Can you tell us a little bit about how you got to cover the Bell Labs in the book and some of the things of the early days of Bell Labs?
Jon Gertner:
The reason I wrote the book is I was writing stories on technology and innovation and science. The question often occurred to me the historical question of how do these technologies come about? I had the good fortune of actually growing up near Bell Laboratories.
I’ll explain exactly for your listeners what was Bell Labs in a moment. I had a personal connection, although my family didn’t work there, but I understood that this laboratory was really this kind of the epicenter of innovation during a very important period in American history, but also global history for this origin of communication technologies, which really goes from the post World War II period.
Maybe we would say 1945 up until the late 1970s, early 1980s when digital technologies really took over in Silicon Valley, and some of these other companies really sprung into existence. The origins of this, of this laboratory for that, you really have to go back in American history to the invention of the telephone, which the patent of the telephone went to Alexander Graham Bell.
Some technology historians will correctly note that there was a patent battle over who actually earned or deserves the patent, but the patent went to Bell. The company that sprang up around his invention here in the United States was American Telephone and Telegraph. It’s different than the AT&T of today here.
It really had a monopoly almost like it was the national phone company for many years. By the 1920s and 1930s, American Telephone and Telegraph was really the largest company in the world. The largest company by a number of employees, by stock valuation. The largest company, I think by revenues as well.
In the mid-1920s, this huge enormous telephone company decided to create a standalone research and development laboratory R&D lab. They moved all their engineers and scientists basically into this lab, which they called Bell Telephone Laboratories or Bell Labs. The first building, the instance of Bell Labs was a very large laboratory in Greenwich Village in Manhattan.
I’ll let you cut in and guide me in a moment, but I should say the notion of an R&D lab in the mid-1920s, wasn’t a brand new idea. German pharmaceutical companies had been doing for the late 1800s. General Electric had started one about a dozen years before.
Bell Labs was an R&D lab on a larger scale and with larger ambitions and with more scientists, not just engineers than had really ever existed before. At the start, it had about 3,000 scientists and engineers.
Gennaro [FourWeekMBA]:
I think a few key points to highlight to help understand the context and how things evolve. The Bell Labs as we see a spinoff of one of the first, probably modern monopolists that we had. Of course, as you said this story is so interesting because it spans across the end of 1800 up to let’s say the ’60s and ’70s when we had really the birth of Silicon Valley.
It’s interesting to notice that as you also pointed out the first development, the first R&D location was actually not the Silicon Valley was actually in New York. There was also a geographical move of where innovation was based back in the days, and where then it would end up being based as we go through the birth of the Silicon Valley.
There is an interesting point, which would be nice to emphasize, which is of course AT&T which gave birth to the Bell Labs was, of course, a monopoly, but there was also a different perception of the company back in the early 1900s going forward. What were some of the steps that the company took at the time?
Also, the perception of AT&T changed so that the company could start putting a lot of resources into Bell Labs, therefore, enabling the innovation that we had in those years.
How did the perception of AT&T change over the years, and how it enabled the development of Bell Labs?
Jon Gertner:
It’s a wonderful question because, in retrospect, we might look fondly at this, at this company that changed the world, but at the time it was fairly controversial. There were plenty of detractors that saw AT&T as this almost like they might see, say Amazon or Google of today as a very large, almost rapacious monopolistic force that wasn’t necessarily a force for good.
Not to answer whether it was a force for good or bad, it was a complex large company that was very aggressive in securing its monopoly and oftentimes beating its young competitors because it did have some early competitors. However, they were also experts at public relations. I think what’s probably crucial to say is this company became very, very good at what it did.
Its purpose, its goal was to literally connect the country and then eventually help connect the world through communications technologies. In many ways, Bell Labs and the innovations that came out of there did serve this larger public relations purpose of making this great company admirable.
It legitimized these expenses on technology and research, but at the same time, there was a real not just an innovative force, but a real world-changing and quality to the work that was done there. One thing that I think just as a related point, and there’s a question here, which I think that I wrestled with and different people who’ve studied Bell Labs.
Why did so many things come out of this laboratory at this one era in time? There’s the transistor. There’s the theory of the laser, there are many early lasers. There are the early ideas for digital technologies, there are communication satellites, there are the plans for cellular phones, really on and on, and all sorts of other theoretical mathematical work.
