The Long, Strange History of ADT

Jul 24 · 20 min read

The history of ADT is a tangled web of brilliant inventors, court cases, monopolies, acquisitions, eccentric billionaires, and ruthless CEOs.

140 years before going public for the second time on the NYSE, ADT was a technology company ahead of its time, paving the way for safer homes and communities. Who knew it all started with a couple of inventors and a serendipitous break-in?

I. The Royal House of Telegraphy

Royal Earl House

In early 1887, Royal Earl House waited in quiet anticipation for the verdict in the suit brought against him. He hadn’t done anything wrong, hadn’t infringed on any patents, and certainly hadn’t tried to anger the Morse Company into suing him in federal court. The only thing he was guilty of was being smart. And like many smart people throughout history, he was seen as a threat.

Not unlike the Mark Zuckerbergs or Steve Jobs of his time, House had not just tried to improve upon someone else’s technology, he sought to outdo it and revolutionize the communications industry in the process. And for that, the dominating economic powers of the time were seeking to shut him down so they could continue pushing their highly-profitable inferior technology.

House was born in Vermont, September 9, 1814. He was a curious child that loved to take things apart, examine the individual elements, and put them back together again to create something new. As a young boy, he’d even taken a dead toad, stripped off its skin and fitted its back legs with ordinary springs — making the toad hop as if it were alive. Perhaps a little gruesome, but it’s this sort of experimentation that led House to a lifelong love of intellectual exploration and investigation. Could he do it better? Faster? More efficiently?

At 26, he moved to Buffalo, New York, to go to law school, but his overactive mind proved too restless for the mundane life of a lawyer. He didn’t want to argue points of law, he wanted to be out there doing something, making something great. And the emerging science of electricity proved too tantalizing an opportunity to ignore.

Although he was also interested in physics, chemistry, magnetism, and a variety of other scientific topics, House was drawn especially to the field of electricity and the science of sending electrical signals over long distances through wires.

Samuel Morse

Work had already begun on telegraph technology by the time House entered the fray in 1846 with his patent application for a telegraph machine that printed Roman characters. Samuel Morse had already battled a number of competitors to become the big name in telegraph technology and had — that same year — just completed a telegraph line that ran between Washington D.C and New York City. Then along came House.

Although Morse had created a system that transmitted electrical signals effectively, those signals needed to be translated by a human at both ends of the conversation — into and out of Morse Code. House’s machine was revolutionary because it enabled anyone who knew how to read to be able to use it.

Instead of transmitting in code, House’s machine used a 28-key keyboard similar to a piano wherein each key was assigned a Roman character. The device even had a shift key that let the keys serve double duty as punctuation and numbers. House’s machine then transmitted the signals to the end of the line where the characters were printed on a small roll of paper at the rate of one character per second.

In essence, House had created a system that needed no translators and enabled any common person to use a telegraph line. That scared the Morse Company.

Morse had built his business on an expensive network of trained telegraph operators and telegraph stations. House’s invention threatened to destroy it all by enabling people to transmit and receive telegraphs to and from their own homes. And, as any entrenched company threatened by new technology would do, he decided to sue the Royal E. House Telegraph Company for patent infringement.

The suit claimed that the Morse Company owned the ability to transmit electrical signals for the purposes of communication. But Morse and company knew full well that they did not own the idea of electrical signal transmission. Their suit held no actual merit. Rather, it was an attempt to put House’s company out of business through lengthy and expensive litigation. The Morse Company was already the leader in telegraph technology and had more money and resources than House. But as Royal House sat, awaiting the court’s decision, he was confident that he would come out on top.

And he did.

The case was thrown out due to Morse’s failed attempt to prove that House had infringed on any patent they owned — which was precisely true. The only aspect the two machines shared was the ability to transmit and receive electrical signals. House’s machine just did it better.

Although House’s company suffered financially and had trouble mass-producing the revolutionary machine, his original invention was the first step in creating the modern-day security system.

II. Calahan and Company

New York Stock Exchange runners, soaked from head to toe, poured into the Western Union office in the spring of 1861, dripping and flinging water on the operators as they rushed through to deliver and receive messages.

The runners were messengers that ran back and forth between the NYSE floor, their respective financial firm offices, and the telegraph office, delivering real-time stock quotes and news.

It had been raining all day and the runners had thoroughly soaked the office. But it wasn’t just the water that bugged Edward Calahan — the 23-year-old Chief Operator — it was the constant dashing in and out of large crowds that was making the inside of the Western Union office during a rainstorm look a lot like the outside of the Western Union office during a rainstorm. But he was trying the best he could to keep order despite the conditions.

