Cyberspace According to Gilder

ProfessorJohn M. McCann
Fuqua School of Business
Duke University

May 8, 1995

This note was prepared as a precursor to a series of papers on cyberspace and its impact on education. I had found it necessary to make extensive quotes from George Gilder's writing because most of my colleagues and other readers of my papers were not familiar with his work. Thus the extensive quotes in this document.


George Gilder studies and writes about developments in computers and communications, and he makes projections about how they will impact societies, organizations, and individuals. I have been doing the same thing for the past eight years, and I find that Gilder's observations both agree with and extend my own beliefs and understanding about how the past and future. I like Gilder's views because he starts with an understanding of quantum physics and logically derives the consequences. In doing so, he is able to show that what we are observing in the changing nature of organizations and work can be traced to our new understanding of the nature of the universe and how this understanding had led to new technologies. For instance, he shows us why the power that had been concentrated in the center of organizations has moved to the edges.

Gilder's first major piece that is of importance to us is Microcosm: The Quantum Revolution in Economics and Technology (Simon and Schuster, 1989), a fascinating exploration of the source, meaning, and future of modern digital technology. He is now working on a new theme about the telecosm that he is publishing in Forbes, HBR, NY Times, etc. The next two sections of this note explore Gilder's conceptualization of the microcosm and the telecosm. Gilder tends to use grandiose terms, but they may be appropriate given the impacts his subject matter has had on the world.

The Microcosm

Gilder starts his message with some bold statements:

The central event of the twentieth century is the overthrow of matter. In technology, economics, and the politics of nations, wealth in the form of physical resources is steadily declining in value and significance. The powers of mind are everywhere ascendant over the brute force of things. This change marks a great historic divide. Dominating previous human history was the movement and manipulation of massive objects against friction and gravity. ... Wealth and power came mainly to the possessor of material things or to the ruler of military forces capable of conquering the physical means of production: land, labor, and capitol. Today, the ascendant nations and corporations are masters not of land and material resources but of ideas and technologies. Japan and other barren Asian islands have become the world's fastest-growing economies. Electronics is the world's fastest growing major industry. Computer software, a pure product of mind, is the chief source of added value in world commerce. The global network of telecommunications carries more valuable goods than all the world's super tankers. Today, wealth comes not to the rulers of slave labor but to the liberators of human creativity, not to the conquerors of land but to the emancipators of mind. Impelled by an accelerating surge of innovation, this trend will transform man's relations with nature in the twenty-first century. The overthrow of matter will reach beyond technology and impel the overthrow of matter in business organization. Devaluing large accumulations of fixed physical capital, the change will favor entrepreneurs over large bureaucracies of all kinds. The overthrow of matter in business will reverberate through geopolitics and exalt the nations in command of creative minds over the nations in command over land and resources. Military power will accrue more and more to the masters of information technology. Finally, the overthrow of matter will stultify all materialist philosophy and open new vistas of human imagination and moral revival. The exemplary technology of this era is the microchip ... the computer inscribed on a tiny piece of processed material. More than any other invention, this device epitomizes the overthrow of matter .[1]

Boy, this is heady stuff. And all this flows from the invention of the microchip? Yes, that is Gilder's message and it is hard to accept it because most of us do not understand the underlying quantum physics. We are used to observing the larger world, the one populated by land, labor, and capital ... the one that seems to be going away due to the new quantum physics.

Max Planck, the discoverer of the quantum, offered the key when he asserted that the new science entailed a movement from the 'visible and directly controllable to the invisible sphere, from the macrocosm to the microcosm.' The macrocosm may be defined as the visible domain of matter, seen from the outside and ruled by the laws of classical physics. The microcosm is the invisible domain, ruled and revealed by the laws of modern physics.[2]

We can see where Gilder got the microcosm ... from Planck.

Gilder traces the microcosm to the invention of the transistor by William Shockley of the AT&T Bell Laboratories, and the quantum physics that led to Shockley's invention. To Gilder, these developments led to the quantum era in which the central event is the overthrow of matter

Shockley led the team that plunged into the microcosm of solid-state physics and invented the transistor. At the heart of all-digital electronics, this invention still reverberates through the world economy and imposes its centrifugal rules of enterprise. This law of the microcosm dictates exponential rises in computer efficiency as transistors become smaller. It is this law that drives the bulk of the world's computations to ever-cheaper machines and pushes intelligence from the center to the fringes of all networks .[3]

Gilder tells us that the microcosm "spewed some 100 million personal computers around the world and endowed individuals at a workstation with the creative power of factory owners of the Industrial Age."[4] Let's look deeper at Gilder's views on the microcosm, this time at how the transistor took us out of the Industrial Revolution and into the Information Revolution.

