in technology

It isn’t the initial idea of a technology that makes life so fantastic for all of us. It is the next round of people who figure out how to make it ridiculously cheap that lets everyone enjoy the really cool inventions. So explains Matt Ridley, of the Wall Street Journal, in Three Cheers for the Cheapeners and Cost-Cutters.

 “A feature of innovation is that the greatest impact of a new idea comes not when the light bulb goes on over the geek’s head, but when the resulting technology eventually becomes cheap enough for many people to use—perhaps decades later.

This is the driver behind the tremendous productivity gains in the last few centuries.

One book I want post about in-depth shows a graph with two lines forming a big X. One line is the amount of food produced by American farmers (huge increase over a 40 year time frame) and the other line the number of farmers (huge drop over the same time). Productivity increase over the few decades is an increase by factor of 40. He drew the same graph for manufacturing. Huge increase in output with drop in number doing the work.

It isn’t just a feature of the last 10 or 15 years or even the post-WWII era. Consider two ideas Mr. Ridley points out, the disrespect we give ‘cheapeners’ and the mind-blowing productivity they produce:

We also disrespect the people who achieve the cheapening. The robber barons of the late 19th century generally made their fortunes by drastically cheapening new technologies, grabbing market share by undercutting rivals—and ending up with terrible reputations. Cornelius Vanderbilt cut the price of rail freight 90%, Andrew Carnegie slashed steel prices 75% and John D. Rockefeller cut oil prices 80% between 1870 and 1900.

Transportation costs down 90%?

90%? In the 1800s?

Steel down 75%? I’d not heard that before.  

Read the whole article. It’s great.

Here’s my data points to show cheapening in recent years. I’ll share some tech I’ve purchased, specifically memory cards for cameras and flash drives for portable storage.

Camera memory cards. I bought a camera in August 2003 and April 2011. Here’s the size of the storage cards, cost, and purchase date for the cards:

  • 128mb – $54 – 8/03
  • 256mb – $49 – 12/04 – 16 months later
  • 8,192mb – $12 – 4-11 – 7.5 years after first camera (yes, go ahead and laugh – I’m slow to upgrade some tech.)

That reflects shifting from proprietary xD card for Olympus to card that Olympus has which allows use of  SD cards. It also reflects a shift from getting stuff in a big box store to buying from Amazon. With all of those changes, here is the cost per gigabyte of storage:

  • $432.92 – 8-03
  • $197.12 – 12-04
  • $1.50 – 4-11

An improvement by factor of 287 fold.

Flash drives. Here’s the size of thumb drive, cost, and date for a few of my purchases (yes, go ahead and laugh again – I’m an accountant, so I’ve actually tracked that data):

  • 32mb – $32 – 5/03
  • 512mb – $39 – 7/05
  • 512mb – $15 – 6/06
  • 2,048mb – $6.70 – 4/09
  • 4,096mb – $9.33 – 4/10
  • 8,192mb – $14.37 – 5/11 (not an actual purchase – it’s a listing at Amazon)

Here’s the cost per gigabyte of those thumb drives:

  • $1,025.60 – 5/03
  • $78.98 – 7/05
  • $29.98 – 6/06
  • $3.35 – 4/09
  • $2.33 – 4/10
  • $1.80 – 5/11

From the equivalent of over $1,000 per gb to under $2. Wow. An improvement by a factor of 570.

I graphed the data. It is a logarithmic curve. Will talk about that more later, for two reasons. First, I’ve been blogging about visualization, and second, I’m currently reading Singularity.

By the way, I’ve just proved one of Ray Kurzweil’s main points. (Not that his ideas need any more proof, especially from me.) Rockefeller drove down oil prices by a factor of 4 in 30 years. Farmers improved productivity by a factor of 40 in 40 years (if I recall correctly). Flash drive costs have dropped by a factor of 570 in 8 years. If you want to pop a circuit-breaker in your brain, project that change in the rate of change out 50 years.

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