The Bell Telephone Laboratory scientists didn’t have to do this. The managers, I think at Bell Labs deserve a fair amount of credit for being incredibly ambitious and incredibly visionary. Looking for new and disruptive technologies that would eventually replace these old ones.
I think that’s a really important point that this laboratory could have just been a good engineering laboratory, but it became something very, very different. Much greater I think because of the people who ran it.
Gennaro [FourWeekMBA]:
I think it’s extremely important also to highlight that, of course, in the beginning, what made AT&T monopoly and also what enabled the research at Bell Labs was a very practical issue, which was at the time they were trying to connect through a phone line between New York and San Francisco, which today seems to be something like that we give for granted.
At the time it was a huge challenge. I think this opens up an interesting point, which is as also discussed in the book, you mentioned the phone business, not sure if I phrase it correctly, but as a natural monopoly.
Was the phone business a natural monopoly? And how did this shape AT&T as a company then enabled also Bell Labs as a search lab for AT&T?
Jon Gertner:
It’s an interesting question. That was AT&T’s contention. They would argue that phone service was a natural monopoly. I think this idea goes back to what you pointed out earlier that solving these practical problems took enormous amounts of work and insight.
This was really a brand new technology that was suddenly had the intention of spanning the country and the world. It was very different than telegraph cables and transmitting telegraph pulses. To create this rich work of instantaneous communication meant that there was really no end in sight to the problems that needed to be solved.
One, there were arguments on both sides, but a very compelling argument, I would say, that AT&T made both to regulators and the government, as well as to the public was that this technology and phone signals, in general, the system like the one the Bell system was created worked best when it had national compatibility.
The parts, the systems were all compatible were all run by one entity. That is not only created consistency in technology, but it allowed for certain economic benefits because you could, for instance, make more profit out of urban centers where you could have a tremendous number of phone subscribers as opposed to rural subscribers where people might be far apart.
In essence, a national company, a phone monopoly could use those urban dollars to subsidize phone coverage in rural areas that were less profitable. There were a variety of different arguments, but to sum up, they would make the argument that it was both a natural monopoly for technological reasons, as well as for economic reasons.
At least if we were looking at the benefit to society. As you and I probably get to eventually, that argument ceased to be compelling to government regulators. As the phone industry matured, as the technology matured, as competitors sprang up, it became less and less important. In that early crucial period, it was very important to make that argument.
I think to connect it just to Bell Labs and their innovative capabilities being connected to the largest company in the world that also had this monopoly that was blessed by the United States government meant that you had not only a tremendous amount of money to work with and to hire people, and to hire the best people, but that you could engage in projects and research that was really long-term.
That you could do things for instance, where you didn’t have to necessarily worry about quarterly profits. It allowed for a long-range technological vision that I think was quite rare at the time, and it’s certainly rare today, too.
Gennaro [FourWeekMBA]:
I think it’s very important to recap a little bit of what we said. We started from a position where, of course, we had this first monopoly that was AT&T. Where also the perception changed because at the beginning, as we saw AT&T was looked at especially at the end of 1800, it was looked at as a huge monopoly that control the market.
Similarly, to probably how we see today companies like Amazon or Google as we already appointed out. Then of course this perception changed as you mentioned there also at least the main argument from AT&T was that the phone business, the way it was structured, borrowed itself as a natural monopoly.
This also made sense, because if you think about it, of course, there are features of the phone business initially that actually looked like a central technology, where for instance, you needed to route calls to a central place and you needed to reroute them. For instance, you could not have multiple calls running on the same line.
It had definitely a different let’s say features that we then have found with the more decentralized technologies by nature, more like the internet. Even though over time, as we saw even there we had quite a little bit of centralization. We can say that there are some arguments that made sense when it comes to the phone business.
It’s interesting because just to mention some of the key moments, we get to the early 1900 and pretty much precisely in 1921 when we have the Willis Graham Act where the U.S. Congress formally exempted the telephone business from antitrust laws.
