McAfee basically argues that software and computer hardware prices have historically behaved in a very bizarre way: instead of rising, like the vast majority of durable goods, they have actually fallen. And when I say fallen, I really mean plummeted.
He demonstrates this through two amazing graphs.
The first shows the price index for the aggregate categories of Industrial Equipment, Transportation Equipment, and Other Equipment since 1946. This graph is not at all surprising. This is what happens to most products over time - inflation does its work and prices rise. The first Model T, for example, cost around $850.
Software and computer hardware prices, however, have headed in the exact opposite direction but at a much faster clip. Instead of rising linearly, they have plummeted logarithmically!
McAffee attributes this bizarre economic phenomenon to dramatic technological innovation (Moore's Law), the ridiculously low cost of the raw materials, massive and efficient factory production, and the proliferation of competing hardware suppliers.
While I'm no economist, this certainly rings true for me. Consider that the IBM 5100 desktop computer of 1975 cost as much as $20K while the Apple II of 1977 cost just under $3,000 (as did the first IBM PC). Today you can purchase powerful laptops for just 300 bucks.
So what does all this mean?
It means that someone with an iPhone or a $300 laptop has more computing power in his hands than was even conceivable just 30 years ago. It means that powerful software tools are now at the disposal of the masses to do more than they've ever done before. It means that the business landscape is forever changed.
Higher productivity, lower barriers to entry, higher competitive pressures is something we all face every day, good or bad. We should always remember that consumers have more choices, employees have more options, and business leaders need to innovate and connect like never before.
We live in truly interesting times, don't we?
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