Committing a rookie mistake he regretted moments later, Calahan moved toward the entrance of the office just as a large group of drenched runners, turned en masse to exit through the double doors.

Squeezing a large group of runners through that door was a feat that left no room for friction or polite excuses. And before he knew what was happening, Calahan felt himself physically lifted off the ground and born upon the shoulders and arms of the exiting horde.

A typical, crowded telegraph office

He was instantly drenched and cried out in protest, but no one heard him. The runners were a force of nature that simply deposited him on the puddle-strewn ground as they dispersed back to their respective New York financial offices.

Calahan stood up, soaked through, and trudged back to the Western Union office without the whisper of any stray apologies. As he stepped back through the double doors, angry and humiliated, he thought there had to be a better way for the NYSE to transmit stock prices and fluctuations to buyers and financial firms. He transmitted messages back and forth all day through telegraph lines. Why hadn’t anyone tried to do it from the NYSE floor?

So, Calahan set to work.

Although he was only eight years old when House filed his patent for the Roman-character-printing telegraph machine, the technology had not changed much in the intervening years.

Despite House’s superior technology, his invention lost in the marketplace due to the difficulty of manufacturing the complicated machine on a large scale. In fact, Morse did extremely well after losing his suit against House, licensing his patents to scores of upstart telegraph companies, including what eventually became the Western Union Telegraph Company where Calahan worked.

David Edward Hughes

However, despite Morse’s success in the marketplace, House’s original ideas had not been forgotten and a number of scientists and tinkerers had been working on improved Roman-character-printing telegraph machines. One of the best systems to come out of this line of invention was David E. Hughes’ printing telegraph machine — technology that, just a few years prior to Calahan’s arrival in New York, Western Union had licensed and was beginning to implement.

Using his knowledge of telegraphy and drawing on the innovations of House and Hughes, Calahan built the first automatic stock telegraph machine in 1863. His machine could transmit changes in stock price directly from the NYSE floor over long distances in near real-time and print them onto a continuous strip of paper at the other end.

Calahan, with co-founder Elisha Andrews, unveiled the “stock ticker,” (affectionately dubbed for the noise it made as it printed stock prices) in 1867 along with his new company, The Gold and Stock Telegraph Company.

Automatically printing stock prices was not the end of the line for Calahan and Andrews. Although the stock ticker would revolutionize and shape the stock industry for the next 100 years, their next venture would be the inception of the modern home security industry.

III. A Shadow in the Night

The Gold and Stock Telegraph Company was extremely successful over the next three years.

With Calahan as the tech-minded innovator and Elisha Andrews as the consummate salesman and business guru, they had grown the business to the point that they were thinking about expanding overseas. The stock ticker not only allowed New York financial firms to save money on runners but also made up-to-the minute stock information available to financial firms hundreds of miles away. It was a revolution that Calahan and Andrews were riding all the way to the bank.

Now, three years later, Andrews had his bags packed for a trip to London to talk with financial firms trading on the London Stock Exchange. They were begging to get their hands on stock tickers and Andrews was all too happy to show off his company’s wares. Confident and comfortable, Andrews settled down for a good night sleep filled with dreams of British Bankers.

Then something startled Andrews from his sleep. He didn’t know what had awoken him, but as his eyes adjusted to the dark they focused on a figure standing over him.

The form sent a chill through his core and his instincts kicked in. He jumped from the bed, ready to either defend himself or chase the intruder from his home. The room was dark and Andrews struggled from the haze of sleep as a tussle ensued. Before he knew what had happened, he was on the floor in pain, his attacker running for the door.

He was a little worse for wear in the morning but still excited to board the boat for England that day. The burglar made off with some of his valuables, but he could have ended up dead. Comparatively, losing a few possessions was a small price to pay for his life. And it may have ended at that if Andrews wasn’t the president of a tech company that had the ability to send quick, automated messages across long distances.

His mind was alight with questions: Was there a way to get help faster or alert the police more quickly? Could telegraph technology help in some way?

His unsettled mind pushed him to talk to Calahan before heading across the Atlantic. Maybe, while he was away in England, he proposed, Calahan could think about ways to create some sort of alert system for homes — something that would allow people to quickly get help in an emergency. Calahan listened intently and agreed. He’d look into the idea and report back when Andrews returned.

So Andrews got on a boat, and Calahan got to work.

IV. Circuits, Stations, and Consolidations…
Oh, My!

Calahan wasn’t one to do things halfway. The problem was not just one of how to create an alarm, but a question of who would do the monitoring of the alarm. Calahan couldn’t just walk into the police station and say, “Hey, guys, what if I ran a telegraph line through the city from my friend’s house to your station? When you hear it ringing, you should probably go by and check on him.”