This was a key moment because, of course, it finally justified AT&T to actually say, “I’m finding a monopoly as long as I’m actually throwing all my resources in developing of course from the business.” As you said, also developing it and subsidizing more rural areas where it didn’t make much sense to develop the telephone business.
Then on the other side, there was also another key moment because, in 1924, there was the span of Bell Labs from AT&T. I think this is a key moment because of course, it’s also the moment where scientific research becomes extremely important. It’s important also to highlight that before that moment, it was way more important, especially from the U.S. perspective, a form of tinkering rather than research.
Even if we think about the first let’s say inventors like Edison, those were really tinkerers rather than researchers. There has been a huge transition also in the way innovation has been perceived.
What are some of those key moments? How did Bell Labs then change after let’s say the ’20s? How it was organized and let’s say the model that they used to develop innovation?
Jon Gertner:
I think you hit it on a point that I’ll expand on a little bit that I think leads to an answer to that question. That idea of tinkering versus that idea of creating world-changing or disruptive technologies is something I talk a lot about in the book. By hiring scientists, by creating a laboratory, an R&D lab that was not just engineers solving problems would say, “Let’s try this new material for copper cable or this new alloy.”
Hiring scientists who understand, “We have a problem. Why do we have a problem?” They were seeking fundamental knowledge really to solve their problems in a way that was different than saying, “Let’s just find an engineering solution and fix it and move on.”
That core animating principle for Bell Labs of, “Let’s not just create new technologies with new engineering combinations and the like, but let’s listen to the scientists who have a new fundamental understanding for an instance, the movement of electrons and semiconducting crystals.” Which I’ll talk about in a second.
That was really this essential leap for the laboratory itself and the industrial laboratory itself in the 20th century. To understand, to find fundamental knowledge, and then use it to create new inventions and innovations. Going from there, I think it’s important that the structure of Bell Labs as it evolved over the late ’20s and through the 1930s moved in that direction.
Where the laboratory itself was hiring scientists as well as engineers to solve millions of problems. In a way, you could break down the fundamental problems of Bell Labs and the phone company came down to one, transmission. How do you get a call from one place to another? Two, switching. How do you connect everybody to everybody else?
The technology is to do those things are really complex especially, in this pre-digital world. In many respects, I think a lot of the fundamental knowledge and the research at Bell Labs, especially coming out of the war was geared towards that, and the transistor was too. Just to take a step back by the early 1940s, Bell Labs had expanded into a research and development operation of about 5,000 to 6,000 engineers and scientists.
The research group was probably 15% of Bell Labs. These were scientists, physicists, chemists, and the like with PhDs and then the development people were more engineering-oriented who were really trying to use some of these ideas coming out of research to solve the phone company’s problems. Of course, it’s crucial to note that World War II occurred earlier in Europe.
Here most of the emphasis at Bell Labs during the early 1940s was on working to serve military needs. Out of that work and a lot of that work was on radar systems at Bell Labs and on communication systems, out of that work came certain insights, the main mover I think at Bell Labs, the main leader that came out of the wartime era was a guy named Mervin Kelly, who I write about in the book a lot.
Kelly, by the end of the war, had risen to the head of research and was vice president of Bell Labs. He would later become the president of Bell Labs and he saw a couple of important things come out of the war effort. One was that you could achieve things with the smartest scientists and engineers together, working on a problem in timeframes that once would’ve been thought unthinkable.
He’s seen this with the radar effort at Bell Labs. He also saw this with the Los Alamos effort in New Mexico for the atomic bomb. The second thing he also saw was that what you really wanted to do was to solve problems not with like-minded people, but that new ideas and good solutions actually came out of the interface of different disciplines.
Now, this probably sounds an obvious idea to your listeners and to people of today, but at the time it was radical. You didn’t want a team of physicists all working together. You wanted physicists, chemists, and engineers all working together, and sometimes arguing with each other about solutions. I think why this was particularly crucial because that became a model for Bell Labs, a model of how problems were solved.
A model of how research leaps were undertaken. Right after the war, I think most crucially, and just to use one example of a really important leap that occurred to Bell Labs was that this fellow member and Kelly set up a team of scientists that eventually became known as the solid-state team.
