Computing Applications Law and technology

Bell Labs and Centralized Innovation

Replaying the long-term costs of monopolized innovation.
  1. Introduction
  2. Bell Labs
  3. Conclusion
  4. Author
  5. Footnotes
Bell System logo/illustration

In early 1935, a man named Clarence Hickman had a secret machine, about six feet tall, standing in his office. Hickman was an engineer at Bell Labs, and his invention was, at the time, a device without equal on earth, way ahead of its time. Here’s how it worked: in the event you called and Hickman was out, the machine would beep and a recording device would come on allowing the caller to leave a message.

What was truly interesting about Hickman’s answering machine was not just the idea of a machine that answered calls, but rather, what was in its guts. For inside Hickman’s machine was something new to the world: magnetic recording tape. Recall that before magnetic storage there were few low-cost means to store sound other than by pressing a record or making a piano roll. Over the long run, magnetic recording technology would not just herald audiocassettes and videotapes, but when used with the silicon chip, make computer storage a reality. Magnetic recording technology must be counted, in fact, as one of the most important inventions of the 20th century. For, from the 1980s onward, firms from Microsoft to Google—and by implication all the world—would become utterly dependent on magnetic storage, otherwise referred to as the hard disk.

Yet, there is something different about this story—the answering machine would not appear in American homes until the 1980s. What happened in the meantime, as we shall see, sheds light on central questions of innovation in the 20th century that remain central in the 21st century. The history of the answering machine forces us to confront the costs and benefits of monopoly in the information industries. It is also a question of growing importance a technological age increasingly dominated by large firms like Google, Microsoft, and Facebook.

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Bell Labs

That Bell Labs played a major role in inventing magnetic recording tape is, to any historian of technology, no surprise. Founded in 1925 for the specific purpose of improving telephony, Bell Labs 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 mind of their own, carrying their work beyond better telephones and into basic research to become the world’s preeminent corporate-sponsored scientific body. It was a scientific Valhalla, hiring definitely the right men (and later women) they may find and leaving them relatively free to pursue what interested them.

When scientists are given such freedom, they are able to do amazing things; Bell’s scientists did cutting-edge work in fields as diverse as quantum physics and data theory. It was a Bell Labs employee named Clinton Davisson who would win a Nobel Prize in 1937 for demonstrating the wave nature of matter, an insight more typically credited to Einstein than to a telephone company employee. In total, Bell would collect seven Nobel Prizes, more than any other corporate laboratory, including one awarded in 1956 for its most renowned invention—the transistor—which made the computer possible. Other Bell Labs creations, while obscure to the general public, are certainly dear to Communications readers, including Unix and the C programming language.

In short, Bell Labs was a superb force for good. It is the kind of thing, in fact, that gives monopoly a good name. In current-era usage, the word "monopoly" is a scary concept, one that few would dare endorse publicly. But AT&T was, in its time, a proud monopolist, and even a critic is forced to admit a system run by a beneficent monopolist had its advantages. While to some degree Bell Labs served AT&T’s interests, it was also run, in part, out of a kind of noblesse oblige. For in a corporate setting, it is often difficult to imagine how funding theoretical quantum physics research can be of any immediate benefit to shareholder value. More to the point, it is very difficult to imagine a phone company today hiring someone to be their quantum physicist, without rules and with no boss.

The story of Bell Labs is, in many ways, the strongest case in support of the near-inevitable monopolies that emerge in the information industries.

The story of Bell Labs is, in many ways, the strongest case in support of the near-inevitable monopolies that emerge in the information industries. Yet, despite all of the undeniable glory of Bell Labs, when you look carefully at the history there emerge little cracks inside the resplendent façade of corporatism for the public good. For however many its breakthroughs, there was a technique through which the institution was very different from a research university. For when the interests of AT&T were at odds with the advancement of information, there was no doubt as to which good prevailed. And so, interspersed between Bell Labs’ public triumphs were its secret discoveries, the skeletons within the imperial closet of AT&T. And here we clearly see the long-term costs of industrial rule by a single firm.

Let’s return to Hickman’s magnetic tape and the answering machine. In the U.S. and in most of the world, answering machines were not widely sold until the 1980s—almost 50 years after Hickman’s invention. Why not? Well, soon after Hickman had demonstrated his invention, AT&T ordered its Labs to cease all research into magnetic tape. In fact, Hickman is virtually unknown to history: his research was so effectively suppressed and concealed that it came to light only in the 1990s, when a historian named Mark Clark found Hickman’s laboratory notebook in the Bell archives. Magnetic tape would come to 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 record a conversation would "greatly restrict using the telephone," with catastrophic consequences for its business. The firm specified two particular dangers. Businessmen might fear the possible use of a recorded conversation to undo a written contract. Second, AT&T estimated that the telephone was used for an enormous number (Clark quotes an estimate 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 users. Hence magnetic recording would "change the total nature of telephone conversations" and "render the telephone much less satisfactory and useful inside the vast majority of cases during which that’s employed."

Here we a see great problem with monopolized invention: The enlightened 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 exhilarating 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 perhaps 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.

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

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 technologies were a step forward that would improve the network, but AT&T regarded the idea as preposterous. "Their attitude," 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 being very simple, who obviously doesn’t know how the system works."

Packet networking and the recording 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 fiber 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 affect the Bell system, AT&T and its heirs would deploy each with painfully slow caution, if at all.

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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 marginalized 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."

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