If AT&T Had Managed the Phone Business like Google

Imagine a Silicon Valley strategy imposed on the telephone system 100 years ago. It's not a pretty picture.

A hundred years ago, 15 million telephones were in use in the United States—but that number would more than double by the end of the decade. Almost the entire network fell under the control of a single corporation, the American Telegraph and Telephone Company (or AT&T), which was somehow allowed to maintain its monopoly until the Department of Justice forced a breakup of the business in the 1980s.

But for most of its history, AT&T had almost total control of telecommunications in the US. As far back as 1907, the president of the company had made his strategy clear when he announced the motto of “one policy, one system, universal service.” The company’s dominance was so extreme, that even the phones in people’s homes were owned by AT&T, and merely leased or lent to users. On some phones you could even see the words molded into the equipment: “BELL SYSTEM PROPERTY—NOT FOR SALE.”

The folks at AT&T thought they were smart. But Silicon Valley folks would laugh at their naïve approach. Today’s tech titans would manage a monopoly of that scale very differently.

So just imagine a time traveling venture capitalist going back one hundred years to present a “Google” type strategy to AT&T’s senior management. Let’s call this visitor from the future “Mister Google.”

A Bell telephone from the 1920s

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If AT&T Had Managed the Phone Business Like Google

by Ted Gioia

Setting: A boardroom in a 1920s style of corporate opulence—with wood paneling, leather chairs, and an imposing mahogany table taking up most of the length of the room. Around it are seated a dozen senior managers in the business attire of that era. At a podium at the head of the table stands Mr. Google, wearing the casual attire of the 21st century. Facing him at the far end of the table is Harry Bates Thayer, who served as President of the American Telephone and Telegraph Company in the early 1920s, dressed impeccably in a finely tailored suit.

MR. GOOGLE: I appreciate your willingness to meet with me, but you’ll be well rewarded for your time. I come with wisdom from the future. And that wisdom is pretty simple: You folks have been doing everything all wrong.

[Hems and haws from the audience.]

Only 30% of the public uses your telephones. We need to get that up to 80% penetration within the next 12 months.

[Sounds of laughter from the room, until AT&T’s vice president of marketing pipes up.]

VP MARKETING: That’s hardly a credible plan, Mister Google. By the way, are you related to Barney Google? [More laughter at this.] How do you propose we get tens of millions of people to install phones in their homes during the course of a single year?

MR. GOOGLE: It’s easy, you’re going to give away the phone for free.

[The laughter has now turned to gasps of shock and amazement.]

CHIEF FINANCIAL OFFICER: Free? Did I hear you say free?

MR. GOOGLE: You heard correctly. You have to give the phones away for free

CHIEF FINANCIAL OFFICER: There’s some catch or trick, no? We give away the phones, but we charge more for the monthly fee? Or we raise rates on long distance calls? Or. . . .

MR. GOOGLE: No, no, no. You don’t understand. Everything is free—the phone, the connection to the network, all the calls. . . .

[Total pandemonium breaks out in the boardroom—some are laughing, others are jeering, a few actually shouting out rancorous words of abuse. It takes a couple minutes before President Thayer can quiet things down. He then speaks for the first time.]

PRESIDENT: My dear Mister Google, this is quite absurd. You asked to speak to our management team with some vague promise of wisdom from the future, like a character in an H.G. Wells story—and you’re now wasting our time with a plan to turn AT&T into a charity, offering free communications as a philanthropic endeavor. Frankly I was expecting more from you. I believe this meeting has come to an end. I’ll ask you to leave promptly and never. . . .

MR GOOGLE: No, no, no—you damned fools. You will make more money with my plan. A whole boatload of money. You idiots are managing your platform all wrong.

VP ENGINEERING: What’s a platform?

MR GOOGLE: [Ignoring the question] We’re going to charge a lot of money—more than you’ve ever charged before. Only it won’t be the users who pay.

CHIEF FINANCIAL OFFICER: If the users don’t pay, who is going to pay for them?

MR GOOGLE: A lot of folks will be happy to pay. Let’s start with the advertisers.

CHIEF FINANCIAL OFFICER: Advertisers? Do you even understand how a phone works, Mister Google? There’s no advertising on a phone call.

MR GOOGLE: Not now, but there will be once we’ve established the new rules of the game. I’m thinking of a YouTube strategy—with maybe ten or twenty seconds of commercials before the phone conversation starts. Perhaps more ads later if the users keep on jabbering.

PRESIDENT: This is just getting stranger and stranger. I’m not sure what a ‘you too’ strategy is, but it sounds more like voodoo to me. You can’t insert ads in a phone call.

MR. GOOGLE: Oh yes you can—if you’re letting people make phone calls for free. They have no choice in the matter, do they? But that’s only the start. We will match the advertising to what customers are discussing on their calls. So if mom is complaining about her back pains, we pitch a healing ointment or some other medicinal product. If dad is calling about his car breaking down, we tell him about the latest Ford Model T.

VP ENGINEERING: But that’s impossible. How do we even know what people are talking about on their phone calls?

MR. GOOGLE: That’s a great question, and it makes clear how little you have done to exploit your platform. You need to monitor every call, and compile a file of information on every customer.

PRESIDENT: [Clearly alarmed] Monitor every call? Are you joking? That’s invading people’s privacy? That’s spying? That’s surveillance?

MR GOOGLE: Not in the least. It’s called personalization and customization—it allows us to serve customers better.

[Sounds of jeering, abuse, and sheer disbelief.]

