Big changes coming, part II

Several months ago, we wrote a post called "Video games and the future of computing," in which we noted that the general computing experience (including the internet) is still two-dimensional, whereas video games have been three-dimensional for many years. We linked to an article by Peter Huber, which begins: "For a preview of the computer that's headed your way, sneak into your teenager's bedroom."

Today, Tech Crunch's Erik Schonfeld discusses one Silicon Valley company (Menlo Park start-up Vivaty) trying to create a "3-D web browser" capability. Later in the day, Google announced the public debut of its own virtual world, called Lively*.

We have stated in several previous posts (including this one from February, this one from May, and this one from June) that the growing ability to transfer massive amounts of data -- including video -- almost instantly is going to bring about enormous changes in the internet. Already, YouTube videos account for a significant percentage of data transferred over the internet, and Google's Larry Page stated in a recent earnings call that ten hours of new video are uploaded to YouTube every minute*.

But the vigorous growth of "video to internet" is only a current indicator of the significant changes that this growing capability to transfer data will bring about in the next several years. In the realm of video, it will also take the form of video to the television (as we discussed in a November post entitled "Become aware of IPTV"), and ultimately will enable "video to video," which is already a reality at a cost that some large corporations can afford, but which will later become cost-effective for average users as well. You can get a brief taste of what this may look like -- as well as the effect it has on people -- in this whimsical video of "The Telectroscope" which the Wall Street Journal's Andy Grove highlighted in June:

This transformation will involve not only actual video (captured from actual real-world scenes) but also the ability to create more and more realistic computer-generated video images. The graphic quality of images in computer games (and those of aspiring 3-D web browser company Vivaty, as well as those in "virtual worlds" available today) are still obviously artificial. However, as some of the computer images shown above -- generated by AMD's ATI and discussed in this on-line video -- demonstrate, the ability to make graphics in an ordinary computer that approach "photorealism" is rapidly approaching*.

Even beyond the tremendous expansion of video capabilities which have the potential to transform the internet (and our lives) in numerous ways in years ahead, the ability to rapidly transfer very large amounts of data enables other important capabilities, such as network storage and parallel processing. These have been discussed for many years, but the increasing ability to move more and more data will enable them to be applied in wider and more pervasive ways than previously possible.

With their focus on the current market turbulence, and the events of the past several months (all of which, we have argued previously, are connected to the Fed's response to the bear market of 2000-2002 and the misallocation of capital encouraged by artificially low interest rates), few investors are currently aware of the significant opportunities presented by some of the changes discussed above.

We would argue that this is a very good time to start to look into them.

* The principals of Taylor Frigon Capital Management do not own shares in Google (GOOG) or AMD (AMD).

For later posts on this same topic, see also:

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