America through imports of German technology after World War II.

Why on earth would management bury such a vital and commercially valuable discovery (one that, in fact, could have aided the war effort)? Here AT&T had, in-house, the chance to dominate a new and incredibly important market. What was it frightened of? The answer, rather surreal, comes from the corporate memoranda, also unearthed by Clark. As odd as it may sound, AT&T firmly believed magnetic tape and the telephone were fundamentally incompatible technologies. The widespread usage of magnetic recording technology, AT&T believed, would lead Americans to abandon the telephone.

In Bell’s imagination, the very
knowledge that it was possible to re-
cord a conversation would “greatly
restrict using the telephone,” with
catastrophic consequences for its
business. The firm specified two par-
ticular dangers. Businessmen might
fear the possible use of a recorded
conversation to undo a written con-
tract. Second, AT&T estimated that
the telephone was used for an enor-
mous number (Clark quotes an es-
timate of approximately two-thirds
of all calls) of obscene, indecent, or
ethically dubious conversations. The
very possibility of a recording, AT&T
reasoned, would scare off any such us-
ers. Hence magnetic recording would
“change the total nature of telephone
conversations” and “render the tele-
phone much less satisfactory and use-
ful inside the vast majority of cases
during which that’s employed.”
Here we a see great problem with
monopolized invention: The enlight-
ened planner of the future can also,
at times, prove a delusional paranoid.
True, once magnetic tape arrived in
America, there were several notorious
examples—from Nixon to Lewinsky—
where sordid secrets were exposed by
it. But, amazingly enough, we all still
use telephones. Yet in the 1930s it
seemed safer to shut down an exhila-
rating line of research than to risk the
Bell system.

The story of AT&T and the answering machine holds important lessons, both for how innovation happens, and the underlying questions of industrial structure. There has been, and per-

Bell Labs was
never a place
that could originate
technologies
that could, by the
remotest possibility,
threaten the Bell
system itself.

haps will always be a strong allure to what can be termed “centralized” innovation as epitomized by Bell Labs. It is attractive to envision a planned, systematic means of finding the future, as directed by a great centralized intelligence.

In contrast, the alternative, an open, decentralized approach to innovation—hundreds or thousands of solo inventors or small firms—is superficially much less attractive. It seems so chaotic and underresourced that it is hard to imagine anything of real value being produced. And yet when you look carefully at the history of the communications and computing industries in particular, it is so often the outsider and even outcasts, working in attics or garages, who invent the “big ones.” That, at least, is the story, a minimum, behind the telephone, radio broadcasting, the television, cable television, the personal computer, and so many of the Internet’s most important firms.

Centralized systems of innovation are excellent for certain types of research. Yet they also have, as it were, one fatal flaw, one that we can see clearly in the story of AT&T and its Bell Labs. Yes, Bell Labs was great. But at the same time, Bell Labs was never a place that could originate technologies that could, by the remotest possibility, threaten the Bell system itself. The truly disruptive technologies— those that might even cast a shadow of uncertainty over the business model— were out of the question.

This is also why, for example, AT&T
never invented the Internet, even
though it clearly had the chance. In
the 1960s, men like scientist Paul
Baran spent years trying to convince
AT&T that packet-switching technolo-
gies were a step forward that would im-
prove the network, but AT&T regarded
the idea as preposterous. “Their atti-
tude,” Baran said in a later interview
“was that they knew everything and
nobody outside the Bell System knew
anything. So here some idiot comes
along and talks about something be-
ing very simple, who obviously doesn’t
know how the system works.”
Packet networking and the record-
ing machine are just two examples of
technologies that AT&T, out of such
fears, would for years suppress or fail
to market: other examples include fi-
ber optics, mobile telephones, digital
subscriber lines, facsimile machines,
speakerphones—the list goes on and
on. These technologies, ranging from
novel to revolutionary, were simply
too daring for Bell’s comfort. Without
a reliable sense of ways they would af-
fect the Bell system, AT&T and its heirs
would deploy each with painfully slow
caution, if at all.

Conclusion

Can we expect the same kind of problems in our contemporary Internet age? On the one hand, it seems difficult to imagine, with a seemingly never-ending parade of startups, that any technology could ever be mar-ginalized for that long. On the other hand, as the power of the main Internet platforms increase—like Facebook, Google, and Apple—their respective interests in discouraging or co-opting certain lines of innovation may slowly increase. It is certainly too early to raise any sort of alarm. But we should never forget that the greatest threat to any dominant firm is a disruptive technology. As Joseph Schumpeter once said of all industries, when faced with anything truly new, “the forces of habit raise up and bear witness against the embryonic project.”

 

Tim Wu ( [e-mail]) is a professor of law at Columbia law School and author of The Master Switch: The Rise and Fall of Information Empires. Knopf Doubleday Publishing Group, 2010.

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