History of Telegraph, Telephone Helps Predict Internet’s Future

“History is the true witness of times, the light of truth, the life of memory, the teacher of life….”

With these eloquent words, Greek orator Cicero reminded us of the importance of grounding our view of the future in lessons from the past. As we ponder the future of the Internet, we can learn a lot about where the Internet is headed from the evolution of other networks. A look at the history of the telegraph, telephone, utilities, railroads, broadcasting and highways reveals fascinating patterns that have played out time and again. Here are some of those lessons from history.

Gloom Leads to Boom

And boom leads to bust. The human mind tends to extrapolate the past linearly into the future. But network adoption follows an S-shaped curve. Our linear thinking creates a systematic forecasting bias. In the early stages of network evolution, forecasts tend to be pessimistic because the potential of the network is not well understood. However, as the network starts to grow, predictions become overly enthusiastic. This, in turn, sets up a bust when the growth starts to slow.

In 1844, Samuel Morse could not convince the U.S. Congress to fund long-distance telegraph lines, as lawmakers failed to realize the commercial potential of the telegraph. By the time the first trans-Atlantic cable was laid in 1858, the pendulum had swung to the other extreme. The media and industry experts were declaring that the telegraph would embrace the whole world, bringing with it peace and prosperity. Similarly, in 1877 Western Union refused to purchase the Bell patents, seeing no future in them; it later tried to set up a competing company, only to be challenged in the courts and forced out of business.

The Internet and the wireless industry show a similar pattern. In 1996, when the Internet was in its early days, Morgan Stanley issued a report that predicted the worldwide Internet user population at 150 million by the year 2000. The actual number turned out to be 400 million. Similarly, in the cellular industry, experts in 1990 predicted that the U.S. cellular subscriber base might reach 25 million by 2000. They were off by a factor of four, with the actual number being close to 109 million.

Now, the pendulum seems to be swinging dutifully in the opposite direction. Consider the forecasts of U.S. Internet advertising spending made by eMarketer. In 1998, eMarketer predicted that Internet advertising would reach $8 billion?a number it revised to $15 billion in a forecast made during December 2000. Now, these forecasts look wildly optimistic. In 2001, Internet advertising grew only to $7.6 billion, and eMarketer now predicts a 2002 number closer to $10 billion. Meanwhile, in the wireless industry, after years of underprediction, forecasts of wireless users now range from optimistic to euphoric. If history is any guide, the real numbers will be far lower than the most pessimistic of these forecasts.

Evolution Trumps Revolution

Mature network industries are surprisingly resilient when challenged by new technologies. Newspapers, radios and TVs have challenged each other in succession but have ended up coexisting, morphing themselves to capture new niches. Airlines, railroads and motor transportation also coexist, catering to increasingly specialized customer needs. Not only do mature networks adapt and morph, they also improve faster than expected. Meanwhile, new network technologies arrive later than expected. These factors reduce the market potential for new network technologies.

Consider these examples from the communications industry. In 1986, ISDN service was heralded as a revolutionary technology, offering speeds nearly 10 times faster than the 14.4Kbps most modems then offered. By the time a few million customers had signed up for ISDN, modem technology allowed 56.6Kbps speeds. Within a few years, DSL technology had increased residential access speeds by another order of magnitude. Proponents of high-definition TV underestimated the advancements in digital cable and digital satellite networks, and overestimated the rate at which they could get broadcasters to offer high-definition programming.

Seen from the lens of the past, the future of third-generation (3G) wireless networks seems quite blurry. The 3G standard promises multimedia services at speeds up to 2Mbps. Now several years in development, its potential markets are rapidly being captured by adaptation of the existing second-generation networks. One example is wireless LAN technology based on the 802.11 specification family, which allows short-range wireless communications at between 1Mbps and 2Mbps.

Simple Innovations Create Radical Value

The human mind has a taste for remembering important milestones and glorifying a few people. We know that Gutenberg invented the printing press, and Edison the lightbulb. But in focusing on the great technological breakthroughs, we often fail to note myriad small inventions that unlock their practical value. And we focus so much attention on the highly touted killer apps that we often ignore the real killer apps that have more humble origins.

The telephone and the radio both started as modest attempts to improve telegraphic transmissions. The radio had been around for more than a quarter of a century when AT&T started WEAF?the first advertiser-supported station?in New York City in 1922, thus jump-starting the commercial radio industry. Similarly, alternating current, invented by Nikola Tesla in 1888 and ignored by Edison, enabled the transmission of electricity over long distances and without sparks. This simple innovation eliminated the risk of fire and made the mass production and distribution of electricity economically viable.

The Internet seems to be following a similar path. Despite all the fanfare about interactive applications and e-commerce, the killer app for the Internet is the same today as it was two decades ago?person-to-person communication. Although Web traffic is 20 times the volume of e-mail traffic, it is e-mail that delivers the highest value to consumers and businesses. And in the wireless data business, short-messaging service?used to send messages of up to 160 characters to mobile phone customers?is the unheralded killer app, not the fancy mobile commerce, news and entertainment applications that service providers love to talk about. The lesson is that value hides in the strangest of places, and killer apps sneak up on you from directions you least expect.

In our impatience to see the future, we often tend to forget the valuable lessons in the past. As radio commentator Paul Harvey said, “In times like these, it helps to recall that there have always been times like these.” Mark Twain expressed a similar thought when he observed, “Time does not repeat itself, but it sure does rhyme.”