He handpicked a group of engineers and chemists and physicists and metallurgists and asked them to look deeper into the nature of semiconducting materials. He believed there was a solution that would come out of that for some of the challenges in switching in the transmission that the phone company was dealing with.
The phone company had technologies for transmission that relied on vacuum tubes that were hard to make, expensive, used a lot of power, were bulky for switching. They used these vast banks of switches that were electromagnetic, and they are millions of them in the phone system. They had great expense.
There were questions at the phone company, whether the increase in traffic in the future, the phone company could even be accommodated by the technology that existed at the time, the 1940s. They needed a new technological solution. Out of that, the solid-state team arose.
To ruin the story, the solid-state team eventually after working for a couple of years on Silicon and on Germanium came up with the first transistor, which really changed the world. The book I call it really one of the most important innovations of the 20th century.
Gennaro [FourWeekMBA]:
A few key points as I was listening to what you said, a few things came to mind. Of course, when there was this transition from tinkering to research, it’s extremely important to understand that it’s just a different approach, both work extremely well, but when you actually put an emphasis on research, you’re looking way forward.
You’re not just looking at things that work. Also, as you said, listen to scientists that have a different and philosophical understanding of a discipline. Therefore, they actually do look ahead of, let’s say, 20, 30, 40 years from where they are. As we’ll see, actually some of the ideas that were developed also Bell Labs took many to actually realize in full.
As you know, as we see also information theory was [inaudible 00:24:32] information theory actually up at the Bell Labs. It is also another interesting point that came to mind, which is the fact that anyhow, the approach that Bell Labs had was quite eccentric. Eccentricity was extremely important, especially in the development, of conceiving a new idea.
Of course, as you needed to actually execute this idea at scale, then people like Kelly completely understood that you needed many, many people where we needed to be way more practical to actually execute those eccentric ideas. On the one side, you had those very eccentric individuals, and many of those ideas were born, as you said, also as a result of arguments between those people.
Of course, once those ideas had developed and there was a technology that needed to be manufactured at scale, then things changed. This connects back to the innovation loop that also Bell Labs followed where we had basic research. Then, we had applied the research development and manufacturing. Of course, in the basic research phase, you have a lot of people who are very, very eccentric.
They look at the future and they’re interested and curious about those fields, not necessarily because as we see interested in the applications. One of those people probably we can touch a little bit about that, but definitely was Claude Shannon. Of course, applied research where it requires a different mindset, probably a hybrid mindset between research and development of a product.
Of course, there is the development and manufacturing that, where again, we need a different approach and different kinds of people. This was at Bell Labs at the time.
What was the model of innovation followed by Bell Labs and how did it evolve?
Jon Gertner:
I think it’s interesting to point out that this was a postwar model that in some ways has been challenged effectively and has evolved into different models of innovation since that time. I think it’s often the case where people will say, “Well, Bell Labs had this old idea of the idea would come up in the research department. It would be developed in the development department and then it would go to manufacturing.”
Sometimes that’s true. That is true, for instance, with the transistor. It was created by a research team and hand it over to develop development team. Eventually, it was brought to scale by the manufacturing team and achieved this scale and impact I think that innovations have. Bell Labs also did some interesting things where these were very bright people.
They were operating in an era where they were trying to understand how to manufacture basically revolutionary technologies at scale. They certainly didn’t have all the answers, but they were trying to learn them. Even set up small laboratories at the manufacturing plants sometimes. Try to capture some of the ideas that would come when you are actually putting a new product into production that you could learn from it.
Sometimes you would actually make a leap from manufacturing something. When you’re actually manufacturing something, you’re always trying to make it better. I think sometimes ideas didn’t always flow one way from research to development to manufacturing. Sometimes there was a circularity to them or feedback loops that were also very helpful.
Today, I think the innovation patterns are much more diverse, but in the era of the large industrial lab, they were still being worked out.
Gennaro [FourWeekMBA]:
There is also a very important effect of serendipity on innovation, wherein the book, we also mention it in reference to the call, the zone refining, which for a bit of context, was a way to actually manufacture semiconductors in a more pure form. In that specific context, Bell Labs was working on a form of semiconductor, which was the germanium.
This idea of germanium refining came from a metallurgist called Pfanwho was actually taking a nap on the job.
What role did serendipity play in the innovation process?
