Edison’s electricity transmission was based in Direct Current (DC), which anyone that has installed a car stereo amplifier knows that to transmit DC power without significant transmission loss requires the use of expensive heavy copper wires. Nicola Tesla, Edison’s apprentice had discovered Alternating Current (AC), which overcame the transmission issues associated with DC. Tesla tried to influence Thomas Edison’s thinking and encourage him to switch to AC.
However, Edison’s ego kept him from seeing the value of AC and he continued to focus on DC as the source of power for his electric light. Both Edison and Tesla were idea people, but terrible business people. Frustrated by Edison’s lack of recognition for his ideas, Tesla finally accepted an offer from George Westinghouse, an inventor and engineer in his own right, to invest in Tesla’s AC idea.
This set up what was known as the “Current War.” JP Morgan put the pressure on Edison to discredit AC and protect his investment. Edison agreed to set up demonstrations using AC to electrocute animals to show people that AC is an unsafe way to transmit electricity. After this demonstration, prisons looking for a more humane way of killing death row inmates contacted Edison. Edison saw this as a great demonstration to discredit AC and devised an electric chair using a Westinghouse generator and alternating current.
The first execution by electrocution took eight minutes and essentially roasted the man alive. People were horrified by the display and the stunt backfired on Edison who was forever associated with it. JP Morgan’s father ordered JP to divest himself of the electric industry, but JP hesitated, knowing that a large power plant in Niagara Falls was being built. However, it was not clear if the contract would be awarded to AC or DC power. As he tried to make the decision to either defy his father or not, his father died in an accident and JP inherited his father’s vast portfolio of investments. To hedge his bet of winning the Niagara Falls contract, he organized a smear campaign to trigger a sell-off of Westinghouse stock when Westinghouse was drowning in debt.
The smear campaign left Westinghouse on the verge of ruin and unable to raise new money. JP Morgan was convinced his plan had worked and that Westinghouse was out of the picture and he would be a shoe-in to get the Niagara Fall power plant contract. In a turn of fate, Tesla volunteered to void his royalty agreements with Westinghouse, giving George full control of the AC invention and with it the power to raise new money.
In a show of power, Westinghouse under bid JP Morgan to light the upcoming World’s Fair in Chicago with AC lights at 1/4 the price of Morgan. Westinghouse won the bid easily. When they flipped the switch at the Chicago World’s Fair, 200,000 lights came to life in a spectacular display. The world saw the power of AC and the Niagara Falls power plant contract was awarded to Westinghouse. Even though Morgan and Edison lost the bid, JP Morgan saw a way out. He told Westinghouse he would sue for patent infringement since Nicola Tesla was working at Edison Light when he discovered AC technology.
With the huge financial resources at Morgan’s disposal, Westinghouse had no other option but to hand over the patents to Morgan. Morgan then bought up all the shares in Edison General Electric to marginalize Thomas Edison and renamed the company General Electric (GE). With Edison out of the way and the AC patents in hand, JP Morgan realized his dream of owning the electric industry and built GE into a powerhouse.
One of the lessons from the JP Morgan story is that most inventors like Edison and Tesla, are not the best business people. They are less interested in making money and more interest in being recognized for their idea and getting out in the public domain. It took JP Morgan to bring the light bulb out from the lab and into commercialization. It took Westinghouse to make Tesla’s AC see the light of day.
Another lesson is that sometimes you need a make a grand display to win hearts and minds as Morgan did by electrifying his home and how Westinghouse did with the Chicago World’s Fair. It is never a good idea to take your eye off the ball as Morgan did when he thought he had Westinghouse on the ropes. Also in business, you have to understand who you need to massage, who to knock in the head, and who you need to buy off to consolidate power. That is the game of business and it was the game JP Morgan did with the stock market, railroads, and electric industry.
What lessons from JP Morgan can you apply to your business?
