Bench Talk

If any lessons stand out in the history of technological development, it’s that no product is too brilliant to fail, and companies that ignore customer sentiment do so at their own peril. A textbook example is the Picturephone—Bell Laboratories’ vision for “videotelephony.” It was first demonstrated at the 1964 World’s Fair in Queens, New York, where (for 10 minutes) attendees could sit in one of six booths at the Bell System pavilion to watch and talk with someone who was at Disneyland. After the Picturephone's grand appearance, all went downhill from there for reasons as relevant today as they were a half century ago.

For years, Bell Labs had worked on what ultimately became this Picturephone (named “Mod 1”). Its user interface was a video module (housing a small black-and-white CRT with several buttons for controlling screen characteristics and functions) that was connected to a touch-tone telephone. A few months after the fair ended, AT&T began a trial with the commercial Picturephone service, using booths at the National Geographic Society headquarters in Washington, D.C., and at the Museum of Science and Industry in Chicago, Illinois. In 1964, Lady Bird Johnson made the Picturephone’s inaugural call from Washington, D.C., to New York City’s Grand Central Station. Soon following in 1968, Stanley Kubrick added a scene showing a Picturephone booth in his film 2001: A Space Odyssey. And with these exhibitions, the momentum seemed to increase.

At this stage, although the Picturephone was more of a “Gee-whiz!” product demo than a practical device, AT&T was rightfully proud of its technical accomplishment and optimistic about its future. The company even boasted in a press release, stating: “With perhaps one million sets in use, Picturephone service may be a billion-dollar business by 1980.” As a result of this idea, expanded trials took place in Pittsburgh, Pennsylvania, Chicago, Illinois, and Washington, D.C., in 1970 and 1971 respectively. Customers could rent Picturephone rooms and make 3-minute calls for $16 (that is, $163 in today’s equivalency), so a 15-minute call would set the customer back $80 ($483 today).

Not surprisingly, there were few takers: Only 71 calls were made during the next 6 months, and only 32 systems were installed in Pittsburgh and 453 in Chicago. As the company had already spent at least $500 million ($4 billion today) on Picturephone development, AT&T’s new CEO, John de Butts, had seen enough and canceled Picturephone Mod I's service in 1973, after availability had expanded to the two cities’ suburbs.

However, these were the days when the Bell System was “the” telephone company, and Bell Labs' pioneering work in dozens of disciplines had resulted in some of the most important developments of the 20^th Century. Nonetheless, applying only basic research inevitably results in failure—sometimes very expensive ones—and videotelephony was no different. Bell Labs’ scientists continued development efforts and the service was resurrected in 1969, armed with an improved system—the Picturephone Mod II (Figure 1). The Picturephone Mod II had a resolution of 250 lines on its 5.25 × 5-inch screen and a variety of other impressive enhancements, including a camera sensor that was a silicon photodiode array. The system also used a zoom lens and could show graphics and documents. But as before, equipment costs and service charges were very high, and the Mod II suffered the same fate as its predecessor.

Figure 1: A 1972 AT&T Mod II Picturephone with a control pad nested within its base support. The accompanying service unit was usually placed under a desk. (Source: Wikipedia)  

Maintaining its belief in videotelephony, AT&T tried a different marketing approach in 1982. Focusing on the business community, the company introduced the Picturephone Meeting Service videoconferencing application. Incredibly, the cost was even higher—a whopping $1,340 ($3,400 today) for a 1-hour video call; it was about half the cost, if customers used their own rooms rather than those set up by AT&T. Though holding a videoconference was arguably much less expensive than sending people across the country, the service received the usual tepid response from potential customers.

Bloodied but not beaten, AT&T still refused to admit defeat, launching yet another product called the Videophone 2500 in 1992. The Videophone 2500 replaced the black and white picture with color, offered full-motion video with better picture quality, allowed transmission to be conducted using a standard two-wire “twisted-pair” (rather than the previous three), and had a flip-up LCD screen. The marketing pitch this time was to sell a set of two systems to families that, for example, could let Grandma see and talk to her grandchildren on the East Coast without leaving Los Angeles, California. This didn’t work either, even after AT&T slashed the equipment cost from $1,500 to $1,000 and offered $30 overnight rentals.

About 28 years had passed since the World’s Fair, and the telecommunications environment was a very different place. Tim Berners Lee had just invented the World Wide Web, cellular phone service had begun in 1983, and advances in virtually every aspect of communications were racing forward. After three decades and extraordinary expenditures of development, time, and money, even AT&T (the first cellular telephone company) finally realized that the Picturephone, considered the biggest failure in Bell Labs’ history, was done for good.

It’s easy today to see why the Picturephone was such as a resounding failure: Service charges were probably too high in magnitude, picture quality was marginal even in later systems, market penetration was severely limited because every customer had to a buy a Picturephone system or visit a booth, and the overall benefit was never seen as essential by most people. However, AT&T’s most glaring oversight was privacy: Many and perhaps most people don’t want anyone watching them while they talk on the phone.

For proof, consider that now up to 20 million FaceTime calls are made every day, according to Apple CEO Tim Cook, and when combined with those on Skype, Hangouts, and other applications, lots of people use video calling. Yet, this is just a tiny fraction of actual calls made, for the vast majority are still audio only (or now, "text") even though video calling is available to anyone with a smartphone, tablet, or computer—for “free.”