On the persistence of lackluster demand—the history of the video telephone

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Abstract

Some radically new, technological products soar smoothly from introduction to stunning market growth, just as textbooks say they should. However, that is not always the case, nor is it even the most likely outcome. The case of the videophone is an extreme one to be sure but it offers six important lessons that apply to many other radically new technological products: (1) not every new technology leads to stunning market success; (2) just because the press says it will, does not mean it will; (3) growth often takes longer than expected; (4) growth often reaches lower levels than expected; (5) technological convergence is not a certainty; and (6) innovations involving complex systems face more hurdles to market acceptance than “stand-alone” innovations.

Introduction

Some radically new, technological products soar smoothly from introduction to stunning market growth, just as textbooks say they should. However, that is not always the case, nor is it even the most likely outcome. Literature suggests a variety of innovation impediments, e.g., firm-related ones, including lack of innovation experience, market and consumer knowledge, distribution channels, etc.; product-related problems related to the lack of technical skills, development costs, development time, etc. [1]; and process problems related to product development cycles [2], [3]. Bottom line, many technological products disappoint in terms of both speed and extent of market acceptance. Some take longer than expected to attract large numbers of paying customers. They get stuck in what Gilfillan [4], the father of innovative incrementalism, called a long, long useless stage before exploding to market success and changing the world. Others end up attracting far fewer customers than proponents initially thought they would. These are “stalled” technologies that resist adoption: they face years, maybe even decades, of lackluster demand. They are not product failures—they simply malinger in the background waiting to take their place in the pantheon of commonplace things.

This is the case of one such technology—the videophone, which has been pursued diligently for nearly 75 years. It is an important story because it serves as a counterweight to the veritable flood of enthusiastic stories of stunning market success. The case of the videophone is an extreme case, to be sure, but it is one that highlights the problems frequently faced by radically new, technological products as they work their way from inception to market acceptance. As the dotcom and telecom implosions so painfully taught, not every new technological development creates a market revolution. In addition, not every expectation of technological convergence is realized. Some new developments stay small and stay separate, sometimes for decades. This article looks at the kinds of resistance encountered by one such technological product and discusses the lessons that can be learned from this case.

Section snippets

Clusters of innovation and expectations of convergence

The story of the videophone started just after the Civil War during that amazing “cluster of innovativeness” when it became possible to store and transmit sound. The telephone, which was patented by Alexander Graham Bell in 1876, allowed for the transmission of sound over wires, a next step, incremental innovation that improved on the dot-and-dash telegraph. Interestingly, Bell was not even trying to invent to telephone—he was trying to send multiple telegraph messages over a single wire by

Fax morphs into video telephony

The videophone started its long journey to market with the long distance transmission of still photos across telephone lines—an early fax service. The first American demonstration took place on November 14, 1920, when four pictures were wired between New York World and the St. Louis Post-Dispatch using a “teleostereograph,” a machine as cumbersome as its name implies. If perfected, pictures of news events could be published at the same time as written descriptions. Previously, pictures had to

Three strategic design issues

Like every new technology, it was not entirely clear what a videophone would look like or what it would be used for. The concept could be implemented in myriad ways. Three highly interrelated marketing decisions had to be made before the videophone could be commercialized.

Round 1: The video calling booths

Commercial Picturephone service was inaugurated for the first time on June 24, 1964, when Lady Bird Johnson, the President's wife, placed a video call from Washington, DC, to a video calling booth in New York's Grand Central Station. In a scene reminiscent of Hoover's call 37 years earlier, the first lady extolled the product as the telephone of the future. Commercial Picturephone service began the next day when calling booths opened at (1) New York's Grand Central Station, (2) Washington's

Round 2: Desktop videophones for busy executives

After the failure of the public calling booths, AT&T refocused on business customers who had the money to pay for the bandwidth needed for full-motion desktop videophones. In 1965, Union Carbide agreed to test Picturephone service under realistic business conditions. Thirty-five executives at the firm's New York Headquarters and a Chicago location were given “Model I” Picturephones. Business Week noted that these executives would be “getting a taste of communications the way the majority of

Round 3: The Japanese enter with lower prices

The Japanese consumer electronics firms surmised that AT&T failed because of high prices and system incompatibility. They then tried to do what they had done so successfully with many other consumer electronic products. They lowered prices to between $400 and $500 and sought ease of compatibility. As one Mitsubishi executive summed up his firm's strategy: “We began by asking, What would it take to send a picture over a phone system that is already in place?” [18]. Instead of trying to expand

Round 4: Picturephone meeting service

Yet another incarnation of the videophone appeared during the second half of the 1970s, as AT&T's desktop Picturephone morphed slowly into “Picturephone Meeting Service” (which humorously shortens to PMS), a room-sized videoconferencing tool. Proponents felt that the high price of videoconferencing could be justified when compared with the expense of long-distance travel. Market potential seemed huge. As one AT&T analysis concluded: “Studies show that at least half of all business meetings can

Round 5: The mass consumer market

Still, expectations stayed sky high. A Wall Street Journal report on the future of “smart machines” in 1991 predicted “Video phones may finally come of age in the 1990s” [23]. One Japanese study predicted that the consumer market for videophones would reach $75 million by 1994 and would double to $150 million by the year 2000. It seemed like blue skies were ready to shine brightly after 60 years of cloudy, rainy weather.

The next round in the quest for a successful videophone began on January 6,

The latest round

At the start of the new millennium, nearly 75 years after the first exuberant predictions regarding the prospects for this new and innovative technology were foisted on the public, a new crop of predictions again proclaim the great promise of the videophone. An executive of a small California seller of a $300 to $600 television set-based videophone system claims to have sold 100,000 units and predicts that “within 20 years, every home will have a video communication device” [28]. Another expert

Why videophones failed

To date, one conclusion is crystal clear—after nearly 75 years of trying, there is still no convincing evidence that consumers want or will even accept videophones in their homes or businesses. Four hypotheses, two major and two minor, remain as credible explanations as to why videophones have, so far, disappointed proponents.

Lessons to be learned

The case of the videophone is an extreme one to be sure but it offers six important lessons that apply to many other radically new technological products.

Conclusion

What will it take for video conferencing/videophone to finally succeed. The same sort of lists tends to be repeated. According to Zeile [45], the widespread penetration of video conferencing depends on several factors aligning simultaneous. These include a sufficient broadband network infrastructure to support the video quality demanded by users, economical costs for both end-points and for the transmission bandwidth that connects them together, compelling user applications, ubiquity based on

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    This article is an historical account of the emergence and attempted commercialization of a new service. In addition to archival information, one of the authors was personally involved in the evolution of Picturephone at AT&T. During his career there (1979–1992), he spent several years on the Office of the Chairman Staff in Strategy Development focusing on its Digital Networking Initiative that included video conferencing and also had several management positions in new product forecasting for high capacity digital satellite and teleconferencing products. He used AT&T's picture meeting service to manage internal projects and participated in the design and implementation of outside research studies used to size various aspects of the teleconferencing marketplace.

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