The End of More – The Death of Moore’s Law

 A version of this article first appeared in IEEE Spectrum.

For most of our lives the idea that computers and technology would get, better, faster, cheaper every year was as assured as the sun rising every morning. The story “GlobalFoundries Stops All 7nm Development“ doesn’t sound like the end of that era, but for anyone who uses an electronic device, it most certainly is.

Technology innovation is going to take a different direction.

GlobalFoundries was one of the three companies that made the most advanced silicon chips for other companies (AMD, IBM, Broadcom, Qualcomm, STM and the Department of Defense.) The other foundries are Samsung in South Korea and TSMC in Taiwan. Now there are only two pursuing the leading edge.

This is a big deal.

Since the invention of the integrated circuit ~60 years ago, computer chip manufacturers have been able to pack more transistors onto a single piece of silicon every year. In 1965, Gordon Moore, one of the founders of Intel, observed that the number of transistors was doubling every 24 months and would continue to do so. For 40 years the chip industry managed to live up to that prediction. The first integrated circuits in 1960 had ~10 transistors. Today the most complex silicon chips have 10 billion. Think about it. Silicon chips can now hold a billion times more transistors.

But Moore’s Law ended a decade ago. Consumers just didn’t get the memo.

No More Moore – The End of Process Technology Innovation
Chips are actually “printed,” not with a printing press but with lithography, using exotic chemicals and materials in a “fab” (a chip fabrication plant – the factory where chips are produced). Packing more transistors in each generation of chips requires the fab to “shrink” the size of the transistors. The first transistors were printed with lines 80 microns wide. Today Samsung and TSMC are pushing to produce chips with features few dozen nanometers across.That’s about a 2,000-to-1 reduction.

Each new generation of chips that shrinks the line widths requires fabs to invest enormous amounts of money in new chip-making equipment.  While the first fabs cost a few million dollars, current fabs – the ones that push the bleeding edge – are over $10 billion.

And the exploding cost of the fab is not the only issue with packing more transistors on chips. Each shrink of chip line widths requires more complexity. Features have to be precisely placed on exact locations on each layer of a device. At 7 nanometers this requires up to 80 separate mask layers.

Moore’s Law was an observation about process technology and economics. For half a century it drove the aspirations of the semiconductor industry. But the other limitation to packing more transistors onto to a chip is a physical limitation called Dennard scaling– as transistors get smaller, their power density stays constant, so that the power use stays in proportion with area. This basic law of physics has created a “Power Wall” – a barrier to clock speed – that has limited microprocessor frequency to around 4 GHz since 2005. It’s why clock speeds on your microprocessor stopped increasing with leaps and bounds 13 years ago.  And why memory density is not going to increase at the rate we saw a decade ago.

This problem of continuing to shrink transistors is so hard that even Intel, the leader in microprocessors and for decades the gold standard in leading fab technology, has had problems. Industry observers have suggested that Intel has hit several speed bumps on the way to their next generation push to 10- and 7-nanometer designs and now is trailing TSMC and Samsung.

This combination of spiraling fab cost, technology barriers, power density limits and diminishing returns is the reason GlobalFoundries threw in the towel on further shrinking line widths . It also means the future direction of innovation on silicon is no longer predictable.

It’s the End of the Beginning
The end of putting more transistors on a single chip doesn’t mean the end of innovation in computers or mobile devices. (To be clear, 1) the bleeding edge will advance, but almost imperceptibly year-to-year and 2) GlobalFoundaries isn’t shutting down, they’re just no longer going to be the ones pushing the edge 3) existing fabs can make current generation 14nm chips and their expensive tools have been paid for. Even older fabs at 28-, 45-, and 65nm can make a ton of money).

But what it does mean is that we’re at the end of guaranteed year-to-year growth in computing power. The result is the end of the type of innovation we’ve been used to for the last 60 years. Instead of just faster versions of what we’ve been used to seeing, device designers now need to get more creative with the 10 billion transistors they have to work with.

It’s worth remembering that human brains have had 100 billion neurons for at least the last 35,000 years. Yet we’ve learned to do a lot more with the same compute power. The same will hold true with semiconductors – we’re going to figure out radically new ways to use those 10 billion transistors.

For example, there are new chip architectures coming (multi-core CPUs, massively parallel CPUs and special purpose silicon for AI/machine learning and GPU’s like Nvidia), new ways to package the chips and to interconnect memory, and even new types of memory. And other designs are pushing for extreme low power usage and others for very low cost.

It’s a Whole New Game
So, what does this mean for consumers? First, high performance applications that needed very fast computing locally on your device will continue their move to the cloud (where data centers are measured in football field sizes) further enabled by new 5G networks. Second, while computing devices we buy will not be much faster on today’s off-the-shelf software, new features– facial recognition, augmented reality, autonomous navigation, and apps we haven’t even thought about –are going to come from new software using new technology like new displays and sensors.

The world of computing is moving into new and uncharted territory. For desktop and mobile devices, the need for a “must have” upgrade won’t be for speed, but because there’s a new capability or app.

