Towards zero price

September 22, 2006

Exactly 21 months ago I bought a 512Mb mp3 player from Creative. A nice piece of hardware all blue and shiny. I stepped on an electronics outlet in Lisbon and after a while picked the one I found it more appropriate for jogging. At that time there were no ipod nanos and the Creative Muvo (that was its name) seemed to me just fine. So I happily went on paying 119 euros for it. Fast forward to our present time. Now you can go everywhere in Europe and pay for the same gadget as little as 42,95 euros. Yeah, big deal, so electronics devices get cheaper. Who doesn´t know that?

Well I am less concerned with electronics shrinking prices and more curious about how this low cost frenzy will shape economics and ultimately our very society. If we take my mp3 example, we´ll see that in roughly one and a half year the price dropped circa 60%. This is within the range of what Moore´s law predicts for computers in terms of processing power. Interesting enough we are probably a bit further away in the computer business to reach a saturation point where nobody would need a better computer, as software evolves (some would define evolution as the increase of useless features) it sucks more processing power and we all need upgrades. What about mp3 players? Today I own an Ipod video with 60Gb and even being totally addicted to music, carrying the thing on my way to the University or on trains or in the supermarket, I managed to get mere 17Gb of music after having ripped all my cd collection.

So do we need all this capacity? Are we reaching a point where Wal-Mart will give away free MartPlayers in order to lock customers on its video and music stores? Maybe we should also look at the computer industry in the next years: will Google foundation sponsor free laptops for public schools in emerging countries? Will US$ 100 computers from MIT succeed? 600 euros computers are already all over the place. What about 3 years from now, could we have them for half of the price? And then what?

Perhaps we are not considering the exceptional talent of companies in creating yet another new trend to woo customers. Yeah, probably there will be enough broadband offerings, artificial intelligence software and all sorts of stuff to reinvent prices. Nevertheless industry will have to work harder and harder to keep them afloat. Although as far as everybody knows  there is no free lunch, we might well pretty soon be entering some sort of market that resembles more and more of an “all-you-can-eat” buffet and less the old shopping malls as we know them.

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