From time to time, the structure of nations and economies goes through a technological wringer: a new invention radically reduces the price of a key factor of production and precipitates an industrial revolution. Before long, every competitive business in the economy must wring out the residue of the old costs and customs from all its products and practices.

The steam engine, for example, drastically reduced the price of physical force. Once wrested at great expense from human and animal muscle, power now pulsed cheaply and tirelessly from machines burning coal and oil. Throughout the world, dominance inexorably shifted to businesses and nations that reorganized themselves to exploit the suddenly cheap resource. Eventually every human industry and activity, from agriculture and sea transport to printing and war, had to centralize and capitalize itself to take advantage of the new technology.

Putting the world through the technological wringer over the last three decades has been the integrated circuit, the IC. Invented by Robert Noyce of Intel and Jack Kirby of Texas Instruments in 1959, the IC put the entire systems of tiny transistor switches, capacitors, resistors, diodes, and other once-costly electronic devices on one tiny microchip. Made chiefly of silicon, aluminum and oxygen -- the three most common substances in the earth's crust -- the microchip eventually reduced the price of electronic circuitry by a factor of 1 million.

Endowing every engineer or PC hacker of the Information Age with the creative power potential of a factory owner of the Industrial Age, the microchip reversed the centralizing thrust of the previous era. All nations and businesses had to adapt to the centrifugal law of the microcosm, flattening hierarchies, out sources services, liberating engineers, shedding middle management. If you did not adapt your business systems to the new regime, you would no longer be a factor in the world balance of economic and military power .[5]

The reader may ask whether there is anything new here. The libraries are littered with articles and books about the industrial and information revolutions, why repeat it yet another time. The difference is that Gilder sees all this as a simple matter of physics. The industrial revolution allowed firms to take advantage of the physics of machines and energy, and the information revolution is allowing us to take advantage of the physics of digital components. The first implication of this new physics was the power and economy of packing transistors closer and closer together onto microchips: they became "free" and their proximity increased their power. The more you packed them together, the better they worked. This leads to the optimal solution of many, many microchips that are more and more powerful, each doing its own thing, as opposed to a collection of microchips organized at the center and coordinated with software. The central approach does not work because of complexity, which is said to increase with the square of the number of nodes. But one of the key discoveries of the microcosm was that complexity grows exponentially only off the chip.

In the microcosm, on particular slivers of silicon, efficacy grows far faster than complexity. Therefore, power must move down, not up. This rule applies most powerfully to the users of the technology. In volume, anything on a chip is cheap. But as you move out of the microcosm, prices rise exponentially. A connection on a chip costs a few millionths of a cent, while the cost of a lead from a plastic package is about a cent, a wire on a printed circuit board is 10 cents, backplane links between boards are on the order of a dollar apiece, and links between computes, whether on copper cables or through fiber-optic threads or off satellites, cost between a few thousand and millions of dollars to consummate .[6]

This packing of transistors into microchips is not going to end anytime soon. If we simply follow the learning curve that is common to all electronics, we see that we will have "a billion-transistor chip that could equal the output of 20 Cray 2 super computer central processing units and be made for less than $100."[7]

STOP! Think about this for a minute. I know that numbers like this are commonly thrown around, but this future microcosm is bound to happen (it's in the physics) and it means that individuals will have almost limitless and cheap computing power on their desks or in their hands. Computing will be limitless and essentially free, just as transistors are free today. This situation will come to us in a evolutionary manner, with a 30 to 50 percent improvement each and every year. But looked at from the perspective of a decade, we are seeing a discontinuous change from a world of precious computing resources to a world of free computing resources.

Gilder maps the laws of the microcosm into world of work and organization.

Provided that complexity is concentrated on single chips rather than spread across massive networks, the power of the chip grows much faster than the power of a host processor running a vast system of many terminals. The power of the individual commanding a single workstation -- or small network of specialized terminals -- increases far faster than the power of an overall bureaucratic system. The chip designers, computer architects, and process engineers using these workstations -- more potent by far than mainframes of a decade ago -- are far less dependent on bureaucracy for capital and support than their predecessors. The more intellectual functionality placed on single chips and the fewer expensive interconnections, the more power that can be cheaply available to individuals. The organization of enterprise follows the organization of the chip. The power of entrepreneurs using distributed information technology grows far faster than the power of large institutions attempting to bring information technology to heel. Rather than pushing decisions up through the hierarchy, the power of microelectronics pulls them remorselessly down to the individual. This is the law of the microcosm. This is the secret of the new American challenge in the global economy.[8]

This is a view of the individual in control ... the entity that quantum physics is making the more efficient and productive than collections of individuals organized and directed from the center. Although most of us do not have a deep understanding of the underlying physics, we can begin to accept this conclusion because it agrees with our current observations and experiences ... we are seeing old organizations dissolve as firms try to find new structures that will allow them to take advantage of individuals.

