As the cost of computing falls, giving rise to new uses and appliances, Microsoft will find new markets and grow, he said. In that sense, technical advances have a different impact on computing than on other businesses, increasing rather than decreasing demand. “When they invented radial tires, they should have shot the guy,” he said. “The whole industry went through a crisis, because it took nine years to squeeze out the extra factory capacity, because the tires lasted longer.”
“He” being, Bill Gates.
Little history lesson. Up until 1970, almost all vehicles were using bias-ply tires, which lasted only about 12,000 miles. Then, in 1970, the radial tire was introduced in the US on the Lincoln Continental Mark III. Radial tires were superior to bias ply because they had reduced rolling friction and better steering characteristics which produced better fuel economy. Not only that, but they lasted at least 40,000 miles. Even though the automobile industry and tire manufacturers were completely against the radial tire, the gas crisis of 1973 saw the demand for fuel efficiency skyrocket, which meant the demand for radial tires also skyrocketed. By 1980, radials had completely taken over the market and production output decreased because people didn’t need tires every 12,000 miles (however that trend reversed course after the early 80’s recession when automobile sales recovered). Innovation in tire technology completely disrupted the industry.
Remember the IBM PC/AT? A cool $4,000 in 1984. Ouch! The cost of personal computing has indeed fallen dramatically since then (good call, Bill). Innovation in personal computers has slowed and devices are lasting longer, which means fewer people are buying computers. Gone are the days when you got a new computer every couple years. Personal computer sales peaked in 2011 at 365 million. Last year, personal computer shipments were down to 260 million, almost 30% lower than 5 years ago. Although the decline in PC shipments can be partly attributed to sales of tablets, tablets themselves have also peaked. Apple introduced the IPad in 2010. In 2014, Apple moved 68 million IPads and last year they barely shipped 45 million units. Sales of smartphones have also flat-lined since 2 years ago. Tech companies are innovating, but mostly in the cloud computing, voice recognition, and artificial intelligence arenas. The advances in these areas has produced dramatic growth. Voice recognition and AI? Have you heard of Amazon Echo, Google Home, and Siri? 36 million users of voice-enabled speakers, up a whopping 129% over 2016. Gartner predicts the worldwide public cloud services market will grow 18% in 2017 to $246.8B, up from $209.2B in 2016. In Microsoft’s January earnings press release, Microsoft reported the annualized revenue run rate for Microsoft’s Commercial cloud — which includes Office 365 commercial, Azure, Dynamics 365, and other cloud products — topped $14 billion and is on course to achieve a $20 billion annual run rate by the fiscal year 2018. And you thought they just developed and sold BASIC interpreters for the Altair 8800.
What’s next?? A flying car? Well yeah. Toyota is developing a flying car to light the torch in the 2020 Olympics. Who knew?
Bill was right about the rise of new uses and appliances and how Microsoft found new markets. I’m just glad no one shot the guy that invented the radial tire, Michelin researcher Marius Mignol. Seriously, who wants to change their tires every 12,000 miles?