In 1965, Gordon Moore, the founder of Intel, noticed the number of integrated circuits on a transistor had been doubling every twelve to twenty-four months. The trend had been going on for about a decade and, Moore predicted, this would probably last forever. Albeit being a bit off by suggesting the trend would last forever, Moore’s law has held steady for about sixty years. Come to think of it, it is this same law that is governing nearly all of our consumer products. Take the smartphone as an example, that thumb-held, pocket-sized gadget is a thousand times faster and million times cheaper than a supercomputer from the 1970s. This relentless progress in price and performance of the smartphones (generally computers) can only be explained by exponential growth. Unlike the +1 progression of linear growth, wherein 1 becomes 2 becomes 3 becomes 4 and so forth, exponential growth is a compound doubling: 1 becomes 2 becomes 4 becomes 8 and so on.
There is more into this growth curvature than meets the eye. It is all about how change unfolds for a market-ripe product. A product that if carefully nurtured, will result into a fortune business. It is more of a truth that product ideas or their realizations are out there, but the problem is really in the implementation stage. Most fail to gauge the future of a product by merely looking into now, and if the product reaches a stage of ‘dormancy’, they give it up. What if one understood that this dormancy stage was part of the evolution process before a boom? An understanding of this growth curvature can give birth to a whole new industry, ignorance (or rather lack of understanding) of the same can lead to the death of a whole industry, or your company will just cease to exist, living room for those that understand this concept, hence are fit to exist. Allow me to provide you with a case study to aid in the understanding of this concept.
The Eastman Kodak Company
Most people know of the once film and photography giant, Kodak (you need to be a little old to know of this). I will provide you with a chronological account of what transpired in that company which led to its own demise.
- In about 1880, George Eastman invents both a dry plate formula and a machine that fabricated dry plates. Then photography was a ‘wet’ art. Water was a compulsory requirement for taking a photo; there existed no technology for saving light fringes on a dry substance. The Eastman Dry Plate Company is born.
- In 1884, Eastman invented roll film; four years later he came up with a camera capable of taking advantage of that roll.
- In 1888, that camera became commercially available, later marketed under the slogan “You press the button, we do the rest.” The Eastman Dry Plate Company had become the Eastman Company, but that name wasn’t quite catchy enough. Eastman wanted something stickier, something that people would remember and talk about. One of his favourite letters was K. In 1892, the Eastman Kodak Company was born. Eastman later rephrased it, he wanted to make photography “as convenient as a pencil.” And for the next hundred years, Eastman Kodak did just that.
- 1975: the world’s first digital still camera and digital recording device is born in Kodak (invented by Steven Sasson). The camera was the size of a toaster, weighed in at 3.9kg, had a resolution of 0.01 megapixel, and took up to thirty black-and-white digital images—a number chosen because it fell between twenty-four and thirty-six and was thus in alignment with the exposures available in Kodak’s roll film. It also stored shots on the only permanent storage device available back then—a cassette tape
- In 1996, 20yrs later, Kodak had 140,000 employees and a $28 billion market cap. They were effectively a category monopoly. In the United States, they controlled 90 percent of the film market and 85 percent of the camera market. But they had forgotten their business model. Kodak had started out in the chemistry and paper goods business, but they came to dominance by being in the convenience business (to be explained later).
Back in 1976, when Steven Sasson first demonstrated the digital camera at Kodak, he was immediately asked for a ready-for-prime-time estimate. That is, how long until his new invention could disrupt the market and pose a serious threat to the company’s market dominance? Fifteen to twenty years, Sasson said. In arriving at this answer, Sasson made a quick estimation and did a quick calculation. He estimated the number of megapixels that would satisfy an average consumer at two million. Then, in order to figure out the time it would take for these two million megapixels to become commercially available, Sasson relied on Moore’s law for his calculation—and that’s where the trouble started. They thought that the digital camera would undercut their chemical business and photographic paper business, essentially forcing the company into competing against itself. So they buried the technology. Nor did the executives understand how a low-resolution 0.01-megapixel image camera could hop on an exponential growth curve and eventually provide high-resolution images. So they ignored it. Instead of using their weighty position to corner the market, they were instead cornered by the market. And later on, the technology was picked up by more ready company executives who understood the power of exponential growth.
The power of exponential growth
As demonstrated above, the Kodak executives failed to discern the power of exponential growth. And this is the problem: This doubling is unusually deceptive. If you take 30 large linear steps (say one meter per step) from where you are standing, you end up 30 meters away. On the other hand, if you take 30 exponential steps (1exp30) from the same starting point, you end up a billion meters away or orbiting the Earth 26 times. And this was exactly where Kodak went wrong—they underestimated the power of exponentials. Here below, I provide you with the characteristics of exponential growth. But if the goal is to avoid Kodak’s errors (if you’re a company) or to exploit Kodak’s errors (if you’re an entrepreneur), then you need to have a better understanding of how this change unfolds—and that means understanding the hallmark characteristics of exponentials. To teach these, I will use a framework (developed by Steven Kotler and Peter H Diamandis, from their book: BOLD: how to grow big, create wealth and impact the world) called the Six Ds of Exponentials: digitalization, deception, disruption, demonetization, dematerialization, and democratization. These Six Ds are a chain reaction of technological progression, a road map of rapid development that always leads to enormous upheaval and opportunity. It is all about implementing these features so that your product may fit into the exponential curve.
