"Our children will enjoy in their homes electrical energy too cheap to measure." -- Lewis L. Strauss, chairman of the Atomic Energy Commission, 1954
Yesterday, Microsoft (NASDAQ:MSFT) founder Bill Gates predicted that "Ten years out, in terms of actual hardware costs you can almost think of hardware as being free -- I'm not saying it will be absolutely free -- but in terms of the power of the servers, the power of the network will not be a limiting factor." Unanswered was, "Will the cost of the operating system exceed the cost of the hardware?"
As long-term investors, we are concerned with long-term trends. And as much as one may question why a software guru should have any credibility when predicting hardware prices, let's consider Gates' vision.
Almost-free hardware would mean that all homes would have a hardware resource -- the turn-of-the-century equivalent to every home having electricity. And with every home wired to receive data, computers would replace the stacks of audio and video components typical of today's home. After all, it is just digital bits.
That should be good news for Dell (NASDAQ:DELL) and mirrors what Michael Dell has been saying about the home computer being the nerve center for home entertainment. But forget driving to Wal-Mart (NYSE:WMT) to buy a CD or DVD; you would have a storage medium (computer) right in the living room.
Network landlords like Comcast (NASDAQ:CMCSA) and Verizon (NYSE:VZ) also benefit from owning the pipes to connect the computer to the digital content. Movie, game, and other content providers would prosper, but what about the middlemen? Would a consumer bypass the ultimate flexibility of downloading a video in favor of Netflix's (NASDAQ:NFLX) mail distribution and freedom from late charges?
Of course, Mr. Gates' vision may never materialize. Some very connected people thought that by now electricity would be virtually free thanks to nuclear power. Intel (NASDAQ:INTC) microprocessors have provided increasing computing power every 18 months for decades, and creative minds continue to find ways to harness that power to stimulate consumer demand at prices far from free.
Maybe we should withhold any conclusions until Microsoft starts "giving" away its own hardware, the Xbox game console. After all, Microsoft doesn't even own the games (the razor blades) that benefit again and again from a free hardware (razor) platform. Gates' vision may or may not come to pass, but come to think of it, he may be right: For defensive long-term investors, content may be king -- and the safer bet.
Interested in discussing hardware with other investors? Try our Help With This STUPID computer! or Intel discussion boards.
As an IT consultant, Fool contributor W.D. Crotty would relish a world of cheap hardware -- if it were "free" of spam and technical problems. We're dreaming, right? W.D. Crotty does not own any of the stocks mentioned.
