Up the Down Staircase Instead the mini–makers went down market. They bought new eight–inch drives that used dated technology and were vastly inferior to the 14–inch disks measured by price–per–byte. By the mid–1980s however, the learning curve had done its work. Finding a big market in mini–computers and now being produced in volume, the capacity of the eight–inch drives had increased by a remarkable 40% per year. They became cheaper per byte stored than the 14–inch models. Suddenly, the once inferior eight–inch drives were "good enough" for the mainframe industry and much cheaper. The makers of the still superior — but expensive — 14–inch drives lost their best customers and disappeared almost overnight. The same story was repeated a few years later with the 5.25–inch drive. At first, it could not deliver the performance demanded by the mini–computer makers. But priced around $2,000 (which seemed cheap at the time!) they were well suited for the price point and the architecture of the emerging desktop computer. Hopping on the learning curve, the 5.25–inch drive improved its performance by some 50% a year. By the late 1980s, the 5.25 drive was "good enough" for the mini–computer standard. Nearly all the eight–inch manufacturers vanished as their best customers abandoned them. The eight–inch drive was still the superior technology, performing far better than the 5.25–inch drives. The eight–inch drive became irrelevant because it provided more performance than the customer needed or was willing to pay for. Ok, but now we come to the really important point, which is "how"? How did the inferior drive makers improve their products so quickly? The learning curve predicts a 20–30% decrease in the cost of a manufactured product for every doubling in accumulated volume. Yet in each case studied by Clay, the inferior drives' capacity improved at a significantly faster pace. How could these smaller, newer, less–well funded enterprises, with smaller R&D budgets, get so much better so quickly? Clay's explanation: They imitated the big boys. The small–drive makers gradually incorporated the very improvements the big–drive makers developed to improve their own more expensive products. Clay's term for the gradual, steady improvement of a dominant technology was "sustaining innovation" because it sustained the older technology's market position. The disrupters glommed onto the sustaining innovations produced in part by the big R&D budgets of the dominant firms… and used them to power their own disruptive innovation. And that is just what is happening in the network today. Regards, George Gilder Editor, Gilder's Daily Prophecy P.S. One of my colleagues made a discovery a while back, one that I'm calling an "outsider trading" scandal. It's a "glitch" caused by Wall Street's machines and algorithms, and once you exploit these "glitches" you could have the potential to see gains of $1,458, $5,000, and even $6,475. Some in as little as a week's time... Sometimes in as little as a day. I recorded a special message to talk more about it. Click here to learn more about what I call the "outsider trading" scandal. |
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