Today we already have 4GB USB thumb drives with 64 GB drives on the way. Cutthroat competition, rapidly declining prices, increased storage, and strong growth in demand for flash memory make this an innovation hotspot.

The progressive march of Moore’s law is not just making these drives more convenient, but inching them toward a new paradigm for mobile computing – where your thumb drive IS the computer. People are using their USB flash drives to hold applications like Portable Firefox, and even entire operating systems (like flash linux and Feraga.com) designed to work on USB. Flash memory manufacturers like Sandisk and M-Systems smell opportunity and have launched U3.com (good wikipedia entry on it here) which is almost like a mini-operating system for USB. The U3 Launch pad is like a start menu and software installation program that bypasses the operating system of the local machine you’re using.

Now you can jettison that bulky laptop and carry your computer on your keychain. By inserting your USB applications or even USB OS into another computer you can quickly take control of its “brain” and local processes. Laptops and desktops become a handy shell with a nice screen and keyboard attached to them. Your Sysadmins likes it and you will too.

For competitors in the cutthroat flash hardware business, this is a chance to move upstream into the juicy software and applications business – and it’s so easy they can do it almost as an afterthought. Traditional desktop players (read Microsoft) will not only contend with the transition to the webtop that internet connectivity makes possible, but now USB flash drives offer another portable desktop in hardware form.