The Telecosm

But Gilder does not lead us to conclude that all work will flow from individuals working in isolation. His real message is that all intelligence will move to the edge of the network ... this is the real promise of the microcosmic miracle. But to become productive, do we need another miracle, one that will make the network as efficient and effective as the microchip-based computers of the microcosm?

Gilder seems to think so. After finishing his work on the microcosm in the late 1980s, he turned his research to the network and is leading us into the telecosm. Gilder tells us that the microcosm will not have it "big bang" until it is married with the telecosm, which will give us the bandwidth the accommodate the immense computing power that will move to the edges of the networks. Let's listen to what Gilder has to say about the telecosm:

During the next decade or so, industry will go through a new technological wringer and submit to a new law: the law of the telecosm. The new wringer -- the new integrated circuit -- is called the all-optical network. It is a communications system that runs entirely in glass. Just as the old integrated circuit put entire electronic systems on single slivers of silicon, the new IC will put entire communications systems on seamless webs of silica. Wrought in threads as think as a human hair, this silica is so pure that you could see through a window of it 70 miles thick. But what makes the new wringer roll with all the force of the microchip revolution before it is not the purity but the price. Just as the old IC made transistor power virtually free, the new IC -- the all-optical network -- will make communications power virtually free. Another word for communications power is bandwidth. Just as the entire world had to learn to waste transistors, the entire world will now have to learn how to waste bandwidth. In the 1990s and beyond, every industry and economy will go through the wringer again.[9]

Gilder calls this world of free bandwidth the fibersphere, and to understand it you have to realize that he is talking about something that is very different from what we read about in the press in articles about the networks being planned by the telephone and cable TV industries. Gilder is talking about a network that does not contain switches because they are electronic in nature and thus slow the network to a crawl. Switches cause one to use less than one percent of a fiber network's capability, and thus must be banished from the network (according to Gilder).

But how can you have personal communications if you do not have a switch? Gilder tells us that the answer is the central rule of the telecosm: bandwidth is a nearly perfect substitute for switching. The basic idea is that there is sufficient bandwidth in an all-optical network to send all messages everywhere in the network and to allow each terminal (computer, phone, fax, etc.) to tune into is own messages. This happens today in some local area networks where communications are sent along a network cable from one PC to another. The sending PC puts the network address of the receiving PC on the front of the message and pops the message onto the network where it flows along. Each PC connected to the network looks at the message to see if it should grab it ... to see if the message contains its address. If so, the message is taken off the network by the PC. The fibersphere is just one giant network ... one that has sufficient bandwidth to handle all the world's communications.

Our common sense might tell us that this is not the way to build a network. It is as if the mail deliverer carried all the world's letters in a pouch, and stopped at each and every house, holding up each letter in turn and asking "Is this for you?" We know that it is far more efficient to run the letters through a series of human switches in the mail system that sort each letter into the correct mailbox. We know that this is the way that our telephone system works. We know that when you enter the number 9196607776 that the phone system is narrowing its choice of destinations when you type each number so that it finally knows the exact physical location that has this number assigned to it.

We also know the limitations when we do use a broadcast model such as the one adopted by the television industry in which television stations are assigned their own frequencies on which they can broadcast through the atmosphere. We tune our television sets to grab the desired television signal. We know that in this model, the network is the atmosphere and it is very dark and passive ... it has no intelligence. The intelligence that chooses among the signals is in the end point, in our brains and in our television set. We also know that we are generally not happy with this model, and that is why cable television has grown so large. But when we think about cable, we realize that it is just another form of the broadcast model, and we know that we are not very happy with it either. So, how can we be happen with a fibersphere that is as neutral and passive as the atmosphere and the cable television system?

The answer is in the bandwidth, which is so immense that it can overcome all of the problems associated with today's low bandwidth communications media. Perhaps we need to let Gilder give us the numbers to support these claims.

