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“sustaining” and “disruptive,” the distinction best described by innovation theorist Clayton Christensen.
For right at Bell’s darkest hour it was saved by an unlikely and unexpected cavalry charge. Western Union came under attack from the financier Jay Gould, “King of the Robber Barons,” who had been quietly acquring stock and preparing a hostile takeover. Now fighting for its own independence, Western Union was forced to look upon its tussle over the telephone as a lesser skirmish, one it no longer had the luxury of fighting. Thanks
but before 1921 such a situation had never occurred. This fight, in fact, would mark the first time that more people would experience an event remotely than locally.
The story holds a powerful lesson for any independent business facing a much superior foe, a lesson as important in the 2010s as in the 1910s.
no real challenger to AT&T long lines would appear until the 1970s, some sixty years later. That was J. P. Morgan’s lasting legacy.
Had Goliath not cursed David by his gods, David might have kept his sling in his pocket. Vail heralded AT&T as the coming of enlightened monopoly, a public utility of the future. He promised to do no evil. And the government bought it.
Eventually Jenkins had little choice but to sell his own patent interest in the first motion picture projector—for $2,500. “It’s the same old story,” he would say, years later; “the inventor gets the experience, and the capitalist gets the invention.”7
Bell Labs. Founded in 1925 for the express purpose of improving telephony, they made good on their mission (saving AT&T billions with inventions as simple as plastic insulation for telephone wires) and then some: by the 1920s the laboratories had effectively developed a
Other, more obscure Bell creations are nevertheless dear to geeks, including Unix and the C programming language.
For soon after Hickman had demonstrated his invention, AT&T ordered the Labs to cease all research into magnetic storage, and Hickman’s research was suppressed and concealed for more than sixty years, coming to light only only when the historian Mark Clark came across Hickman’s laboratory notebook in the Bell archives.
Hush-A-Phone’s valiant founder died sometime in the 1970s, to be forgotten, apart from one great cultural reference. In the 1985 film Brazil, Robert De Niro plays a maverick repairman who does unauthorized repairs and leads a resistance movement against a totalitarian state. The hero and hope of
For while Vail and Zukor consolidated industries by means of financial pressure and corporate acquisition, Sarnoff managed his empire by using government to restrict inventions, and hence the future. In
They grew to recognize a truth that had eluded Western Union in the 1880s: the best antidote to the disruptive power of innovation is overregulation. That is to say, the industry learned how to secure the enactment of seemingly innocuous and
At one eye-popping demonstration at his Empire State Building laboratory in 1934, he showed RCA that FM could carry a facsimile reproduction of The New York Times, and telegraph messages as well—a form of wireless fax! In
On February 1, forty years to the day from the night he and Sarnoff had spent searching for radio signals, he wrote a final note, dressed neatly, and walked out the window of his thirteenth-floor Manhattan apartment. The story
In fact, the primitive prototype is typical in the founding stage of a new industry, as are the “early adopters” prepared to take a chance on it. Recall that Bell’s
Farnsworth would patent his scanning technology in 1930 and have working models by the early 1930s. He was, then, in a perfect position to be the “first mover” in the electronic television market—if it were not for the subtle and not so subtle ways that Sarnoff, the radio industry, and the FCC set about neutralizing him.22 Sarnoff, to his credit (as an industrialist if not a moralist), realized that Farnsworth
Each industry lapsed into an immediate period of chaos and experienced a drop in product quality. The decline of the film industry, which had been so grand and powerful in the 1930s and 1940s, would last into the 1970s. And in the immediate aftermath of the AT&T breakup, consumers saw a drop-off in service quality utterly unexampled since the formation of
In late April 1963, in the D Ring of the massive new building called the Pentagon, J.C.R. Licklider sat before a typewriter in his office, working on a memo. A member of the Defense Department’s Advanced Research Projects Agency (ARPA)—he wore the thick-rimmed black glasses popular among engineers of the era to prove it—Licklider addressed his memo to “Members and Affiliates of the Intergalactic Computer Network,” as a sort of joke. But in this message he sent around to the nation’s top computer networking scientists, Licklider argued very much in earnest that the time had come for a
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Engelbart’s ideas were similar to Licklider’s, if a bit further along in their development. But neither was as yet close to describing how one might practically wed human and computer capacities. Eventually Engelbart’s work caught Licklider’s attention, and with that, ARPA funding flowed to Engelbart to create the “Augmentation Reseach Center” at the Stanford Research Institute in Menlo Park, California. His
Paul Baran would spend years of his life trying to persuade AT&T to adopt the networking technologies that would ultimately underlie the Internet.6 In the early 1960s, Baran, a researcher at the RAND
By the 1940s the major media industries had all assumed their stable, apparently invincible forms; they seemed to be permanent fixtures of the American landscape, like the Democratic Party or Mount Rushmore. NBC and CBS ruled broadcasting. AT&T ran the telephone system. The Hollywood studios controlled film. Each monopoly or oligopoly had been blessed by the government in one way or another. And within two decades each would lie in the ruins of its
Friendly had identified a new reality of the age of mass information: the power of concentrated media to narrow the national conversation. It may seem paradoxical to suggest that new means
just as predatory fish are sometimes kept in separate tanks, AT&T was specifically banned from the burgeoning online services or data processing industry.7 In short, with strange and unprecedented
Substantively, AT&T’s campaign in the late 1970s might be described with the euphemism of “civil disobedience.” Even as the FCC was encouraging firms to enter the telecommunications market, AT&T was laying traps for them that
case of any foreign attachment (say, a fax machine), Bell would file a tariff requiring the competitor to establish something called a “protective connective arrangement.” Supposedly a means to
the mogul makes the medium: the imprint of the personality inevitably informs it, often no less than the technology
information—surely that serves the purpose of free expression that sustains democratic society. Rather, the concern is that in our society, we have been freed to retreat into bubbles of selective information and parochial concern
As we shall see, the structure of the entertainment industries makes no sense apart from an understanding of the ways they manage risk. These range
Ross’s answer to the problem of entertainment failures was far more imaginative: he hedged the Warner Bros. film studio volatility with the steady revenues that came from unrelated businesses. Through the 1970s
Obviously, not every choice fit the rubric of “communications,” but it was all in the
Ross’s trick was to hedge the uncertainty of entertainment products as a whole with much more reliable sources of income. Under the Warner Communications umbrella sheltered not only films and music but parking lots, rental cars, and funeral parlors (his former métier).
