I see via my “This Day in History” iGoogle widget/gadget, here, that today is the anniversary of the First Public Transatlantic Telephone Call (1927).

This reminds me of a story told by Clayton Christensen (“The Innovator’s Dilemna”) in his book Seeing What’s Next about how the telegraph company Western Union is for all intents and purposes dead today because, a couple of decades before that, it decided to “pass“ on the telephone to focus on its highly profitable core business.

It’s almost the exact opposite of what’s going on with broadcast radio vs. Internet radio right now: Western Union “passed” because the new technology was local and their existing business model was national, whereas radio is “passing” on developing new forms of Internet-delivered radio because it’s national and they’re local.

In the historical case as described by Christensen, Western Union did see value in the telephone, and even had chances to affordably acquire the technology, but at the time the telephone was practical for local service only, and Westerm Union’s profitable core business was for national (i.e., long-distance) communications. So they passed.

Western Union’s “resources, processes, and values,” Christensen says, meant that what ultimately would have been the right course of action appeared at the time to be unattractive. (Read the book excerpt via in the link below to understand Christensen’s “RPV” theory better.)

At the time, in other words, Western Union “passed on the telephone because it sensibly prioritized investing in its core market… long-distance telecommunications.” (Its “long lines” were its core asset, giving it almost insurmountable barriers to entry from competitors. And telegraphy was where all of its best-paying customers were.)

Parallels for broadcast radio

About two years ago, some radio broadcasters — i.e., AM/FM group operators — looked at investing in the second or third investment round of Pandora.

However, Pandora’s nascent audience (as is true of almost all meaningful Internet-only radio brands) was a national audience. As a result, each of those broadcasters sensibly (at the time) passed on the opportunity to focus on investing in its core market — which meant, as per the current NAB mantra, “live and local.”

That’s where radio’s resources and processes and values are. Their core assets are AM/FM licenses and transmission towers. their best customers are local listeners in specific markets and local advertisers in those same markets.

Just as the telephone was a local-only product (initially, it only worked well in a couple-mile radius) that went national, Internet-only radio (i.e., a personalizable broad selection of genres, with narrow choices possible within those genres) is a national product that eventually will have a big enough audience in individual cities to function for local advertisers.

And what looks like the right decison today may look quite different once a few more years pass.

Read a relevant excerpt from “Seeing What’s Next” via Google Books here.

Comment

1. Kurt, great insight…but somehow “radio” is not spelled correctly in the headline! —thanks for all you do, Greg

   — Greg McClure · Jan 8, 09:35 AM · #

2. Fixed! Thanks, Greg

   — Kurt Hanson · Jan 15, 07:02 AM · #

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