For chip manufacturers, for the first time in half a century, all rules are off. There will be a new set of winners and losers in this transition. It will be exciting to watch and see what emerges from the fog.

Lessons Learned

  • Moore’s Law – the doubling of every two years of how many transistors can fit on a chip – has ended
  • Innovation will continue in new computer architectures, chip packaging, interconnects, and memory
  • 5G networks will move more high-performance consumer computing needs seamlessly to the cloud
  • New applications and hardware other than CPU speed (5G networks, displays, sensors) will now drive sales of consumer devices
  • New winners and losers will emerge in consumer devices and chip suppliers

Is the Lean Startup Dead?

A version of this article first appeared in the Harvard Business Review

Reading the NY Times article “Jeffrey Katzenberg Raises $1 Billion for Short-Form Video Venture,” I realized it was time for a new startup heuristic: the amount of customer discovery and product-market fit you need to find is inversely proportional to the amount and availability of risk capital.

And while the “first mover advantage” was the rallying cry of the last bubble, today’s is: “Massive capital infusion can own the entire market.”

Fire, Ready, Aim
Jeff Katzenberg has a great track record – head of the studio at Paramount, chairman of Disney Studios, co-founder of DreamWorks and now chairman of NewTV. The billion dollars he just raised is on top of the $750 million NewTV’s parent company, WndrCo, has raised for the venture. He just hired Meg Whitman. the ex-CEO of HP and eBay, as CEO of NewTV. Their idea is that consumers will want a subscription service for short form entertainment (10-minute programs) for mobile rather than full length movies. (Think YouTube meets Netflix).

It’s an almost $2-billion-dollar bet based on a set of hypotheses. Will consumers want to watch short-form mobile entertainment? Since NewTV won’t be making the content, they will be licensing from and partnering with traditional entertainment producers. Will these third parties produce something people will watch? NewTV will depend on partners like telcos to distribute the content. (Given Verizon just shut down Go90, its short form content video service, it will be interesting to see if Verizon distributes Katzenberg’s offerings.)

But NewTV doesn’t plan on testing these hypotheses. With fewer than 10 employees but almost $2-billion dollars in the bank, they plan on jumping right in.

It’s the antithesis of the Lean Startup.  And it may work. Why?

Dot Com Boom to Bust
Most entrepreneurs today don’t remember the Dot-Com bubble of 1995 or the Dot-Com crash that followed in 2000. As a reminder, the Dot Com bubble was a five-year period from August 1995 (the Netscape IPO) when there was a massive wave of experiments on the then-new internet, in commerce, entertainment, nascent social media, and search. When Netscape went public, it unleashed a frenzy from the public markets for anything related to the internet and signaled to venture investors that there were massive returns to be made investing in anything internet related. Almost overnight the floodgates opened, and risk capital was available at scale from venture capital investors who rushed their startups toward public offerings. Tech IPO prices exploded and subsequent trading prices rose to dizzying heights as the stock prices became disconnected from the traditional metrics of revenue and profits. Some have labeled this period as irrational exuberance. But as Carlota Perez has so aptly described, all new technology industries go through an eruption and frenzy phase, followed by a crash, then a golden age and maturity. Then the cycle repeats with a new set of technologies.

Given the stock market was buying “the story and vision” of anything internet, inflated expectations were more important than traditional metrics like customers, growth, revenue, or heaven forbid, profits. Startups wrote business plans, generated expansive 5-year forecasts and executed (hired, spent and built) to the plan. The mantra of “first mover advantage,” the idea that winners are the ones who are the first entrants in their market, became the conventional wisdom of investors in Silicon Valley.“ First Movers” didn’t understand customer problems or the product features that solved those problems (what we now call product-market fit). These bubble startups were actually guessing at their business model and did premature and aggressive hype and early company launches and had extremely high burn rates – all predicated on an IPO to raise more cash. To be fair, in the 20th century, there really wasn’t a model for how to build startups other than write plan, raise money, and execute – the bubble was this method, on steroids. And to be honest, VC’s in this bubble really didn’t care. Massive liquidity awaited the first movers to the IPO’s, and that’s how they managed their portfolios.

When VC’s realized how eager the public markets were for anything related to the internet, they pushed startups with little revenue and no profits into IPOs as fast as they could. The unprecedented size and scale of VC returns transformed venture capital from a financial asset backwater into full-fledged player in the financial markets.

Then one day it was over. IPOs dried up. Startups with huge burn rates – building leases, staff, PR and advertising – ran out of money. Most startups born in the bubble died in the bubble.

The Rise of the Lean Startup
After the crash, venture capital was scarce to non-existent. (Most of the funds that started in the late part of the boom would be underwater). Angel investment, which was small to start with, disappeared, and most corporate VCs shut down. VC’s were no longer insisting that startups spend faster, and “swing for the fences”. In fact, they were screaming at them to dramatically reduce their burn rates. It was a nuclear winter for startup capital.