In communications systems, the number of waves per second, or hertz, represents a rough measure of two things about a transmitted signal: its center frequency and its bandwidth about that center frequency. The bandwidth, not the center, or carrier, frequency, is what expresses the ultimate carrying capacity. Your AM radio dial, for example, runs from around 535 kilohertz to 1, 705 kilohertz, and each station uses some 10 kilohertz. With an ideal receiver, the AM passband might carry 117 stations. The 10 kilohertz of bandwidth allowed each station suffices for speech and music, but the fidelity is poor. It is much better with FM radio, in which the bandwidth set aside for each station is 200 kilohertz, 20 times the AM number.

By contrast, the intrinsic bandwidth of one strand of dark fiber is some 25,000 gigahertz in each of three groups of frequencies -- three passbands -- through which fiber can transmit light over long distances. This bandwidth might accommodate some 25,000 super computer 'stations' at a gigahertz per terminal (or 2.5 billion AM radio stations).

For comparison, consider all the radio frequencies currently used in the air for radio, television, microwave and satellite communications -- and multiply by 1,000. The bandwidth of one fiber thread could carry more than 1,000 times as much information as all these radio and microwave frequencies that currently comprise the 'air.' Expressed another way, one fiber thread could bear all the traffic on the phone network during the peak hour of Mother's Day in the United States.[10]

Whoa! Think about it. Every person in the US. could have his or her own AM radio station, and we would still have 90 percent of the bandwidth left.

The implication of all this is that as we work our way through the last decade of the 20th century, we should prepare ourselves to survive and flourish in a world where computing power and communications bandwidth may become essentially free.

By making bandwidth nearly free, the new integrated circuit of the fibersphere will radically change the environment of all information industries and technologies. In all eras, companies tend to prevail by maximizing the use of the cheapest resources. In the era of the fibersphere, they will use the huge intrinsic bandwidth of fiber -- all 25,000 gigahertz or more -- to replace nearly all the hundreds of billions of dollars' worth of switches, bridges, routers, converters, codecs, compressors, error correctors and other devices, together with the trillions of lines of software code, that pervade the intelligent switching fabric of both telephone and computer networks.

The makers of all this equipment will resist mightily. But there is no chance that the old regime can prevail by fighting cheap and simple optics with costly and complex electronics and software.

The all-optical network will triumph for the same reason that the integrated circuit triumphed: it is incomparable cheaper than the competition.[11]

AT&T, Digital Equipment Corporation, and MIT recently formed the Wideband All Optical Networks Consortium. The consortium received $8.4 million from DARPA to "study the architecture of all-optical networks, advance the relevant technology and construct an extensive test-bed system.[12] This research should take us a long way towards understanding whether Gilder's vision of the future is correct.

Gilder tells us that the fibersphere will be the way we (humans and machines) communicate. When he wrote these words, he was basing them on the currently available knowledge of technology. But this knowledge has changed in the last two years. And it happened in a way that was predicted by Gilder: by individuals and not by large organizations. These new developments have led to the notion that we will communicate in both the fibersphere and the atmosphere. This time, it is not Shockley's discover that is the basis for the new insights, but Shannon and his development of information theory.

Shannon showed the world that two approaches were available for sending information through a noisy channel: narrowband high-powered solutions or broadband low-powered solutions. For decades, the engineers have only been able to implement the former and were thus limited to a very small portion of the available spectrum. Although Shannon had shown that there were tremendous gains in communication efficiency when using the higher bandwidth (broadband) solutions, the available technologies and science would not allow engineers to build the gear. This was true because complexity rises exponentially with bandwidth, and the engineers did not have the resources to deal with this complexity.

But the microcosm has come to the rescue, this time in the form of new chips, digital signal processors (DSP), that are dropping in price by a factor of five each year.

This wild rush in DSPs will eventually converge with the precipitous plunge in price-performance rations of general-purpose microprocessors. ... Micros are moving beyond 100-megahertz clock speeds. They are shifting from a regime of processing 32-bit words at a time to a regime of processing 64 bit words. This expands the total addressable memory by a factor of four billion. Together with increasing use of massively parallel DSP architectures, three gains will keep computers well ahead of the complexity of broadband communications. What this means is that while complexity rises exponentially with bandwidth, computer efficiencies are rising even faster. The result is to open new vistas of spectrum in the atmosphere as dramatic as the gains of spectrum so far achieved in the fibersphere.[13]

Inventors have discovered how to use Shannon's theories and the microcosm to provide radio transmission in the upper reaches of the spectrum and thus open the atmosphere to a wider array of communication opportunities.

