The Net Analogies Around Us

Cramer applies lessons learned from the Edison-Tesla battle to consider what could happen with the Internet.
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How big can the Net be? I must spend hours each day trying to think of analogies that come close to conveying the potential for the darn thing. Then, periodically, I stumble onto something that captures it perfectly, and it explains the unlimited upside to me.

This time, I found it in paid-up subscriber

David Owen's

unbelievably good book

The Walls Around Us

-- an unlikely place because it's the story of how a house is put together. (It is available via this link to

Amazon.com

(AMZN) - Get Report

, and it's worth buying.) Owen writes eloquently of a dispute between

Thomas Edison

, of whom everybody knows, and some guy named

Nikola Tesla

, of whom nobody knows but who apparently invented everything Edison didn't invent plus a few more gadgets -- and died penniless for a bunch of reasons worth reading about.

Anyway, Edison and Tesla invented competing electrical systems. Edison's ran on direct current, while Tesla's used alternating current. I know, who cares, but think of this: Edison's plan was to build a coal-fired power plant on virtually every street corner in the country! That would have been necessary because DC loses voltage rapidly as it travels over wires, and thus can't be transmitted over long distances. A hundred years ago, no one would have complained about the smoke and noise from Edison's power plants because they would have replaced an even bigger nuisance: unreliable gas lamps that smelled bad, gave off soot, made people sick and burned down houses.

But Tesla's idea was better by an order of magnitude. For complicated reasons that I can't begin to understand, AC power, unlike DC, can be transmitted over very long distances. Tesla's system, in other words, eliminated the need for all those nasty power plants, thus cutting out a horrendous middleman. With Tesla's AC system, you could build one gigantic power plant right at the coal mine and ship electrons

instead

of coal.

In 1888, Tesla sold the rights to his system (for $1 million) to

George Westinghouse

, who used Tesla's patents to build the world's first centralized generating station at Niagara Falls. Edison's DC sytem, Owen writes, "rapidly proved to be the evolutionary dead end that Tesla had always said it was." Edison, who hated Tesla and had tried for years to discredit AC, ended up having to license Tesla's technology from Westinghouse.

Back to the Internet: No one I know is smart enough to distinguish the Edisons from the Teslas from the Westinghouses at this early stage of the evolution of this amazing and rapidly changing new technology. (Read: the

AOLs

(AOL)

from the Amazons from the

eBays

(EBAY) - Get Report

). But here are a few points to ponder: Tesla got rich, but he sold out cheap (the electrical system we use today is exactly the same one he invented); Westinghouse didn't invent the AC motor -- the key to the whole revolution -- but he made a lot more money from it than Tesla did; Edison despised Tesla and tried to ruin his career, but Tesla's system increased the value of Edison's most famous invention, the incandescent light bulb, by many millions of dollars; and the key to all the really big money was distribution.

Most important of all, there are certain kinds of technological change that, once set in motion, are unstoppable. The great Thomas Edison couldn't stop alternating current. And not even Nikola Tesla could have stopped electricity.

Or do you know anyone still in the coal-distribution business?

James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. At the time of publication, his fund was long Amazon.com and America Online, though positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending a letter to TheStreet.com. TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TheStreet.com.