Dear Rosan, Gunnar, and All,

Thanks for your replies. Comparing models for invention and innovation
requires describing the differences and contrasting features of these
models.

If I understand it correctly, Rosan’s questions here follow issues
that emerged in a previous thread. In that thread, Rosan asked how
companies innovate to develop good products and services, bringing them
to market profitably. She wanted to know how to analyze and understand
the issues involved, asking whether case studies can reveal anything
significant about why companies succeed.

In this context, my comments on the differences between Bell Labs and
Facebook are neither polarizing nor a matter of opinion. These issues
have to do with invention and innovation, with bringing durable products
and services to market in a way that benefits consumers and companies
alike.

To understand these issues requires attention to differences between
models. These models occupy different poles on the spectrum between
invention and innovation. I don’t argue that Facebook is bad. Rather,
I argue that Facebook is a successful but trivial creation that has more
to do with the times than with underlying innovation on the part of
those who created it.

Bell Labs deserves clarification with respect to the monopoly status of
American Telephone & Telegraph – Bell Telephone – and with respect
to the connection between Bell Labs and the military-industrial
complex.

Bell Labs wasn’t the product of a monopoly. The antecedents to Bell
Labs began in the 1880s in the private laboratory of Alexander Graham
Bell and the research department of Bell Telephone. The American
Telephone and Telegraph Company became a monopoly in the second decade
of the twentieth century. While AT&T had monopoly status by the time
that Bell Labs took formal shape as an organization within AT&T,
recognizing what monopoly status meant in that era sheds light on the
role of Bell Labs.

Monopoly status was governed under the law. This was not the kind of
monopoly that John D. Rockefeller created with the Standard Oil Trust.
Monopoly laws regulated AT&T while requiring performance determined by
legislative act, and AT&T was responsible to the government. The massive
capital investment required for universal telephone coverage in the old
copper-wire technology was one reason for monopoly status.

To describe this as “sobering” makes monopoly status sound ominous.
It wasn’t. Nearly all the world’s telecom providers functioned as
monopolies at that time. In many nations, these monopolies were owned by
the government and funded directly by the taxpayers. In other places,
monopoly status ensured a return on the huge investments funded by
capital markets.

That was a time when “nation-building” literally referred to
building national infrastructure – bridges, highways, sanitation
systems, dams, water systems, national parks, and telephone systems.
When I lived in Norway, one of my friends was an 80-year-old woman who
worked in her early years stringing copper-wire cable from pole to pole
before moving into the telegraph bureau and then to the news service
maintained by the telephone and telegraph company. That’s what it was
like in many places – certainly across the vast spaces of the United
States and Canada. By all accounts, AT&T provided what many believed to
be the world’s best telephone service during the period of monopoly
protection, moving steadily to nearly universal access.

As times and technology changed, the US Justice Department moved to
terminate the AT&T monopoly. There are many accounts of what happened
and why, and what happened next in a shifting telecom environment. There
is little doubt that Bell Labs was one of the greatest and most valued
investments of AT&T during the protected era.

In asking what Facebook has contributed to humankind, I am asking what
I take to be a serious question. Many people find Facebook entertaining.
I find it clunky and tedious. The most interesting aspect of Facebook is
its business model. As Gunnar notes, Facebook found a way to capitalize
on the infrastructure of the Internet. Facebook found a great way to
appropriate a portion of the enormous investment the world’s nations
have made in developing the Internet. This includes major direct
investment by the military side of the military-industrial complex.

Eventually, the Internet opened cyberspace to commercial development.
When this happened, Facebook managed to stake a claim to part of the
domain. This is perfectly legitimate, rather like the Oklahoma Land
Rush, but I don’t see what major contribution Facebook makes to
humanity. Facebook is a relatively trivial communication system and a
social environment for those who enjoy it. I maintain a Facebook
account, but I don’t often check it. I ask people who want to
communicate to send an email or phone me.

For me, the sobering thought is to ask what justifies a market
capitalization for Facebook that is likely to run between
$80,000,000,000 and $100,000,000,000. That’s eighty billion dollars to
one hundred billion dollars – or milliard dollars, depending the word
you use to describe a thousand million dollars. Responsible development
involves building productive capacity rather than chasing short-term
financial gains. To me, this suggests the excesses of the recent global
financial crisis, and some of the firms that placed the world economy at
risk during the GFC are leading the Facebook IPO. If raising such
immense sums with so little productive capacity to justify the
investment is not sobering, it should be. The financial markets have
gone from hangover back to intoxication.

Perhaps this is a polarity, but I can’t see any invention at
Facebook, and I see relatively little innovation. This is a pole apart
from a laboratory that discovered and invented a great deal on the way
to those Nobel prizes. The inventions and innovations that emerged from
Bell Labs include much of the technology on which Facebook depends.

If there is some inventive or innovative aspect to the Facebook model
apart from financing and value appropriation, I’d be curious to know
it. There may be an invention and innovation model that somehow mixes
Bell Labs and Facebook – if there is, I’d be equally curious.

Yours,

Ken

Professor Ken Friedman, PhD, DSc (hc), FDRS | University Distinguished
Professor | Dean, Faculty of Design | Swinburne University of Technology
| Melbourne, Australia | [log in to unmask] | Ph: +61 3 9214 6078 |
Faculty www.swinburne.edu.au/design

Rosan Chow wrote:

—snip—

I find it rather sobering to think that AT&T was a monopoly and Bell
Labs in its heydays was a microcosm of military-industry science
complex. None of these facts can tarnish the Nobel medals won, but they
do put things in a different perspective and render comparisons more
difficult.

Finally, just to be clear: although I know some companies are already
mixing ‘Bell Labs and Facebook’, that's not what I suggested. I was
saying that variations between them exist ... implying that it is not
necessary to polarize them.

—snip—

Gunnar Swanson wrote:

—snip—

AT&T was a (near) monopoly; that was part of what made Bell Labs
possible. I don't know that FB is a keystone of the military industrial
complex but that complex is the source of the infrastructure that makes
FB possible and that complex is alive and well on the web. It is hard to
extract any single part of our reality from others. The irony of
considering whether an award named for and financed by Nobel would be
tarnished by military connections is a good indication of that.

—snip—