Everybody loves stories of bad business decisions. So I thought I'd start of 2011 with a classic:
It was 1876. Alexander Graham Bell had just sent speech down a wire through a newfangled gadget -- the telephone. Bell, his assistant Thomas Watson, and his investors, Gardiner Hubbard and Thomas Sanders, turned their attention to commercializing their invention.
The claim is that Hubbard offered the Bell telephone patent to Western Union -- the telegraph monoply and telecom giant of the day -- in 1876 for $100,000. Western Union said no. According to this great story:
In 1876, Alexander Graham Bell and his financial backer, Gardiner G. Hubbard, offered Bell's brand new patent (No. 174,465) to the Telegraph Company - the ancestor of Western Union. The President of the Telegraph Company, Chauncey M. DePew, appointed a committee to investigate the offer. The committee report has often been quoted. It reads in part:
"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.
"Messer 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."
It’s an absolutely awesome quote, perfectly capturing the stupidity and arrogance of an entrenched monopoly in dismissing an upstart disruptive technology.
The only problem is, the quote isn’t true. It’s a made-up blend of several different, but related, stories.
Come with me on a Google Books inspired detective trip down truth-in-memory lane.
Where'd You Get That Quote?
That quote is all over telephone history web sites (for example, here, and here) and quoted in recent books on communications history (for example, here and here). The earliest version I’ve been able to find is from a 1970 IEEE technical journal, IEEE Transactions on Aerospace and Electronic Systems. Unfortunately, I don’t have access to the full text of the article, so I can’t tell if it was a serious thing or an April Fools joke or what. [Update, January 18, 2011: Sam Etler writes to say this was not an April Fools joke, and that the Depew letter apparently came from a 1968 IEEE journal, though where it came from before that is still a mysery; see this update blog post for details.]
Regardless, it was repeated in Telephone Engineer and Management, Volume 79, in 1975, and spread thereafter.
Kind of weird that a quote that beautiful would just magically appear on scene in 1970 1968, never having been mentioned anywhere before.
The $100,000 Question
While not reproducing that exact quote, Wikipedia states without citation that:
Bell and his partners, Hubbard and Sanders, offered to sell the patent outright to Western Union for $100,000. The president of Western Union balked, countering that the telephone was nothing but a toy.
The earliest mention I can find of this magical $100,000 number is from the 1910 book The History of The Telephone by Herbert N. Casson, pp, 58-59:
The rosiest hope that shone in front of Sanders and Hubbard was that Western Union might conclude to buy the Bell patents, just as it had already bought many others. In one moment of discouragement they had offered the telephone to President Orton, of Western Union, for $100,000; and Orton had refused it. “What use,” he asked pleasantly, “could this company make of an electrical toy?”
Portions of this book, including the above, were reprinted in System: The Magazine of Business in June 1910 under the title “The Toy That Became a Billion Dollar Business.”
Again, kind of odd that this just appears suddenly in 1910 from a single source (Casson) with no citations and no mentions prior to that.
But Who Was Chauncy M. Depew?
Now we start to get somewhere.
The beautiful quote that opens this blog post mentions a Chauncy M. Depew, “President of the Telegraph Company – the ancestor to Western Union.” Just who was this mysterious man with such a great 19th century name?
Chauncy M. Depew was (if Wikipedia can be believed) an attorney, the President of the New York Central Railroad System, and a United States Senator from 1899 to 1911.
The January 1898 edition of the magazine Electrical World has a lovely piece entitled, “Mr. Depew’s Narrow Escape”, on page 9, reading in part:
The death of [Bell Telephone founder and investor] Gardiner G. Hubbard is alleged to have brought forth an interesting reminiscent story from Chauncy M. Depew. It is a tale with a moral, and it is as follows:
"Thirty years ago I was counsel for the Harlem road, and Gardiner G. Hubbard was railway mail inspector. In the course of our official duties we were thrown frequently into contact and came to know each other well. I liked him and he seemed to like me. We grew more confidential until one day Hubbard came into my office and leaning against my desk said:
“Depew, I have a son-in-law. He is a bright young fellow named Bell. He is a student, and not very practical in his ideas. He has invented a talking telegraph. It is a wonderful sort of an arrangement. I think it has wonderful possibilities in it for short communication for use in villages and other places, and will save a great deal in messenger-boy fees, and so on. I don’t think that it will ever be of much use for long-distance messages, but it seems like it might have a field of its own.”
"In those days Hubbard had no money, and I had only a little. He suggested to me that I take an interest in the invention, and made a proposition that I advance $10,000 for which he would give me a sixth interest in the patent. I said I would think it over. The next day I went downtown and saw William Orton, who was at that time president of the Western Union Telegrpah Company. I laid the matter before him fully. He said to me:
“Depew, 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!”
(Bell really was Hubbard’s son-in-law: Bell married Hubbard’s daughter Mabel in 1877, “just a few days after the Bell Telephone Company” was formed.) [Update, January 18, 2011: This story apparently also appeared in The Los Angeles Times on January 20, 1868, which in turn credited the New York Post; see the update blog post for details.]
Depew himself recounts a similar version of this tale in his 1924 autobiography (copyrighted in 1922) My Memories of Eighty Years, pp. 354-355:
In 1876 Gardner Hubbard was an officer in the United States railway mail service. As this connection with the government was one of my duties in the New York Central, we met frequently. One day he said to me: “My son-in-law, Professor Bell, has made what I think a wonderful invention. It is a talking telegraph. We need ten thousand dollars, and I will give you a one-sixth interest for that amount of money.”
I was very much impressed with Mr. Hubbard’s description of the possibilities of Professor Bell’s invention. Before accepting, however, I called upon my friend, Mr. William Orton, president of the Western Union Telegraph Company. Orton had the reputation of being the best-informed and most accomplished electrical expert in the country. He said to me: “There is nothing in this patent whatever, nor is there anything in the scheme itself, except as a toy. If the device has any value, the Western Union owns a prior patent called the Gray’s patent, which makes the Bell device worthless.”
When I returned to Mr. Hubbard he again convinced me, and I would have made the investment except that Mr. Orton called at my house that night and said, “I know you cannot afford to lose ten thousand dollars, which you certainly will if you put it in the Bell patent. I have been so worried about it that contrary to my usual custom I have come, if possible, to make you promise to drop it.” This I did.
So: our Mr. Depew was not the “President of the Telegraph Company”, but rather someone who was a good acquaintance of both Bell and Orton. And although it wasn’t $100,000, it was $10,000.
What Do We Learn From All This?
1. Maybe Bell & company approached Western Union and offered them their patent, maybe not. Maybe they asked for $100 grand, maybe not. Maybe Western Union president Orton laughed at them, maybe he didn't. (Just because we didn't find strong evidence of this happening doesn't mean that it didn't happen.)
2. But we do know that the beautiful quotation ain't right.
3. We also learned, for the umpteenth time, not to believe everything we read on the Internet.
4. We also learned not to read any of my blog posts than are longer than 300 words. :-)
Happy new year, everyone!