For 35 years, the wireless communications industry has been inching up the spectrum, shifting slowly from long and strong wavelengths toward wide and weak bands of shorter wave lengths. During the 1990s, this trend will accelerate sharply. Accommodating hundreds of millions of users around the world, cellular communications will turn digital, leap up the spectrum and even move into video. Shannon's laws show that this will impel vast increases in the cost-effectiveness of communications. In general, the new rule of radio is the shorter the transmission path, the better the system. Like transistors on semiconductor chips, transmitters are more efficient the more closely they are packed together. ... The new regime favors 'geodesic networks,' with radios intimately linked into tiny microcells. As in the law of the microcosm, the less the space, the more the room. ... The law of the telecosm dictates that the higher the frequency, the shorter the wavelength, the wider the bandwidth, the smaller the antenna, the slimmer the cell and ultimately, the cheaper and better the communications. The working of this law will render obsolete the entire idea of scarce spectrum and launch an era of advances in telecommunications comparable to the recent gains in computing.[14]

Notice the use of the term "microcell." This view of the wireless communications network calls for millions of them.

In essence, the new minicell replaces a rigid structure of giant analog mainframes with a system of wireless local area networks. Best of all, at a time when the computer industry is preparing a massive invasion of the air, these wide and weak radios can handle voice, data and even video at the same time. Further, by cheaply accommodating a move from scores of large base stations to scores of thousands of minicells per city -- on poles, down alleys or in elevator shafts -- the system fulfills the promise of the computer revolution as a spectrum multiplier. Since each new minicell can use all the frequencies currently used by a large cell site, the multiplication of cells achieves a similar multiplication of bandwidth. The future of wireless communications is boundless bandwidth, accomplished through the Shannon strategy of wide and weak signals, moving to ever smaller cells with lower power at higher frequencies.[15]

Gilder has led us into a world of wonder, one in which communication bandwidth becomes practically free. He is certain of this future because he has seen its analog in computers based upon increasingly powerful microchips. We too have seen that powerful companies cannot stand in the way of advances wrought from quantum physics; just look at how the old guard mainframe manufacturers have gone by the wayside as the microchips became more powerful.

Free communications is not necessary to have a communications revolution felt by most of society. Cheaper communications will suffice and we see evidence daily that the trend is underway. Consider the following example.

Seven years ago business videoconferencing equipment cost $250,000 on each end and ran up $1,000 an hour in connection charges. Now, cheaper chips and cleverer compression algorithms bring these costs down to $40,000 and $15 per hour.[16] This quote, from an article published in November 1992, illustrates how quickly these types of numbers get out of date due to the continual evolution of digital technology. Today's desktop videoconferencing add-on boards retail for a few thousand dollars, and the transmission costs are also dropping rapidly.

This is an example of the marriage of computing and television in a way that causes television to maintain its identify. New developments are underway that will lead TV, as a technology, to be subsumed as a computer, with the result called the telecomputer . As we would expect, it will be a solid state device based upon silicon and glass, and will not contain anything that we now think of as television technology.

When we have the telecomputer connected to the all-optical network, we will enter what Gilder calls the "age of the telecomputer." I will end this story with his vision of that age:

Computers will so enrich the power of communications that people will soon be saved the expense, tedium, and energy waste of conventional travel, whether for work, entertainment, or education.[17]

The essential questions for us seems to be the following.

  1. George Gilder, Microcosm, Simon and Schuster, 1989, p. 17.
  2. Gilder, op. cit., p. 19.
  3. George Gilder, "The New Rule of Wireless," Forbes, March 29, 1993, p. 96.
  4. George Gilder, "The Issaquah Miracle," Forbes, June 7, 1993.
  5. George Gilder, "Into the Fibersphere," Forbes, December 7, 1992.
  6. Gilder, Microcosm, ibid, p. 346.
  7. Gilder, Into the Fibersphere, ibid..
  8. Gilder, op cit, p. 346.
  9. Gilder op cit
  10. Gilder, op. cit.
  11. Gilder, op. cit.
  12. "AT&T, Digital Equipment Corporation and Massachusetts Institute of Technology Form Consortium," PR Newswire, March 2, 1993.
  13. Gilder, "The New Rule of Wireless," op. cit.
  14. Gilder, op. cit.
  15. Gilder, op. cit
  16. David C. Churbuck and Jeffrey S. Young, "The Virtual Workplace," Forbers, November 23, 1992, p. 188.
  17. Gilder, Microcosm, op. cit., p. 315.