Moore’s Law came into being roughly 20 years after the end of World War II, at a time when American business faced an emerging threat from Japan, which was becoming a leader in the innovation race. The emergence of Japan as a post-WWII economic power, with a new industrial base, positioned it well to capitalize on new computing power and technology at an exponential pace. Like most other countries, the United States was bogged down by legacy manufacturing systems, processes, and thinking. As a result, U.S.-based companies such as Intel had a clear objective: rapidly increase the pace of innovation and reduce costs or lose to Japan.
We all know what has happened over the five decades since Moore’s Law was first set forth, and the pace of technological change shows no signs of slowing down. Global brands such as Apple and Samsung fiercely compete to be the best and for market share dominance. Dominic Basulto’s collection of 10 images that explain the incredible power of Moore’s Law, is a fantastic demonstration of just how far we have come.
As amazing as this has been, the impact is even more dramatic when you combine the power of Moore’s Law to another of the most important business theorems of the past 50 years, the network effect (or Metcalfe’s Law), popularized by Robert Metcalfe, one of the co-founders of Ethernet. Simply put, the network effect is “the effect that a user of a good or service has on the value of a product to other people.” When it is present, there is more value for the user of a product or service if a higher number of other people are also using it.
At the dawn of the Internet era, 25 years ago, when Moore’s Law was only half its current age, pioneers such as AOL were the first great companies that became giants due to the combined impact of Moore’s Law on computing power and Metcalfe’s Law on network effects. Building AOL wouldn’t have been possible without the network effect – getting America online made the experience more valuable for everyone and in particular, the success of products such as Instant Messenger relied heavily on the power of the masses. What was the point of logging in if you didn’t have friends to chat with?
Today, companies live and die by their ability to create a powerful network that can multiple at unprecedented rates and dominate the previous network leader. Now the number of leading technology companies that are the offspring of Moore’s Law and Metcalfe’s Law is a who’s-who of the industry: Facebook, Instagram, Snapchat, LinkedIn, Twitter, and others only exist because our devices can do incredible things thanks to Moore’s Law, and these platforms are inherently more valuable to their users when there is a larger contingent of people on the platform to engage with (the result of Metcalfe’s Law).
Thus, it is the combination of these two theorems together — exponentially growing computing power and the application of network theory to digital communications platforms — that has created the rapidly changing world that we live in today. A world that is more open, more connected, and where we can accelerate innovation at a faster pace than ever before: the world that Moore and Metcalfe have given us now.
Over the last few years, there has been speculation that both of these theorems have run their course. As Gordon Moore once stated in an interview, “it can’t continue forever,” and others say that technological change has slowed recently when compared to a few decades ago. And today, the Network Effect looks much different than it did when Robert Metcalfe applied it to Ethernet. Now the costs of building a network are essentially zero and the barrier to joining a new network is simple, consumers can use their existing networks — Facebook, Twitter, LinkedIn to sign up for a new service and integrate their friends.
Despite how these laws might look over the next 50 years we can deduce the following: It is foolish to not think that technology will continue to change rapidly, as it is becoming less expensive to produce, and more and more people and things are being connected, making the combined impact of Moore’s and Metcalfe’s laws even more powerful than ever before. The convergence of these two laws brings unlimited potential for the future of technology and innovation.
Ted Leonsis is co-founder of the Washington, D.C.-based Revolution Growth and an entrepreneur, investor, pro sports team owner and former AOL executive. He sits on the boards of several companies including American Express and Groupon.