Calahan devised a different plan that didn’t involve the police — at least not directly.

The people who could make it to your house fastest in an emergency are the people who live right next to you, he thought. So, he created a plan to hook up Andrews’ house to the houses of 50 of his neighbors. Each house would have a call box that contained both an alarm mechanism and a bell. When the alarm mechanism was engaged the bells in the other homes would ring. The number of rings would indicate which house had sounded the alarm. Then neighbors could come to the rescue and send for the police. In a way, it was the first neighborhood watch powered by technology.

Andrews was pleased with Calahan’s ingenuity when he got back from England and they put the system into a beta-test of sorts. Although this first implementation worked, it wasn’t scalable. It just wasn’t feasable to connect everyone in New York with one circuit. Also, what happened if the emergency took place in the middle of the night and all your neighbors couldn’t hear the alarm because they were sleeping?

So, Calahan took a map of the city, divided up the neighborhoods into manageable districts, and added a central monitoring station to each one that would be staffed 24 hours a day. When an alarm sounded, the staff at the central station could send help, and customers could be assured that help would always be available.

Unfortunately, Calahan and Andrews couldn’t expand quickly enough to prevent a host of other startup security companies from copying their model throughout New York. Soon there were over 50 security companies with similar technology to the Gold and Stock Telegraph Company’s central station monitoring platform.

But what Gold and Stock lacked in manpower, they made up for in capital. Unlike many of the security upstarts, Calahan and Andrews already had existing capital from their successful stock ticker business. So, instead of following Morse’s business model and litigating 50 competitors into oblivion, they decided to simply purchase and consolidate all the security companies in New York.

American District Telegraph stock certificate

In 1871, just four short years after launching the Gold and Stock Telegraph Company, Calahan and Andrews completed a successful 50-company consolidation (a feat in and of itself) and American District Telegraph — ADT for short — was born.

V. The Union of the West and ADT

Col. R.C. Clowry

Col. R.C. Clowry laid the first military telegraph lines into the Midwest during the Civil War and was at one time appointed by President Abraham Lincoln to the office of Assistant Quarter Master of Military Telegraph. But that was long before 1901, when he served as the President of the Western Union Telegraph Company.

Clowry was a large man, almost bigger than life. His former Executive Messenger, Charles M. Holmes, described him as “having his share of good looks and laughing eyes.” Not only had he been personally promoted by President Lincoln, but he’d spent time traveling around the west with one-time owner of Western Union and ruthless railroad tycoon, Jay Gould (still the 9th richest man in US history). He’d even been asked to serve on the board of directors of the 1893 Chicago World’s Fair.

By 1901 Clowry had spent nearly 50 years in the telegraph business and was perhaps getting a little bored. Telegraph technology hadn’t changed much since the time of Edward Calahan — or even Morse for that matter. Alphanumeric printing through telegraph was now prevalent, but the telephone was starting to gain popularity.

Western Union stamp

Even if home telephone service was still not very efficient or reliable and long-distance phone calls were still very cumbersome, Clowry could see that the telephone was the future. So Western Union needed to diversify to stay alive. And the burgeoning security business seemed like one of the ways that Western Union could stay relevant while still maintaining its core technological focus.

Since the consolidation and founding of ADT in 1871, the company had been continually innovating and expanding services. It added an array of different alerts to their systems — like unique alarms for police and fire — and capitalized on having telegraph lines in residential homes by offering messenger services as well as the ability to call for a doctor or taxi. They even began offering a private neighborhood security guard service, called The Roundsmen.

But ADT itself was small potatoes compared to the rapidly expanding security industry across the US. Although ADT had successfully consolidated 50 companies — and essentially had a monopoly in the New York area — competition was always at their heels and more security companies were popping up in urban areas along the East Coast and expanding into the Midwest. And so it was that, in 1901, the expanding security industry caught the eye of the President of Western Union, Col. R.C. Clowry.

Western Union messengers

Clowry decided to buy ADT as well as 79 other telegraph-based security companies in 1901, consolidate them, and brand them all as ADT — run under Western Union.

Further, he split off the home messenger service and all the other extra offerings of ADT and pooled them under Western Union, so that ADT could focus all its efforts on expanding security services across the US.

Ironically, the company Calahan left in order to found the Gold and Stock Telegraph Company, and eventually ADT, was now the primary stakeholder in his company. Additionally, by separating the ADT security and messenger services, it was Clowry who cemented ADTs reputation as the original and the most innovative security company in North America.

