"The railways made America. Everyone knew that."
So begins Stephen Ambrose's historical tale of the transcontinental railroad, Nothing Like It In the World. It's true that cross-country rail travel revolutionized commerce and communication in the United States, but that was a century ago. What will future historians say "made America" in the 1900s? The automobile? Space exploration? The computer?
At least one group believes that the Internet is the invention of the century -- the definitive breakthrough that is unlike anything else in the world. That group is the Company of Friends (CoF), Fast Company's network of readers based in in 157 cities in 34 countries. On April 16, 20 members of the CoF in Philadelphia-facilitated by cell member Dominic Villari-gathered to discuss similarities between the 1860s and 1990s.
Listen in as Fast Company readers bring the magazine to life with a rousing debate about Ambrose, trains, and the Web. (This report is largely unedited because the original, edited version is no longer available.)
In 1860, travel between NYC and Sacramento took six months. Explorers could either hoof it across the landscape like Lewis and Clark, or they could take to the seas. Because the Panama Canal did not yet exist, an ocean voyage meant sailing clear around the tip of South America and back up to California. In 1869, the transcontinental railroad was completed, and immediately reduced the travel time between New York City and Sacramento, California from six months to five days. Accompanying this transportation innovation was the telegraph line, which provided nearly instant communication between parties anywhere in the country.
Before the transcontinental railroad opened for business, each region of the United States operated its own self-sustaining economy. The advent of the railroad allowed the South to sell its cotton to the Northeast, and purchase textiles in return. America began to form a national economy rather than a series of regional ones. The same phenomenon took place on a global scale when the Internet connected retailers and consumers on opposite sides of the globe - the first of four parallels between the railroad economy and the Internet economy.
The second parallel concerns time. Today, we live on Web time, which is urgent, hectic, and thrilling. In the 1860s, Americans referred to a development called "track time." Tens, if not hundreds, of thousands of dollars were lost each year that the railroad was not complete. The frantic race to completion was encouraged by the U.S. government, which paid train companies for each mile of track laid. In fact, the government pitted companies against each other, prompting Southern Pacific to feverishly lay track from west to east while Union Pacific laid track east to west. Once the track was laid in a town, the first train literally followed the same day. Similarly, once an e-commerce server is online today, the first orders come streaming in within hours. Well, at least they used to...
Larger-than-life leaders dominated both eras as well. Just as the Internet age evokes images of Bill Gates and Jeff Bezos, people defined the era of the transcontinental railroad. General TK Dodge was the main railroad engineer during the Civil War. He built the Union Pacific. Doc TK Durant was the one of the principal business leaders behind the railroad, and a notoriously shady character. And TK Huntington brought together the original financiers. These men became poster boys and scapegoats for the railroad enterprise. Just as Bill Gates was vilified during the Microsoft anti-trust case, these leaders took the heat for problems - and there were many - related to railroad construction and operation.
Finally, the fourth shared characteristic is government funding. The railroad was a physical entity made of steel and wood. The Internet is virtual. But both projects were originally funded by the United States government. The railroad was funded more obviously, with its per-mile payments. Though its mentioned today, the Internet was also first funded by the government, which intended to use it in the military and in universities.
Evolving Adaptability
In the same way that the Net concentrates on evolving adaptability, the builders of the railroad adjusted quickly and efficiently to the immediate environment. When it proved too expensive to transport the strong wood of the east to the west for construction via ship, the workers in the west took laid down temporary tracks with poorer quality wood so that they could transport the new wood by train. They built temporary tracks on ice so that they could bring in new materials, then remove those tracks before the spring thaw. They also scrapped complete lines when a town offered a financial bonus for running tracks run through it.
Wild Speculation
At first, the railroads could not sell a share of stock. Once word got out about the advances possible with a transcontinental line, shares sold like wildfire. Five years ago, it would have been tough to convince a venture capitalists to fun a cheese-selling operation online. Then, in 1998, every angel investor, VC, and shareholder wanted a piece of the dotcom action. You want to devoted a site to mozzarella? Great. Here's $50 million.
Finance Structuring
Railroad and Internet deals were structured similarly. Railroad financiers were silent partners in companies paid to build the railroad. No part of their financial success was tied to the eventual success or failure of railroad transportation. An IPO is no different when you think about it. E-commerce companies did not need to provide profits margins during the heyday of VC-funded dotcoms -- they only had to show potential growth. Fortunes were made when companies went public, not when their services turned a profit.
