Cutting Out The Middle Man

It only had one ap…

I am reading a very interesting book, The Battery by Henry Schlesinger.

It is as much the history of electricity as it is the history of the battery, for most electricity in the early days (up to and including the telephone) was supplied by portable batteries. In fact, as late as 1917, only 24% of American homes had electricity of any kind.  Almost every major electrical invention (and most by Edison) were in fact battery powered.

The telegraph was battery run and so was the telephone, at least in the beginning.

And it is the transition from telegraph to telephone that I find the most interesting.

Schlesinger writes:

In his patent as well as in correspondence, Bell referred to his invention as an ‘Improvement in Telegraphy’. What he had done, of course, was remove cutting-edge communications technology from the realm of the professional and put it in the hands of the consumer. There was no longer a need for a third party – the telegraph operator – for two individuals to communicate over long distances, a fact not lost on Western Union.

Bell and most of his investors saw the telephone as a professional business device.  They were, in fact, initially irritated that ‘regular people’ would waste valuable telephone time in idle chit-chat.  They soon came to change their minds as they saw that people just loved to talk on the phone for the sheer pleasure of it – the first ‘social networks’.

The more things change….

The interesting thing here, at least to me, is that the arrival of the telephone and its simplicity of use ultimately obviated the need for a corporate interlocutor to facilitate the use of the technology.

Anyone could pick up a phone and talk to anyone else.

Now, let’s fast forward to our own era and take a look at the arrival of the web, and latterly devices like iPhone and iPads.

Initially, newspapers were the interlocutors for information.  Their reporters gathered the information and they, and only they, had the technology to process and distribute it to the people. These would be the presses, the ink and the trucks.

With the arrival of the web and the ubiquity of home computers, the need for a corporate interlocutor like a newspaper or Western Union fell away.  You can see that in the value of newspaper companies, or Western Union for that matter. (Maybe one day people will wire money via The New York Times).

It is not possible for people to ‘talk’ directly to other people, news or otherwise, via the web.  This is the rise of ‘User Generated Content’, and why not? User generated content can be someone recommending a great hotel or bad restaurant on a website or someone with an iPhone with a video camera recording a student protest in Iran.  In either case, it is now possible to bypass the newspaper. Technology makes this not only possible, but inevitable.

As the quality of telephone technology improved, the ability of companies to remain at the nexus of telephone transactions diminished.  Over time, Bell Telephone found its greater income in the hardware than in their banks of operators. Try finding one now.  We can see a similar pattern in Apple, a manufacturer of hardware, rising to greater valuation than AOL, who tried to be the interlocutor of online communications.

As online technology improves, it is not hard to project forward and see what is coming next, and in doing so, we can position ourselves well (or find good investments) that reflect was certainly is coming.

As UGC text obviated newspapers and now magazines, UGC video will ultimately obviate television networks and cable systems.  What happened to Western Union, to the newspapers, is going to happen to the TV networks as video becomes easier both to produce and to send out online.

There are now more video cameras in the US than computers, and nearly 4.6 billion cell phones, most with video cameras, worldwide.  People have an appetite for video, but also an innate desire to produce it as well as consume it – like housewives using the phone for conversation.  Today, ‘average people’ upload 23 hours of video to Youtube every minute.  The quality may not be so good, but it will get better. (Training being my own personal niche in this revolution).

If I were you, I would sell my stock in NBC (as GE, no dopes) are doing as fast as they can.

It will be a bit like owning Western Union (which does still exist, but is a mere shadow of its former self).

And as for batteries?

You can’t run an iPad without one. And soon your car.