The idea of the Lean Startup was built on top of the rubble of the 2000 Dot-Com crash.

With risk capital at a premium and the public markets closed, startups and their investors now needed a methodology to preserve capital and survive long enough to generate revenue and profits. And to do that they needed a different method than just “build it and they will come.” They needed to be sure that what they were building was what customers wanted and needed. And if their initial guesses were wrong, they needed a process that would permit them to change early on in the product development process when the cost of changes was small – the famed “pivot”.

Lean started from the observation that you cannot ask a question that you have no words for. At the time we had no language to describe that startups were not smaller versions of large companies; the first insight was that large companies executed known business models, while startups searched for them. Yet while we had plenty of language and tools for execution, we had none for search.  So we (Blank, Ries, Osterwalder) built the tools and created a new language for innovation and modern entrepreneurship. It helped that in the nuclear winter that followed the crash, 2001 – 2004, startups and VCs were extremely risk averse and amenable to new ideas that reduced risk. (This same risk averse, conserve the cash, VC mindset would return after the 2008 meltdown of the housing market.)

As described in the HBR article “Why the Lean Startup Changes Everything,” we developed Lean as the business model / customer development / agile development solution stack where entrepreneurs first map their hypotheses about their business model and then test these hypotheses with customers in the field (customer development) and use an iterative and incremental development methodology (agile development) to build the product. This allowed startups to build Minimal Viable Products (MVPs) – incremental and iterative prototypes – and put them in front of a large number of customers to get immediate feedback. When founders discovered their assumptions were wrong, as they inevitably did, the result wasn’t a crisis; it was a learning event called a pivot— and an opportunity to change the business model.

Every startup is in a race against time. It has to find product-market fit before running out of cash. Lean makes sense when capital is scarce and when you need to keep burn rates low. Lean was designed to inform the founders’ vision while they operated frugally at speed. It was not built as a focus group for consensus for those without deep convictions.

The result? Startups now had tools that sped up the search for customers, ensured that what was being built met customer needs, reduced time to market and slashed the cost of development.

Carpe Diem – Seize the Cash
Today, memories of frugal VC’s and tight capital markets have faded, and the structure of risk capital is radically different. The explosion of seed funding means tens of thousands of companies that previously languished in their basement are getting funding, likely two orders of magnitude more than received Series A funding during the Dot-Com bubble. As mobile devices offer a platform of several billion eyeballs, potential customers which were previously small niche markets now include everyone on the planet. And enterprise customers in a race to reconfigure strategies, channels, and offerings to deal with disruption provide a willing market for startup tools and services.

All this is driven by corporate funds, sovereign funds and even VC funds with capital pools of tens of billions of dollars dwarfing any of the dollars in the first Dot Com bubble – and all looking for the next Tesla, Uber, Airbnb, or Alibaba. What matters to investors now is to drive startup valuations into unicorn territory (valued at $1 billion or more) via rapid growth – usually users, revenue, engagements but almost never profits. As valuations have long passed the peak of the 2000 Internet bubble, VC’s and founders who previously had to wait until they sold their company or took it public to make money no longer have to wait. They can now sell part of their investment when they raise the next round. And if the company does go public, the valuations are at least 10x of the last bubble.

With capital chasing the best deals, and hundreds of millions of dollars pouring into some startups, most funds now scoff at the idea of Lean. Rather than the “first mover advantage” of the last bubble, today’s theory is that “massive capital infusion owns the entire market.” And Lean for startups seems like some quaint notion of a bygone era.

And that explains why investors are willing to bet on someone with a successful track record like Katzenberg who has a vision of disrupting an entire industry.

In short, Lean was an answer to a specific startup problem at a specific time, one that most entrepreneurs still face and which ebbs and flows depending on capital markets. It’s a response to scarce capital, and when that constraint is loosened, it’s worth considering whether other approaches are superior. With enough cash in the bank, Katzenberg can afford to create content, sign distribution deals, and see if consumers watch. If not, he still has the option to pivot. And if he’s right, the payoff will be huge.

One More Thing…
Well-funded startups often have more capital for R&D than the incumbent companies they’re disrupting. Companies struggle to compete while reconfiguring legacy distribution channels, pricing models and supply chains. And government agencies find themselves being disrupted by adversaries unencumbered by legacy systems, policies and history.  Both companies and government agencies struggle with how to deliver innovation at speed. Ironically, for this new audience that makes the next generation of Lean – the Innovation Pipeline – more relevant than ever.

Lessons Learned:

  • When capital for startups is readily available at scale, it makes more sense to go big, fast and make mistakes than it does to search for product/market fit.
  • The amount of customer discovery and product-market fit you need to do is inversely proportional to the amount and availability of risk capital.
  • Still, unless your startup has access to large pools of capital or have a brand name like Katzenberg, Lean still makes sense.
  • Lean is now essential for companies and government agencies to deliver innovation at speed
  • The Lean Startup isn’t dead. For companies and government the next generation of Lean – the Innovation Pipeline – is more relevant than ever.
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