The Red Herring Magazine, February 1996
The Gospel According to George

George Gilder says people accuse him of being a futurist, but he claims that he is just looking at what's out there right now.

George Gilder stopped by The Red Herring's Venture Market East conference in Cambridge, MA and preached to us about the miracle of unlimited bandwidth and the second coming of Bill Gates. Mr. Gilder is currently an editor at Forbes ASAP and a fellow at The Discovery Institute in Seattle, WA. He is the author of several best-selling books, including Wealth and Poverty and Microcosm. His forthcoming book will be titled Telecosm.

The Herring: You just got back from visiting Bill Gates in Redmond. We trust he was in good spirits.

Gilder: What I can tell you chiefly is that Bill Gates is mad! He is really angry! He was pointing at me and at you and at everybody and saying we are all going to be proven dead wrong! But two days later Mr. Gates apparently capitulated on everything he told me by standing up in public and announcing that Microsoft Network is now a free Internet access service and that Microsoft is adopting Java; a software language that he expressed deep and intense contempt for in my presence. He told me, "Anybody who thinks a little 9,000-line program that's distributed free and can be cloned by anyone is going to affect anything we do at Microsoft has his head screwed on wrong." He also said computer languages are a dime a dozen—that the real value is in the applications, and that what is really going to matter in the future is middleband. Frankly, I think the real problem with Microsoft today has more to do with middle age than middleband.

The Herring: What does he mean by middleband?

Gilder: The middleband vision is that you take Encarta and you continue to distribute it on CD-ROM, but you upgrade it over the Internet—so when users click on a particular subject they automatically get further information through other hyperlinked Internet sources. Microsoft wants to upgrade all its applications so they are Internet-friendly this way. The problem with this vision is that it is based on the assumption that bandwidth will remain scarce—that we are not moving into an era of bandwidth abundance, but moving into an era of middleband connections. And I think this is an optical illusion shared by many people across the country. Bandwidth scarcity is not a technical problem, but almost entirely a political problem.

The Herring: What's your vision?

Gilder: As time passes, we will be swamped with a tidal wave of transformation, and we will witness an inversion in computer technology. Rather than using processing cycles in order to compensate for lack of bandwidth, we will be using bandwidth to make up for the limitations of processors. In other words, future computer architectures will be bandwidth-based, rather than processor-based, and we will describe a computer's capacity in terms of gigabits per second, rather than in MIPS, BIPS, or BOPS.
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The Herring: This is what you refer to as "the hollowing out of the computer."

Gilder: Indeed. Now many people have questioned this theory of hollowing out the computer, as if somehow this new hollowed-out computer will in some sense have less capacity than the existing PC—that somehow it will be a more limited computer. And this is what Bill Gates so passionately responded to when I raised this issue with him.
The Herring: What's his problem?

Gilder: He pointed out that anybody who bet against the PC always lost. And he quoted with particular delight speeches Steve Jobs used to give saying that PC sales would top out in 1995 at 6 million units per year, at which point the NeXT workstation would zoom into the stratosphere.

The Herring: In a way, Mr. Jobs was right in that the Internet PC really has very little to do with the old PC—it is more like a workstation, even if it isn't the NeXTstation.

Gilder: You're right! The crucial difference is the communications processor that couples it with the Internet. The Internet PC will be fabulously more resourceful and useful than the old, unconnected PC. I think there is a real market for these devices, because they will be optimized for the Net, rather than for the local hard drive and CD-ROM. The Internet is emerging as the backbone for the "computer as the network" concept. We will have a huge array of new appliances based on single-chip communications processors from a wide group of companies, such as LSI Logic, which recently proposed Internet on a Chip; Chromatic Research; MicroUnity; and Texas Instruments, with its new DSP [digital signal processing] technology. They are all offering new technologies that essentially perform all the crucial communications functions that will add up to make the truly networked computer possible.

The Herring: Illusion or not, we might all have enough bandwidth on our LAN, but as you've said, at LAN's end, we drop off a communications cliff and are suddenly dealing with a 4 kilohertz twisted-pair wire from the phone company. What's the next solution?

Gilder: I think this communications cliff will be overcome in the next couple of years with cable modems, which will be the dominant way information will reach the household by the year 2000. Now there is a lot of fashionable disparagement of cable modems and the cable industry in general, but the companies building these modems are not cable operators, but companies such as Motorola, Intel, Zenith, Hybrid Networks, and a whole array of entrepreneurial companies supported by venture capitalists that can actually bring these products to market. I think cable modems are going to roll out so fast because of DBS [digital broadcast satellite] technology, which has essentially eclipsed the future prospects of the cable industry. DBS is known at TCI as 'Death Star,' and this is for a reason. And it's this competition from DBS that is driving the transformation of the cable operators into an industry serving the Internet. I hope that phone company money will also pour into this area. Under existing legislation, phone companies are already allowed to purchase small cable companies in rural areas. So, in general, to make this all happen fast, you need to combine the bandwidth of the cable industry's installed base with the capital of the RBOCs. I think that may end up happening.

The Herring: Will the broadband PC be available by the year 2005?

Gilder: I really think that the year 2005 is too far off. People accuse me of being a futurist, but I am not a futurist! I look at what's out there right now, and determine the implications. I really think there is going to be so much change by the year 2000—you know, chips with a billion transistors and the equivalent power of 16 of today's supercomputers. How can you project beyond that?!

The Herring: So in the world according to Gilder, we are really sitting at a critical juncture in computing.

Gilder: We have reached the next big moment of opportunity in the history of technology. As Sun Microsystems' co-founder Bill Joy predicted in his 1990 Churchill Club address, 1995 would be the cusp for new huge opportunities, and I think he was right on! Look at some of the basic indices to support this argument. In 1995, there were more PCs sold in the United States than TVs. By 1997, this will be the case around the world. In 1995, there were more e-mail messages sent [95 billion] than postal messages [85 billion]. I read that in THE HERRING! Must be true, right?

The Herring: [Chuckles] Absolutely.

Gilder: And in 1995, RBOC data-traffic, driven by an 800% rise in Internet usage, exceeded voice-traffic in bits for the first time. At the 1995 Western Cable Show they finally completely gave up on television and set-top boxes, and eagerly and ubiquitously embraced the cable modem and the Internet as the cable industry's great hope for the future. This is a wonderful hope, and I think cable companies are great buys right now, because they should play an important role in providing Internet services.

The Herring: How does your 'Law of the Telecosm' fit into this equation?

Gilder: Industry is being driven by two exponentials. The first is the Law of the Microcosm, which states that computer processing power and value double every 18 months. This law has really been the driving force behind world economic growth over the last 20 years. The huge new opportunity that is emerging derives from the Law of the Telecosm, which declares that when you take any n computers, and connect them on networks, you get n2 performance and value. And it's not just an increase in the number of computers, but also an increase in the power of each computer.

So the steady increase in the power of the computer is imparted by Law of the Microcosm, and compounded by the increase in the value of the system imparted by Law of the Telecosm. These two compounding exponentials explain the explosive rise of the Internet and all the technologies associated with it. Now things will really start popping.

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