VI. Let’s Play Monopoly

In 1878, Gardiner Greene Hubbard (who had financed Alexander Graham Bell’s invention of the telephone) offered the full rights of telephone technology for sale to Western Union for a grand total of $100,000 (roughly $2.3 million today). The early technology was experimental and a little rough around the edges, so Western Union passed on the deal.

Gardiner Greene Hubbard

Snubbed by Western Union, Hubbard, who was already a successful businessman and lobbyist, decided to form his own company with other financial partners — giving Bell the position of Chief Electrician — in 1879: The National Bell Telephone Company. Just a few years later, he turned around and bought the Western Electric Company from Western Union, and his company eventually turned into the American Telegraph and Telephone Company (AT&T; for short) in 1899 — the company that would eventually become a major competitor to Western Union’s monopolistic communications empire.

In 1907, Theodore Vail, came out of retirement to serve as president of AT&T; and set his sights on a lofty goal for the company. He called it, “One system, one policy, universal service.” AT&T; was to become the universal provider for all telephone service in the US.

Vail and the stakeholders then laid out a plan to begin purchasing small, regional communication companies by geographic location.

Essentially, AT&T;’s strategy was to swoop into geographic regions and buy all the telegraph and telephone companies in the area, effectively creating small regional monopolies one at a time.

By 1909, they had acquired enough companies and had enough funds to buy Western Union and its subsidiaries, including ADT.

But the union was short-lived. AT&T;’s growing monopoly on telephone service caught the eyes of anti-trust government regulators who took AT&T; to court in 1914 and forced it to sell all its subsidiaries, like Western Union and ADT. Under the Kingsbury Commitment, brokered by Vail, AT&T; agreed not to acquire any more independent companies and to let other phone companies use its telephone network in exchange for managing the network itself.

So ADT once again became an independent company and continued to expand its services and technologies. But ADT had learned a thing or two about American capitalism while flying under the AT&T; banner. For the next several decades, it followed AT&T;’s success model of slowly acquiring competitors.

However, ADT’s rise to virtual monopoly was much slower than AT&T;’s. They had learned that moving too quickly raised too many red flags.

Moving slowly and quietly, by 1964 ADT acquired control of 80% of the US home security market.

An 80% market share can quickly go to anyone’s head. In areas where it had a geographic monopoly, ADT jacked up its service fees because there was no competition. And in areas where competition still existed, they could cut service fees so low that competitors who didn’t have as large a network couldn’t keep up. So, they slowly drove independent security companies out of business.

Customers and independent companies complained to anti-trust regulators, and ADT was taken back to court, this time under its own name. Found guilty, ADT was forced to create a nationally standardized and publicly published pricing model, allowing for more competition and consumer choice.

VII. Lord of Security Services

Lord Michael Ashcroft

Despite government imposed setbacks, by 1987 ADT had continued to grow and managed to stay on top of the security industry despite strong competition from independent security companies. However, changes were on the way that would further cement ADT’s position as the #1 security company in America.

Earlier that year, self-made English billionaire Lord Michael Ashcroft bought Crime Control, Inc. — the 4th largest security company in America — through The Hawley Group, Ltd. (based in Bermuda).

In 1974, at the age of 28, Ashcroft purchased a failing 1000-employee cleaning company, Uni-Kleen, for £1. After obtaining a £1,500 bank loan, Ashcroft set to turning the company around. Three years later, he sold Uni-Kleen for £1.3 million. Over the next 13 years, Ashcroft acquired, grew, and sold a number of business services companies, each time making a larger profit.

By 1987, The Hawley Group (purchased by Ashcroft in 1977) had become an umbrella corporation for a wide variety of business services, including cleaning, car auctions, and security services. They even owned a controlling interest in the pharmaceutical packaging company Cope Allman and had a hand in a North American car dealership group. Subsequently, after the 1986 purchase of the Prichard Services company, Hawley had become the second largest business services company in the US.

Ashcroft’s purchase of Crime Control Inc. was just another step in the company’s strategy to expand their US profits, and purchasing a large security company would only help them capitalize on their business services. However, after realizing how profitable a security company could be, Ashcroft set his sights higher: ADT.

In late 1987, Ashcroft finally made an ambitious bid to acquire ADT and gain majority control of the US security market.

The acquisition of ADT and its merger with Crime Control Inc. made Hawley the #1 security services provider in the US and shifted the majority of the company’s profits from business services to security.

The shift was so dramatic that the Hawley Group officially changed its name to ADT, Inc. and sold off virtually all of its non-security services in order to focus the company on the area that was the most profitable.