Jon Gertner:
Kelly’s a very interesting person as the leader of Bell Labs. He was a hard-charging person who would run up and down staircases and was always in a hurry, and wouldn’t necessarily have as we’d say, here in the U.S., a warm and fuzzy type, not at all. Yet, he had a deep understanding, I think of how scientists worked and engineers.
How sometimes engineers as well and how sometimes solutions were very difficult and failure was part of the process. Giving people room to work was crucial. In all my research, I never came across any criticism where he would want something done faster and faster from a scientist who was literally working on the cutting edge or bleeding edge of new ideas.
He understood that it was extremely difficult to find new breakthroughs and new knowledge. For instance, this guy, a metallurgist called Pfan, who was working on this problem of how do you purify large of silicone at the time, which was a pretty challenging problem. How do you do it effectively so that you can scale it to manufacturing?
Literally, was trying to come up with something and took his usual nap after lunch, and then woke up and said, “I know how to do that.” There were these moments of insight that I know that Kelly was sympathetic to the fact that a lot of these scientists were quirky. They were working on difficult problems. They sometimes came at them from angles that were unconventional.
You’d mentioned Claude Shannon a little bit before Claude Shannon was a mathematician, a very eccentric individual who made his own rules. Would go down the hallways of Bell Labs, riding a unicycle and juggling, and really building robots in ways that would make a lot of people scratch their heads.
There was this eccentricity that was tolerated and sometimes appreciated, I’d say at Bell Labs because it was part of this group that we’re working to do, I guess you could say, challenging things that had never been done before.
Gennaro [FourWeekMBA]:
I think it’s very important to emphasize that actual eccentricity was appreciated, but you also needed to earn it. If you were Claude Shannon, you could do those things because you actually were really revolutionizing a field and you were way, way ahead of your time.
Jon Gertner:
Very true. Here in the U.S., we call it a star system. If you’re a star, you get a little more room to either be eccentric or even to misbehave sometimes. I think that there’s some truth to that too at Bell Labs.
Gennaro [FourWeekMBA]:
Before we get to the full intro of semiconductors, which definitely opened up one of the most important industries of our time, it would be nice also to look a bit at the character of Claude Shannon and how he came up with this idea was so ahead of his time. How did he even actually conceive that?
Who was Claude Shannon and how did he come up with the idea of information theory?
Jon Gertner:
Shannon was a mathematician who studied at MIT. I think probably it’s fair to say, he was somebody who was fascinated by puzzles. He worked in cryptography during World War II. I think that was an essential aspect of his thinking at the time coming out of World War II, his studies in cryptography eventually lent themselves.
Once he started working at Bell Labs to how do you send a message from one place to another, in a way, for instance, where there wouldn’t be any errors. He started to think in terms of messages, not in terms of how engineers at Bell Labs were thinking of them, which was sine waves moving through copper cables and systems and being switched.
He began to think of them as discreet units of information. Eventually, this took shape in a thesis that was published. At the time it was called Communications Theory, which was an overarching theory of literally how do you send a message from one place to another most efficiently and effectively. Eventually, it became more commonly known as Information Theory.
This idea is the root of both standards for how you would send messages digitally. It’s also a guide or yardstick as we call about here or measure for how much information can be sent at any given time. It’s led to error-correcting codes that allow for accuracy with messages sent over longer distances.
Shannon was fairly humble about this, but at the time it was a breakthrough that a lot of his colleagues said, “I don’t even know how he could come up with such a thing.” It was thought of as 10 or 20 years ahead of its time. In fact, it’s served as the basis, really, this set of guiding intellectual principles that have laid the foundation for that information age and the digital exchange of communications.
Gennaro [FourWeekMBA]:
Going forward, as we go to the mid-’50s, there was a contrast between AT&T as a company that needed to actually implement things at a very slow pace. Then on the other side, Bell Labs was actually innovating at such a pace that they were looking years ahead.
Just in the case of Claude Shannon who had developed the idea of Information Theory way ahead of his time. Going forward, there is I think a key moment to look at, which is the antitrust case of 1956, which actually was good for AT&T, let’s say it didn’t break the company up.