This idea starts with the fact that culture makes progress cumulative. Innovation occurs as humans share and exchange ideas. I build on your idea; you build on mine. Anything that could be digitized—that is, represented by ones and zeros—could spread at the speed of light (or at least the speed of the Internet) and became free to reproduce and share. Moreover, this spreading follows a consistent pattern: an exponential growth curve. In Kodak’s case, once the memory business went from a physical process (that is to say, imaged on film, stored on paper) to a digital process (imaged and stored as ones and zeros), its growth rate became entirely predictable. It was now on an exponential curve
Look at how things are done in the 21st century; look at that thing in an industry of interest that is being done linearly and can be digitized to fit into the exponential growth curve.
This is a period of presumably relative inactivity when your product is under water, slowly developing but unknown to many. This happens because the doubling of small numbers often produces results so minuscule they are often mistaken for the plodder’s progress of linear growth. Imagine Kodak’s first digital camera with 0.01 megapixels doubling to 0.02, 0.02 to 0.04, and 0.04 to 0.08. To the casual observer, these numbers all look like zero. Yet big change is on the horizon. Once these doublings break the whole-number barrier (become 1, 2, 4, 8, etc.), they are only twenty doublings away from a million fold improvement, and only thirty doublings away from a billion fold improvement. It is at this stage that exponential growth, initially deceptive, starts becoming visibly disruptive.
At this phase, your product is ready to disrupt most of the pre-existing products in the industry which digitization has caught up with. In simple terms, a disruptive technology is any innovation that creates a new market and disrupts an existing one. Unfortunately, as disruption always follows deception, the original technological threat often seems laughably insignificant. Take the first digital camera. Kodak took great pride in things like convenience and image fidelity. Neither were present in Sasson’s original offering. His camera took twenty-three seconds to snap and store a 0.01 megapixel, black-and-white photograph. Well, no threat there. In the eyes of the Kodak brass, Sasson’s innovation would remain more of a toy than a tool for many years to come. With their focus on the quarterly profits of their chemicals and paper business, they didn’t understand the disruption soon to be wrought by exponentials. If Kodak had done the math, their executives would have realized that the desire to not compete against themselves was actually a decision to put themselves out of business.
This means the removal of money from the equation. Consider Kodak. Their legacy business evaporated when people stopped buying film. Who needs film when there are megapixels? Suddenly one of Kodak’s once-unassailable revenue streams came free of charge with any digital camera. In today’s economy, one of the easiest ways to make money is to give stuff away. Consider Google’s free browser, chrome. How much does Google make in return through the information they collect from their ‘free’ browser? The browser is free hence available to billions of people. This in return means that they have billions of information from each source that use the browser. If this info is sold, much results from it. Opposed to this is, if the browser costs a fee, only a few people would go for it, hence fewer sales.
Just consider this. All these 1980s luxury technologies that have dematerialized and now come standard with your average smartphone. An HD video camera, two-way video conferencing (via Skype), GPS, libraries of books, your record collection, a flashlight, an EKG, a full video game arcade, a tape recorder, maps, a calculator, a clock . . . just to name a few. Thirty years ago the devices in this collection would have cost hundreds of thousands of dollars; today they come free or as apps on your phone. And smartphones are the fastest-spreading technology in humanity’s history. Look at that bulky product of yours, how can you make it even less bulky, and, if possible, combine it with another product? This has to be done to ensure your product fits in the exponential curve. Take another look at the film industry, you need a movie source, a cd to copy the movie into, DVD drive, and a screen in order to watch a movie. The smart TV has all these (with its movie source-the internet).
Democratization is the end of the exponential chain reaction, the logical result of demonetization and dematerialization. It is what happens when physical objects are turned into bits and then hosted on a digital platform in such high volume that their price approaches zero. Consider the photography industry. 20-30 years ago, after taking a photo, you had to print it on expensive pieces of paper before the image could be viewed. What happens today? You simply take a photo using your high definition camera then share your images via social media platforms like Flickr and Instagram. Democratization is about availing it to as many people as possible.
As you have now realized the power of an exponential growth, it is the guiding principle for all of the fortune 500 companies like Google and Facebook, Amazon, Apple etc. An understanding of Moore’s law is a necessary tool for every entrepreneur but what counts much is the application of it (the law which is simply about exponential growth). Linear thinking is to be left for child companies.