Ashcroft’s ADT had grown so successful that he was able to sell it to Tyco International for $6.7 billion in 1997. Although Ashcroft spent 10 years working with and growing ADT, he dumped most of his stock in Tyco International shortly after the sale; however, he remained a non-executive director of Tyco for many years afterward.

VIII. The Fall of Rome — or at Least Its CEO

ADT’s history is not only one of innovation and market leadership; it’s also a story of boom and bust. A story personified by modern-day robber baron, Dennis Kozlowski. Kozlowski was born in 1946, in a tenement building in Newark, New Jersey. By the time he was 53, he’d be a multimillionaire. By his 60th birthday, he’d be serving a prison sentence of 8–25 years.

Although born poor, Kozlowski labored though a number of part-time jobs while in high school and college so that he could graduate from Seton Hall University in 1968. He took a financial auditing job at SCM in New York, but moved to a small New Hampshire-based manufacturing company called Tyco in 1975 to work as an accountant. His starting salary was $28,000 a year.

Kozlowski came to be known as a great manager with superb business sense. His star at Tyco rose as he continually created successful and profitable mergers and acquisitions. In 1992, he was named CEO, and brokered the deal to buy ADT from Lord Ashcroft in 1997. During the next four years, he watched Tyco’s profits rise nearly 50% year-over-year, with ADT as one of the main profit producers. He was a young CEO with huge potential and an almost magical ability to make money.

He even appeared on the cover of multiple business magazines and garnered the reputation as “the most aggressive CEO in America.” In 1999, his salary was $170 million.

But the benefits of being Tyco’s CEO didn’t stop at a $100+ million salary. Kozlowski used $30 million of Tyco’s money to buy and filled a swanky New York apartment with $6,000 shower curtains and $13 million in paintings by Renoir and Monet, among other ridiculously expensive furnishings.

Video still of the “Tyco Roman Orgy”

Tyco even paid half of the $2 million bill for a 2001 birthday party for his wife on a private island in the Mediterranean by calling it a work retreat. The toga-themed, 4-day party was full of personal friends and top Tyco executives and included ice sculptures that dispensed expensive Russian Vodka and a private concert by Jimmy Buffett. A video Kozlowski took of the event eventually leaked to the public, and even Donald Trump called it “tacky.” The press dubbed it, “The Tyco Roman Orgy.”

By 2002, Lord Ashcroft, still a non-executive director was fed up with the extravagant entitlements of top Tyco executives and recommended that the board of directors reign in the team. As a result, Kozlowski left Tyco amid a dispute over his compensation.

Later that year, Kozlowski was indicted on tax fraud for evading New York state taxes. In 2005, Kozlowski, along with former Tyco CFO Mark Swartz, was indicted on 38 felony counts of fraud and larceny from his time at Tyco. At 60 years old, he was sitting in prison looking at divorce papers, most of his fortune seized or fined away to nearly nothing.

ADT emerged from the controversy mostly unscathed but with a slightly tarnished reputation for being part of the downfall of the mega-conglomerates, like Enron and Worldcom, which were taking advantage of customers, employees, and shareholders for their own opulent lifestyles.

IX. Looking Forward

As Tyco got back on track and cleaned up its image, ADT continued to dominate the US security market.

In 2010, ADT purchased its biggest competitor, Broadview Security (formerly known as Brinks) for $2 billion, bringing its US market share to nearly 50%. And in October 2012, Tyco successfully spun off ADT as a publicly-traded company again, now serving over 6 million customers across North America.

Photo via Security InfoWatch.

Today, the home security market is about more than just keeping homes safe from intrusion. It’s about integrating time-saving, worry-free technology into the everyday lives of customers.

Smart homes are the future of consumer technology, and ADT is ahead of the trend with Pulse technology that enables anyone to control their home from the palm of their hand. With the touch of a button you can lock and unlock doors, turn your security system on and off, view remote surveillance camera feeds, adjust your thermostat, and even get weather reports from the integrated Pulse system that works through your smartphone.

However, all this new technology is only an extension of the vision that Calahan and Andrews originally envisioned for ADT back in 1870. The original mission of ADT to help protect American homes is still the core of the company, and as they continue to introduce new innovations and help customers lead safer, more productive lives, new technology will only enhance that mission.

Although ADT has had its share of ups and downs, court cases and controversies, brilliant minds and greedy robber barons, it has managed to stay at the top of the home security market for over 140 years. By staying close to its core mission to help keep families safe there is no reason it won’t continue to stay on top for another 140.

Further reading

James Gunter

Written by

Head of Content @TruHearing | writing, Doctor Who, breakfast, bourbon—not necessarily in that order | http://jamescgunter.com/

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