On the other side, it posed a condition that later down the road would turn out to be just probably the end of the whole thing, which was the fact that AT&T could not enter the computer or consumer electronics market.
How did the fact that AT&T was prohibited from entering the computer market influence Bell Labs in the long run?
Jon Gertner:
It’s a really important moment I think in Bell Labs’ history were in the early ’50s, they saw this coming, that the federal government had a certain level of discomfort with how the company did business and how the company kept competitors out. It was clear that there were going to be certain limits set upon the company.
What came out of that essentially, which occurred really just at about the moment in the 1950s, when the transistor was just about entering mass production. You had this new component of electronic systems, the transistor that replaced the vacuum tube. It suddenly allowed for this miniaturization on a scale that had never existed before.
It was seen at that point already as a radical technology, but what Bell Labs had to do based on this consent decree was it could use transistors and it could use any of its technologies and research for any kind of phone communications business. Bell Labs and AT&T were still monopolies in the United States.
However, they were prohibited from going outside of that kind of core business. At the same time, they had to make their innovations like the transistor available to outside customers. They either had to give away previous patents or license them, or they could license for instance transistor technologies for a fee, which is what they ended up doing.
If you go back to that era, Bell Labs would have these conventions really where they would hire buses and bring representatives from companies all around the world who would come to Bell Labs for these three-day seminars in the 1950s. How do you manufacture transistors? What kind of transistors are there?
What are quality control issues? How do you create consistency in manufacturing? It was a recipe book that they would offer to companies that wanted to spend whatever it was, I think $25,000, a not-insignificant amount at the time on the technology. Your point is well-taken that at this moment in time, they were sharing their technology in a way that planted seeds I think that.
Eventually, became the end of Bell Labs and the end of AT&T. It allowed for one thing for the computer industry, eventually, in the electronics industry in general, to become much more dominant. It also allowed for competitors and competition to use some of this new technology in a way that eventually threatened the monopoly of the phone company as well.
Who were some of the key people that developed the semiconductor? What happened after Bell Labs as well?
Jon Gertner:
Well, for sure. William Shockley was handpicked, Bill Shockley by this fellow Mervin Kelly to help lead the transistor or the solid-state team. Together with Shockley, Walter Brattain, and John Bardeen, two physicists came up with the invention in December 1947. That was the first transistor.
Eventually, I think it’s important to note the first transistor wasn’t actually that useful. It was very hard to make, and it had certain limitations as a technology. Bill Shockley came up with other ideas for transistors junction transistors as they were called. Eventually, they became much more crucial to the electronics industry as well.
What I think changed things as much or more is that eventually Bill Shockley left Bell Labs and went out to the west coast to California. He was really one of the first-ever to say, “I’m going to become an entrepreneur.” You can look at Hewlett-Packard and HP before him, but it was a little different.
Shockley left the east coast, which in the U.S., is almost like a symbolic transition. Leaving the east coast to go to the west as an entrepreneur, as this world-renowned physicist who had won the Nobel Prize to start a company, the first transistor company. He started it on some land at Stanford University that was developing as an incubator.
He created something called Shockley Semiconductor. For those who don’t know this history, it’s the very history of technology and entrepreneurship. Shockley was a very difficult man with all sorts of strange ideas about race and intelligence. Objectionable ideas really, but he was actually really good at hiring people.
His first company really hired people who became the entrepreneurs of the transistor age or the integrated circuit age. These were people he hired for instance, like Moore, who created Moore’s law that created the companies like Intel, that created venture capital firms, like Kleiner Perkins.
That really seeded the companies that created the information age. Now, there was another company, Texas Instruments that grew out of the transistor work down with Kilby. There were other companies, but all of it, I think if you were drawing a family tree, for instance of how the transistor and how the information age began, it really begin at Bell Labs.
It would branch off from there into Shockley Semiconductor and Texas Instruments, and eventually Fairchild Semiconductor, which grew out of Shockley’s company, and then Intel. Then, of course, the modern-day. Does that answer your question a little bit?
Gennaro [FourWeekMBA]:
Absolutely. You touched on all the key points. Also, I want to emphasize as I was listening deeply to what you were saying. From the ashes of, let’s say Shockley’s attempt to become an entrepreneur, how all industry was born. As we said Shockley was this character was a very smart person. He actually built our whole industry.
