The War of the Currents was a fierce rivalry in the late 1880s and early 1890s over which electrical standard would power the modern world. The battle pitted the brilliant inventor Thomas Edison and his Direct Current (DC) system against the visionary genius Nikola Tesla and his industrialist backer, George Westinghouse, who championed Alternating Current (AC). Edison, a celebrity inventor and business tycoon, had already built a successful, albeit limited, electrical empire based on DC. However, Tesla's AC system was technologically superior, capable of transmitting power over vast distances far more efficiently. The conflict that ensued was not just a technical debate but a dramatic public relations war, full of strategic maneuvering and even propaganda. For investors, this historical clash serves as a timeless and electrifying case study in innovation, disruptive innovation, and the perils of betting against technological progress.
At its heart, the War of the Currents was a battle between an entrenched incumbent and a disruptive challenger. It showcases a pattern that repeats itself endlessly in the world of business and investing.
Edison was the titan of the industry. His company, Edison General Electric (a precursor to today's General Electric), had invested heavily in DC infrastructure. DC worked well for lighting dense urban areas like lower Manhattan, but it was inefficient over long distances, requiring a power station every square mile. Faced with the superior AC technology, Edison didn't try to adapt; instead, he launched a vicious smear campaign. He publicly electrocuted animals, from dogs to an elephant, using AC to portray it as a dangerous “death current.” This was a classic attempt by an incumbent to sow fear, uncertainty, and doubt (FUD) to protect his established business moat.
Nikola Tesla was the brilliant mind behind the AC system, including the polyphase induction motor and transformers that made it practical and efficient. However, an invention is nothing without capital and manufacturing power. Tesla found a crucial partner in George Westinghouse, a savvy industrialist who understood AC's potential. Westinghouse had made his fortune in railroad air brakes and saw the future in AC's ability to electrify the entire nation, not just isolated city blocks. Together, Tesla's genius and Westinghouse's industrial might formed a powerful challenge to Edison's dominance.
The war was ultimately decided not by fear-mongering but by superior performance in two landmark projects.
Edison's company, seeing the writing on the wall, eventually merged with an AC-focused competitor and pivoted, forming the modern General Electric, which fully embraced AC. The war was over.
This 19th-century battle offers powerful, enduring lessons for 21st-century value investors.
Edison had the brand name, the capital, and the political connections. But he was on the wrong side of technology. A fundamentally better, cheaper, and more scalable technology will almost always win in the end. Investors should be deeply skeptical of companies whose primary defense against a new technology is marketing or lobbying rather than innovation. As an investor, you must ask: Is this company riding the wave of progress, or is it trying to build a dam to stop it?
Edison was trapped by his success. His fortune and infrastructure were so deeply tied to DC that he couldn't afford to embrace AC without destroying his own business model. This is a classic example of the innovator's dilemma. When evaluating a dominant company, always assess its ability to adapt. A strong market position today means little if the company is unable or unwilling to pivot when its core business is threatened by a paradigm shift.
Edison’s moat was built on his DC patents and infrastructure. It seemed impenetrable. However, Tesla’s technological breakthrough made that moat obsolete almost overnight. This is a critical lesson: moats are not permanent. A moat derived from a specific, perishable technology is far weaker than one built on an adaptable culture of innovation, a powerful brand that transcends technology (like Apple), or a low-cost production advantage. Always stress-test a company's moat against the threat of technological disruption.