President of AT&T launches transatlantic phone service in 1927 by making a call to London (Getty Images)

VP MARKETING: What in the world does that mean? Personal ads? You mean like in the newspapers?

MR GOOGLE: We can target ads better if we listen to everyone’s phone calls. We’ll even make them sign a sheet of terms and conditions so that we have their legal permission.

And just think—we can sell the information we collect to other businesses. Or to the government or the police department. Anyone, really, who’s prepared to pay. These are all additional revenue streams. I’ve got some PowerPoint slides here with estimates—if I could just find a place to plug in my laptop. . . .

PRESIDENT: [Interrupting] Surely you’re joking? People don’t need personal ads. They don’t need any ads at all. We’re talking about phone calls. And I don’t know what you mean by terms and conditions—selling people’s private information has to be against the law. In fact, almost everything you’re suggesting sounds illegal.

MR GOOGLE: That’s why you need to spend a whole lot more money on lobbying. With the right influence in Washington, D.C., we can change the laws. We also need to set up some PACs. . . .

VP ENGINEERING: Pax? I have no idea what you’re saying.

MR GOOGLE: It’s simple. You give money to politicians and, in return, they pass laws you need passed.

VP ENGINEERING: [Chuckling] Well, we already have a word for that. It’s called bribery, Mr. Google. So let me get this straight. We bribe politicians so they allow us to spy on our customers—and we make money selling what we learn about people’s private lives to all and sundry? Is that really your business plan?

MR GOOGLE:  That’s just the start. There are a hundred more ways we can make money from phones. For example, people need to find out the telephone numbers of the people they want to call. That’s what we call a search function. Businesses will pay top dollar to be included in the search results.

PRESIDENT: [So shocked he spits out his coffee]: Whoa—do I understand you correctly? When someone calls the operator and asks for the phone number of Judy’s Beauty Salon, we give out the number of another beauty salon instead—and take a kickback for lying?

MR GOOGLE: Please don’t call it a kickback or lying. It’s all part of Search Engine Optimization—SEO for short—and if businesses want premium placement, they simply have to pay up. But let’s take it a step further. . . .

PRESIDENT: I dread hearing about this further step. The last one was a bit of a shock. But a certain morbid curiosity compels me to keep on listening. . .

MR GOOGLE: We control the network, so we can also charge on the receiving end of the calls. A restaurant wants customers to make dinner reservations on the phone—well, they’re going to need to give us a cut of the action. Let me suggest that they pay AT&T 25% of the restaurant tab as a finder’s fee. Cousin Lily calls the florist and buys a dozen roses, so we get at least 3 roses worth of revenue as our commission. Grandpa drops dead, and the funeral home gets a call from the family—but only if we receive 25% of the total burial costs. It’s all very simple. . . .

CHIEF FINANCIAL OFFICER: Just wait one second! You will bankrupt all of these businesses. They can’t afford to pay that kind of money just for receiving a phone call.

MR GOOGLE: That’s why we cap it at 25%. We’ve carefully studied the economics. We will only take enough to weaken them, not kill them entirely. Except in a few unfortunate cases. But that’s their fault for not being in better financial shape to start out with.

And let’s be bluntly honest. Businesses won’t have much choice. They need to take phone calls from customers, or they don’t really have a business, do they? They ought to be grateful we’re only asking for 25%.

PRESIDENT: I now understand your voodoo strategy all to well. What you’re suggesting is that we give everybody free phones, but engage is some kind of extortion racket to extract money every time they make a call. I think we have had enough of all this poppycock, Mister Google. Honestly, people like you belong in jail.

MR GOOGLE: Wait, wait. . .  You haven’t heard the half of it. We’re going to store all the customers’ personal information in the cloud, and make them pay for that too. We’ve also got strategies for all the different verticals. For a start, we’re going to replace snail mail with texting. That’s what people really want to do with their phones. . . .

VP ENGINEERING: Texting? What’s that—a return to the telegram? I thought you said you were a visitor from the future? We divested our telegraph business ages ago.

VP SALES: Store stuff in a cloud? Now I’ve heard everything.

PRESIDENT: This meeting is officially adjourned. I’m going to ask our Pinkerton security guards to remove you from the premises immediately. You are no more than a con man and a criminal, Mr. Google. I’m sorry we’ve wasted our time taking to you. We may have sullied our reputations too, just by listening. I wish I hadn’t heard a work of this.

[Three armed Pinkerton agents appear suddenly in the room and begin forcibly removing Mr. Google—who is still shouting as they take him out the door?]

MR GOOGLE: Wait! Wait! You haven’t heard how we plan to divert revenues from newspapers and record labels. We can even take over all of their business if we want to, but it’s better to keep them on a kind of minimal life support. . . .

[Mr. Google sees that he has lost the audience’s attention. He tries one last desperate gambit.]

And we might even build a rocket for you Mr. CEO, and send you to the. . . .

PRESIDENT: I’m sending you to the Devil.

[The board room doors close behind Mr. Google and the security guards, who are escorting him to the exit, where he will receive the proverbial bum’s rush.]

PRESIDENT: What a horror that was. I had higher hopes for the future than that.

{After a pause] I don't know much about the future, but I can predict one thing. Customers of AT&T for many decades to come will be happy that we didn’t listen to that rapscallion—who doesn’t even know how to dress for a business meeting.

Can you imagine how inefficient the whole phone system would be if we put even a fraction of that fool’s voodoo strategy into practice?

VP SALES: Yeah, boss, I can’t argue with that. But I’d still like to hear how he was going to store things in a cloud.