As you said, he was very, very good at picking the right people as would turn out later on. Another point is also that for the first time, there is this transition from being a physicist to becoming an entrepreneur because let’s remember that before if you were a scientist, a physicist, you just wouldn’t go out and try to become an entrepreneur.
Also, this transition that Shockley did I think was very important also to open the way to many others going forward to actually know that it was possible to get out from research and just become an entrepreneur. I think it’s a very important point. He did that in what would, later on, become Silicon Valley.
As you said, just to emphasize a little bit more the transition because it’s so important. Shockley of course opened up his own shop in California as you said building up Shockley Semiconductors, which would eventually pick up the right people, but completely fail also probably for lack of leadership on the side of Shockley or the fact that as your account in the book, it was very focused on the technology that he created.
Probably, he didn’t actually focus on how this technology could evolve behind what he had envisioned. Also, as we said, from Shockley from the ashes of the company that Shockley created, other companies like Fairchild Semiconductor came up. Then from Fairchild, we had those people like Moore, Noyce, Henry that then, later on, created the Intel.
As we know, from Intel, of course, there was the first family of chips, which was the 4004 family that opened up the whole industry. We have all of a sudden people like Paul Allen, co-founder of Microsoft, acknowledging how that family of chips that Intel created was a huge deal because all of a sudden you could develop an operating system on top of a semiconductor of a chip, which before was not possible with the previous technology.
There were a few jumps after that and a few technologies that we actually developed that exponentially increased the ability to make those semiconductors. Also, as a side note in the show, I’m going to have also Federico Faggin as a guest, he was one of the leading team members of Intel who made the family of chips that later on would become extremely important for the old development of the industry.
I wanted to emphasize a little bit more because what you said was so important that it just created the whole Silicon Valley as we know it today.
Jon Gertner:
It’s a really important point because in some ways the book is about technology, but it’s also about how innovation leads to these economic upheavals and how these innovations, I should point out that they’re not just inventions, they’re what I call in the book platform of innovations. They revolutionize entire industries.
When you think about the implications of them and the wealth it creates the number of jobs, it’s quite staggering. To write about Bell Labs or to read about Bell Labs, it’s more than just saying, “This is how the transistor is made.” It’s also, I think or I hope at least to understand how economic revolutions begin in some ways.
Gennaro [FourWeekMBA]:
Also, another key point, which one thing is actually invention another is innovation and where you can actually probably patent as it happened inventions, it’s very hard to actually patent innovations because innovations are the result of many things combined together many inventions.
Also, processes that go behind the technical aspect, which are about also the ability to scale, distribute. Innovation, it’s something completely different from invention, which is something primarily technical. I think this is also a very important point, which you made me think about right now.
Moving forward, it’s interesting also to look at one invention that Bell Labs came up with, which was the picturephone.
Can you tell us a little bit more about the story of the picture-phone?
Jon Gertner:
Bell Labs, I mentioned a bit of the successes, this lab that changed the world. I think a big part of Bell Labs too was that sometimes it failed and sometimes it made mistakes. Sometimes the people at Bell Labs whose job or at least as they saw it was to try and figure out what the future would be figured it out incorrectly.
Going back to the ’50s and 1960s, there was this belief at Bell Labs that eventually telephone conversations would evolve into video conversations. The technology really wasn’t ready, but they would debut these early prototype video phones, for instance, the world’s fair in the early 1960s. By the early 1970s, they were ready to turn this idea into a business. It was called the picturephone.
The idea was really that they would sell these fairly high-priced subscriptions to businesses. They perceived a really large demand for this. That companies in the future everybody would want to look at the person they were talking to. Companies would pay high prices. Everybody would have a picturephone in their office, maybe at their home as well.
They started marketing this. They put in really hundreds of millions of dollars, which would probably be somewhere in the billions today into developing this technology. What they found was that it was a complete terrible failure of a business. The technology was actually pretty good at the time. I mean, there wasn’t really the bandwidth by any means that we had today.
There were limitations on the picture and the quality of the image, for instance, but it was a colossal failure. I think we can learn a few lessons from it. One, that if we look at it today where we’re having Google chats and Zoom meetings and everything, the general idea was, was correct that eventually, video chats would play a very large part in culture and business.
