When the price goes down

When the price goes down

If the pauses between the industrial revolutions are as important as the industrial revolutions themselves, then what are the real moments of change?

It’s an important question if we want to understand the future of business.

But first, let’s be clear that a historical period cannot be a real moment of change. By “real moment of change” I mean specific developments which, yes, are born out of a historical period, but which will often run their own course.

They can take a few years, decades or even centuries.

The story of aluminium

Case in point, one easily forgotten development with a enormous impact is aluminium.

Before the mid-19th century aluminum was a rare metal. Extremely rare. In fact, the cost of aluminum exceeded that of gold.

Then new production methods came about, yielding much larger quantities of aluminium. From 1855-59 the price of aluminium dropped from $500 to $40 per pound.

And that was just the beginning. During the 20th century aluminum production exploded.

World production of aluminium since 1900

“Give me 30,000 tonnes of aluminium, and I will win the war,” Stalin wrote to Roosevelt in 1941, acutely aware of what aluminium had to offer.

Today, aluminium is all around us.

It’s in cans, foils and window frames. In smartphones, laptops and TVs. In power lines, trains, aircrafts, buildings, bridges and so on.

And the cost of aluminium today? Just $0.5 per pound (in today’s prices).

When the price goes down…

So, what can we learn from this? First and foremost, that if we are to look for moments of real change, we need to look not for the birth of an idea or a technology.

Instead, we need to look at development in price. When the price goes down, that’s when things are likely to have a major impact.

And when production volume goes up, we know that it is in fact happening.

A few examples to support this observation:

The revolutionary thing about Skype and other forms of internet telecommunications is not that you can do long-distance calls. It’s the low price you pay for it.

The revolutionary thing about smartphones is not the technology per se. It’s that everyone can afford to have one.

The revolutionary thing about Spotify (and similar) is not that you can stream the music. It’s the fact that music is almost free.

The revolutionary thing about the commercial airline industry is not that their airplanes can fly, but that air travel has become so affordable.

In other words, the real moments of change has to do with mainstream adoption. And mainstream adoption can only happen when the price goes down.

Renewables

So, with that in mind, we can start anticipating the next real moments of change. Where are we currently seeing or anticipating big price drops?

The first thing that comes to mind is renewables. The price of renewable energy has dropped dramatically in recent years, and production has gone up.

There’s plenty of reason to think this trend won’t end anytime soon. For one, renewables are part of a mega trend due to the climate crisis. But what’s equally important is that photovoltaic cells are like computer chips. They will get smaller and smaller, improving energy output and reducing costs. 

Furthermore, consumers can produce the energy themselves, become energy self-sufficient, and some will even start supplying the market with excess solar energy.

Energy is bound to become extremely cheap. If not entirely free.

Other areas

Another area that comes to mind is education. Not because a classic degree at leading universities has gotten less expensive. But because internet technologies have enabled free education in ways we couldn’t image a few decades ago.

I’ve touched upon this before, and to me the following example is still mind-blowing.

In 2015, then 16-year-old Mark O’Dowd won the Milan Expo prize for his breakthrough idea regarding how to increase the productivity of seeds. How? In no small part thanks to watching YouTube videos about the topic from the age of 12.

The universities all know this. And today, there are hundreds of Ivy League courses you can take online for free.

Other important areas to look out for in terms of price drops would be artificial intelligence, new cancer treatments, the food sector etc.

The next question…

From a business perspective, the next question is: “What to do when the products in your sector become extremely cheap? For example, what can an energy company do when energy is free?”

I will try to answer that question in my next post.

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As with my previous posts, I would like to thank business historian Chris McKenna of Oxford University’s Saïd Business School for inspiration and input to this blog post.

 

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