The Aftermath
Just as profit-starved dotcom companies are facing extinction today, many railroad lines have faced bankruptcy in the last century, particularly those that made basic business mistakes. However, some railroad lines have survived the general decline of rail travel in America. They learned to stick it out longer than rivals, just as hearty dotcoms like Amazon are fighting their way toward profitability.
There will always be some invention that is "like nothing else." Although it's interactive on a mass scale, The Net is merely a new infrastructure channel. The Net is not the end of our constant evolution. It is not the be-all, end-all. In the next decade, we could increase life expectancy to 150 years, and then that would be "like nothing else." All that we can do is keep on eye on the past at all times.
The following dialog took place between Company of Friends members Lynn Meinke, Valeria Maltoni, Mike Dershowitz, Brian Fishbone, Dan Relles, Eric Barnes, Fred Meinke, Dominic Villari, Bruce Amos, Joe Mullock, and Valerie Jachimowicz.
Barnes: How did you find Ambrose's book?
Villari: I heard about it on an NPR interview. It is a dry book, but I am a train buff. The author does an exceptional job of portraying the characters as modern heroes.
Barnes: What role did the media play in the railroad's rise and fall? It played a big role in the dotcom crash.
Villari: Actually, at that time, journalism was trying to develop and formulate its role.
Fishbone: Well then, without the media, how was the railroad craze created and communicated?
Villari: The principal characters did just what CEOs do today to get capital and create hype --The IPO Road Show! They would go to major cities such as Washington, D.C. and New York, meet with economic leaders, and simply talk the railroads up.
Dershowitz: What would the transcontinental railroad have been without the telegraph? Would it have been so revolutionary?
Villari: The transcontinental railroad would have only been a transportation boon without the telegraph. We would not see as much of a parallel between it and the Net without the telegraph in the picture. In fact, the government recognized the importance of the telegraph to the railroad and demanded that the railroads not only erect the telegraph lines, but make maintain them over time. If the lines were not kept up, the railroad companies would lose their government grants.
Barnes: The Net does not move like the railroad did. They are not exact parallels. The Net still needs UPS and people to complete the ordering process. I am still waiting for when I can print a CD on my printer!
Mullock: The Net is not about buying -- it just transmits information. In contrast, the telegraph and train together were a true revolution. The Net does not transport goods from one place to another. There is no real distribution innovation with the Net.
Relles: The Net brought with it "evils" such as email viruses and child access to pornography. What evils did the trains bring with them? Any parallels?
Villari: The train absolutely brought evils with it. One such evil was "Hell on Wheels." The men laying the tracks worked long, hard days of physical labor and would abuse the local towns by night, delighting in sex, alcohol, and other vices. Another evil was the abandonment of towns built specifically around the railroads. The railroad would provide a false economy for a fixed period of time, and then once the railroad left, there would be no real economy left for the town. In addition, Native Americans were displaced, and there was a loss of open land.
Barnes: I guess that makes the Net "Hell on Wire."
Jachimowicz: We are talking a lot of the parallels, but I see a stark contrast. While the railroad enabled poor folks to move west and settle new lands, the Net has not provided improvements to the lives of the poor. There is certainly not equal access to the Net for all men and women. The digital divide runs deep, actually creating more of a division between social classes.
Dershowitz: I agree with Valerie. In the days of the trains, a man could get work doing any kind of physical labor and live at a fair standard of living. The work created by the Net requires sharp skills associated with the mind.
Amos: Back in 1869, industry leaders thought of the railroad as the railroad, instead of as a transportation company. Do you see any parallels in that respect to the Web?
Villari: Absolutely. The Net fails to distinguish between content and infrastructure. The power is in the infrastructure, not the content. Content is not king -- content does not necessarily produce profit.
Dershowitz: We have not talked much about the second generation of the railroads. Any parallels there we can learn from with respect to Act II of the Internet?
Villari: Yes. The rail lines learned the errors of their old ways. They learned to run stable businesses and to diversify. The B and O (CHECK THIS REFERENCE) combined boat travel with rail travel. Regional rail and short lines provided more easily manageable businesses. In the same way, the next generation on the Net will be about a few core companies with solid business plans. They will have a niche, make a profit, demonstrate steady growth, and specialize in a specific area. The days of the quick buck are over.