The capacity to absorb heavy losses could, in theory, provide breathing room for creative experimentation, a way to do the worthy, if riskier, projects. The profits from GE lightbulbs alone could keep dozens of great directors working indefinitely, or fund thousands of
Steven Spielberg, Ross spontaneously agreed to pay him over $20 million—ten times the reasonable value—for the rights to make a video game of his film E.T.: The Extra-Terrestrial. The result was the first major video game based on a movie—conglomerate synergy in action—but also a game generally acknowledged as the worst in video game history (“famously bad,” according to PC World ); after disappointing sales, untold millions of unsold E.T. game cartridges were buried in the desert near Alamogordo, New Mexico.
despite the failure of Evan Almighty, the system that produces films like it carries on unperturbed, because in financial terms there was little real damage. Evan Almighty, in this sense, is proof of how secure the studio structure now is. Mediocrity safely begets mediocrity: behold the true miracle of the modern entertainment industry.
Whitacre had an answer: Why learn to cope with competition when you can eliminate it? Through the late 1990s and into the new millennium, despite or perhaps thanks to an official federal policy promoting “fierce competition,” Whitacre would strangle nearly all of his competitors, largely reconstituting the Bell system that Theodore Vail had founded. By 2006, his resurrected empire would cover the whole country,
The Bells won some and lost some, but that wasn’t the point, really. What mattered was tying up would-be competitors in years of complex and expensive federal litigation, thrusting their business model into a permanent state of uncertainty. At some level, the lawsuits were an end in themselves.
Which is mightier: the radicalism of the Internet or the inevitability of the Cycle?
The principle of net neutrality, instilled by the Internet’s founders, is ultimately what wrecked AOL Time Warner. And that now iconic wreck, if nothing else, would attest powerfully to the claim that the Internet was at last the great exception, the slayer of the Cycle we have been visiting and revisiting.
there was no logical place for AOL in the age of broadband, an age that was fast approaching. This point is technical;
Everyone wanted to see what the Internet was all about, and AOL was the easiest way to get there, because they put a CD in everyone’s mailbox (free samples being one of the things Case learned about in his former career as marketing manager at P&G). In this sense AOL was a major part of the mass Internet revolution.
To understand what happened to AOL, imagine that the firm had been in the business of delivering pizzas by bicycle, until one day the pizza company bought its own fleet of cars. That is what the telephone and cable companies did to AOL.
Innovation begat industry, and industry begat consolidation.
People often wonder, “What exactly is Google?” Here is a simple answer: Like its harbinger the telephone girl, Google offers a fast, accurate, and polite way to reach your party. In other words, Google is the Internet’s switch. In fact, it’s the
Google and the switch monopolists of yesteryear, including the firm that is arguably its truest forerunner, Vail’s AT&T. For one thing, Google
Balzac’s observation that behind every great fortune is a great crime. As a
the future is to be decided by one of two visions. If the centralizers—AT&T, Hollywood, and Apple—prevail, the future will be informed by a marriage of twenty-first-century technology and twentieth-century integrated corporate structure. The best content from Hollywood and New York and the telephone and networking power of AT&T will converge on Apple’s appliances, which respond instantly to ever more various human desires. It is a combination of undeniable power and attraction. And not least among its virtues, the worst of the Internet—the spam, the faulty apps, the junky amateur content—is
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And so we have the essential alternatives: a world of information that looks much like the twentieth century’s, only better—more beautiful and more convenient. Or a revolution in the very means by which information is produced and consumed.
It has been the aim of this book to show that our information industries—the defining business ventures of our time—have from their inception been subject to the same cycle of rise and fall, imperial consolidation and dispersion, and that the time has come when we must pay attention. Living in a contemporary democracy can lull us into
what we need is something I would call a Separations Principle for the information economy. A Separations Principle would
