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telephone - The W1nners' Club

Back in 1876, Alexander Graham Bell had just sent speech down a length of wire via a new device that came to be known as the telephone. As Bell and his co-investors sought to monetize their invention, they approached the then telecoms giant of the day, Western Union who had an industry monopoly with the telegraph system and offered to sell them the telephone patent for $100,000.

Western Union thought the idea was ridiculous and turned Bell and his cohorts down after The President of the Telegraph Company appointed a committee to investigate the feasibility of the offer.

The committee’s scornful findings went as follows:

“The Telephone purports to transmit the speaking voice over telegraph wires. We found that the voice is very weak and indistinct, and grows even weaker when long wires are used between the transmitter and receiver. Technically, we do not see that this device will be ever capable of sending recognizable speech over a distance of several miles.

Messrs Hubbard and Bell want to install one of their “telephone devices” in every city. The idea is idiotic on the face of it. Furthermore, why would any person want to use this ungainly and impractical device when he can send a messenger to the telegraph office and have a clear written message sent to any large city in the United States?

The electricians of our company have developed all the significant improvements in the telegraph art to date, and we see no reason why a group of outsiders, with extravagant and impractical ideas, should be entertained when they have not the slightest idea of the true problems involved. Mr. G.G. Hubbard’s fanciful predictions, while they sound rosy, are based on wild-eyed imagination and lack of understanding of the technical and economic facts of the situation, and a posture of ignoring the obvious limitations of his device, which is hardly more than a toy.

In view of these facts, we feel that Mr. G.G. Hubbard’s request for $100,000 of the sale of this patent is utterly unreasonable, since this device is inherently of no use to us. We do not recommend its purchase.”

Many claim that the above report is a fabrication of what really happened at the time and amounts to an amalgamation of various stories on the subject, with one alternative account stating that an unnamed person wanted to invest in Bell’s company, so he sought advice from a friend who was high up at Western Union. The person in question at Western Union apparently poo-pooed the idea, saying, “You haven’t got much money, and as a friend, I don’t want to see you lose what you have got.  That invention is practically worthless.  It will never amount to anything.  If it should, however, we hold prior rights upon the idea, of which Bell’s patents are simply an infringement.  Don’t throw your money away!”

Whichever account you believe to be true, what isn’t in dispute is that Western Union didn’t see the long term potential in the adoption of the telephone.

Disruption

 

Western Union controlled the primary means of communication at the time which was the telegraph and it would have seemed inconceivable to company executives that a new technology could ever challenge the telegraph’s dominance – mainly because of its huge consumer base and the extensive network of telegraph cables that the company already controlled. Western Union’s rejection of Bell’s offer however represents yet another example of industry giants being toppled by an unwillingness to accept change, leaving them open to the threat of low end disruption.

Bell’s telephone signals could only travel for a maximum of 3 miles whereas Western Union’s telegraph network could send messages over long distances, so Bell initially targeted the local market. As time passed however, he eventually improved the technology and eventually entered the long-distance market, thus rendering the telegraph obsolete.

Western Union’s blunder arose because the technology that underpinned telephony did not seem to have the potential profit margin or consumer base that would have enabled them to justify entering the market, however even at short distances the telephone vastly simplified short-distance communication and it was due to this fact that telephones were rapidly adopted by business customers.

As Western Union saw Bell’s American Telephone and Telegraph Company starting to take off, they then tried to enter the telephone market themselves. Both companies commenced a protracted legal battle to try and remove the other from the market. Bell was ultimately able to kick Western Union out of the telephone industry and by 1909, the telegraph giant had become a subsidiary of Bell’s company – thus demonstrating how Bell had disrupted Western Union by providing a product to a market niche and then scaling it up.

In our opinion Western Union shouldn’t be too upset about not recognising the full potential of the telephone. Our publisher Darcus White was once offered several bitcoins by a friend who owed him £100 instead of a cash payment. Unfortunately he too poo-pooed the idea and said that the cryptocurrency didn’t have any real value. Those same bitcoins would now be worth roughly £800,000 at current prices.

 

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