As Alan Kay states on his talks, for doing this type of research one needs to imagine how the hardware will look 15years from now and build such hardware, regardless how much expensive it might be.
This point is so important that Alan has emphasized it as one thing we're mostly missing.
The Alto was not meant to be a personal computer but a "personal supercomputer"—hardware so far ahead of the curve that it could run the software of the future. In other words, not a personal computer but a machine for inventing personal computing with, which of course they proceeded to do. Having such hardware is what makes it possible to figure out what the software of the future needs to be. If you can't run it, you can't create it.
For me this sheds light on a couple of Alan's famous lines: that the best way to predict the future is to invent it, and that people who are serious about software need also to be serious about hardware.
Such advanced hardware is necessarily costly but should still be within the reach of a properly funded research lab. It seems to have been an enormous frustration to Alan and his colleagues that they were unable to persude hardware vendors to make such hardware at any price, especially the Alto's microcode-driven style of hardware. Among other things, that was what had enabled the PARC researchers to make the most of the limited memory they had, since when a task was consuming too much memory they could implement it in microcode, pushing it down to the hardware (at least from the software's point of view) and freeing up RAM for software.
Alan Kay's 1972 paper on the Dynabook [1] is very interesting how he designed the Dynabook from the perspective of what you'd want in a personal computer, and then described in detail what technology improvements would be needed to get there, and how to get the price down to $500.
It's important to remember that the Alto was called the "interim Dynabook", a system to try out the Dynabook ideas until technology caught up and made a Dynabook-like system possible (40 years later).
> It seems to have been an enormous frustration to Alan and his colleagues that they were unable to persude hardware vendors to make such hardware at any price
No surprise there. Hardware production is frankly inherently conservative unless one is a startup (aka, nothing to lose but ones pride). This because you have all the up front cost of tooling and production runs before you even know how well something will sell.