One, if you’re too early, you’re wrong and you have to hit a moment that the culture is ready for it. Two that this, I guess you could say pushing of technology without understanding demand can be very dangerous sometimes. That sitting in a room and deciding that the future of technology is going to go to this place that I envision is a very risky pursuit.
The engineers and the marketers of Bell Labs were completely shocked. They just didn’t understand, eventually, they did understand bitterly what a failure it was, but going into it, they didn’t understand how little demand there was for people to see each other on the phone.
Gennaro [FourWeekMBA]:
Also, as we said, this is a matter of invention versus innovation. Innovation is also based on economic incentives. Those oftentimes also come as a top-down approach where, for instance, if let’s say there was also a push from the government to actually go toward mobile communication or this sort of communication, then it would’ve been possible to achieve, develop this market let’s say in probably 10, 20 years, who knows.
It’s important also to highlight that instead at the time, also the government was more focused on broadening the TV, broadcasting rather than focusing on mobile. I think it’s very interesting because, in the ’50s, there was also this decision of the FCC to actually award the block frequencies to broadcasting TV, rather than giving those frequencies to mobile communication.
Which probably would’ve helped definitely to launch more successfully the picturephone, which as we can tell from today’s standard is actually pretty, pretty successful. We have video calls as one of the main applications of mobile communication, but at the time there were no economic incentives developed that would help them to develop these markets quickly.
Innovation is also a lot about market development, it’s something that you can control or you can’t. You need to understand whether you can move forward. Just to get to the end of it as the time is almost due.
Do you see any parallel in today’s business world with Bell Labs?
Jon Gertner:
I see it on a smaller scale to some extent, maybe companies like Google that have labs like Google X, for instance. I think Bell Labs was a particular moment in time. It was the right industry at the right moment. I don’t really see an R&D lab with that same ambition, the same amount of money, same long-term focus.
That’s not necessarily a criticism, it’s just that Bell Labs was not really operating as a private sector technology company would. We have something different today, at least in the private sector. You could say, for instance, in the United States, we have these national laboratories that are looking at long-term research and projects, but then again, they don’t have the manufacturing capacity that Bell Labs had, so those are different too.
In a nutshell, I don’t think there will be another Bell Labs, but I think if there’s some kind of future where we see a great concentration of scientists and engineers working on some difficult problems, I think it might resemble more maybe like a Los Alamos model where there’s a crucial intensive period of work that happens.
It might be to solve the next pandemic. It might be some terrible problem I don’t want to think about, but I think, for the most part, we don’t see Bell Labs at that scale or that kind of level of funding. We might see for the moment are these smaller labs working in the private sector.
Gennaro [FourWeekMBA]:
I definitely agree that some of the similar environments, of course, are Google X, which is also called the Moonshot Factory as Google has a huge amount of resources. They also look at exponential technologies. On the other end also one, bet on my side is also companies like SpaceX as well. As a fun fact, the company also is experimenting with a lot of new technologies.
Also, as the last fun fact, as you mentioned in the book, the Bell Labs developmental rather up on a small island Atoll, which was called Kwajalein. This is also the same place where SpaceX built its first rockets. There is some coincidence there.
Jon Gertner:
I think your point about SpaceX is a good one. They aren’t really operating purely in the private sector. They have NASA investing in them as well and it’s been very helpful for them to achieve a long-term vision.
Gennaro [FourWeekMBA]:
Thanks, Jon, for joining this conversation.
What are you up to next?
Jon Gertner:
That’s a great question. I’m actually writing. Just starting the third book on long-term thinking, but I’m focusing actually on a NASA mission from the 1970s called Voyager, which is the longest space mission ever undertaken. It’s still going. It’s going to reach its 50th anniversary in a couple of years. I hope my book comes out right before that.
Gennaro [FourWeekMBA]:
Nice. It would be nice to have you, of course, when this is ready. I’ll be extremely to read the book because I enjoyed it so much the Idea Factory. Thanks for taking the time.
Jon Gertner:
Thank you, Gennaro. It was a pleasure, great questions. I really appreciate it.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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