On this 4th of July, it is appropriate to honor the long history of one of America’s great companies. Elisha Otis perfected the first commercially successful elevators, both for freight and passengers, before the Civil War. The organization he founded, the Otis Elevator Company, has labored on for almost 170 years, through wars, depressions, competition, managements good and bad, and changes of ownership. Yet, after all that time, Otis circles the world and continues to lead the “vertical transportation industry.” The modern city as we know it would be impossible without the elevators, escalators, and moving walkways developed by the company.
Today carrying two billion passengers a day over hundreds of millions of vertical miles in over 200 nations, Otis is one of those relatively rare cases where the “first mover” in an industry went on to lead – and dominate – that industry for over a century. (Note that none of the companies we nominated as the three greatest companies in American history invented their industry in the same way that Otis did.) Here is a brief look at the Otis story.
Elisha Otis, born in Vermont in 1811, was a natural tinkerer and inventor who loved machinery. Otis moved around the nation to different jobs while he worked on inventions in bread-baking, woodturning, and railroad brakes. His attention ultimately turned to “hoists.” Dating back to the construction of the pyramids, mankind had developed ingenious combinations of pulleys and ropes to lift heavy things up in the air. Shafts for hoists were even built into medieval castles. (St. Peter’s in Rome had a shaft in place in 1626, but no elevator was built in the shaft until 1900!) Accidents and injuries were commonplace when the ropes or other components broke. By the early 1850s, Elisha Otis had developed a braking system that stopped a hoist (also called a “lift”) from falling to the ground.
In 1853 the first American World’s Fair was held in New York City, including the beautiful Crystal Palace, where Bryant Park is today (next to the New York Public Library). The fair opened late and was not a success the first year, so the organizers brought in P.T. Barnum to manage it in the second, 1854 season. Barnum paid Elisha Otis $100 to erect and demonstrate his invention. Otis rode the lift up into the air, then shocked the crowd by cutting the rope which held the lift. His braking system kicked in, holding the lift in place.
Elisha Otis began his company, which had several names before becoming the Otis Elevator Company, selling hoists primarily to factories for lifting freight. His two sons Charles and Norton came into the business with him. In 1857 they installed the world’s first passenger elevator in Manhattan’s five-story Haughwout Building, powered by a steam engine in the basement. It moved up and down at about eight inches per second. Haughwout was a dealer in china, glass, and silverware; his customers included Mary Todd Lincoln. The building still stands today at the corner of Broadway and Broome in the SoHo district.
Nevertheless, most of the public was not ready to trust the new contraption to carry people. Inventors around the nation tinkered with different types of lifts, many of which failed. Newspapers were full of stories of the dangers of elevators. Otis and his sons labored away selling lifts to factories. In 1858, the company almost went bankrupt, but Elisha kept it going with the support of his creditors.
In 1861, Elisha Otis died of diphtheria at the age of forty-nine and his sons took over the business. Norton traveled the country promoting their products while Charles ran the factory, always obsessed with product quality and treating his workers well, paying them more than competing factories. Over time, the company developed a large works in Yonkers, New York, with easy access to railroads and shipping. The entire elevator machinery was made in Yonkers, then broken into individual parts and shipped to the customer, where a local installer would actually build the final device in the customer’s shaft. (This process of shipping parts for local assembly would continue for decades, reinforced by the later rise of the elevator constructors’ union.)
Over time, Otis earned the reputation as having the best and safest hoists and elevators available. Every year brought improvements in safety devices and the heavy machinery and counterweights required to lift heavier loads and lift them higher, as buildings rose in height. Otis switched from steam-driven elevators to hydraulic systems. The company crowed that it had never had a fatality, whether working with freight or passenger elevators. Otis’s catalogs implied that buying any other brand amounted to “criminal recklessness and wholesale manslaughter.” The company began shipping its elevators all over the world. Otis built new factories and acquired dozens of smaller elevator companies and local installers.
By the end of the Civil War, people began to accept the idea of elevators for passenger use. The earliest passenger elevator “cages” were sumptuous affairs, built into hotels and fine stores. Saratoga, New York’s Congress Hotel had such an elevator installed by 1870. The passenger car had an overhead dome with skylights, gaslit chandeliers, sofas on three sides, carvings and moldings of French walnut and ebony, and “appropriate touches of gilding.” Operators, often wearing uniforms and gloves, were present in each elevator.
The 1870s and 1880s witnessed more tall buildings. The elevator joined the development of steel frame construction (in place of stone and brick) to permit the rise of the skyscraper. The increasing value of land in New York City drove developers to build higher and higher. The devastating Chicago fire of 1871 provided another opportunity for new construction in that booming city. Prior to the perfection of the safe elevator, about five stories were the most stairs that any tenant would climb. The highest floors earned the lowest rents. With the elevator, the top floors became even more valuable than lower floors due to better sunlight, ventilation, and views. By the 1880s, some buildings reached the unprecedented height of over two hundred feet, with ten and more stories.
Charles and Norton Otis had partnered with another elevator maker, William Hale, and in 1882 they sold the business to Hale for $350,000 (about $9 million in 2021 dollars) and retired. But for some reason the brothers could not stay away from the elevator business, and in 1887 returned to the company, investing some of their money, with Charles running the factory. In just three years, Charles made further improvements in Otis’s elevators, before his 1890 resignation. Norton continued with the company until 1905.
By 1884, Otis had installed 1,250 passenger elevators in New York City alone. By 1886, over one hundred of those elevators were more than one hundred feet tall. An even more complex challenge was Paris’ Eiffel Tower, opened in 1889 for another World’s Fair. The French sponsors were opposed to using American technology, but no French company could figure out how to run an elevator up the curved legs of the tower. Otis figured it out and won the contract for the elevators in the sloping legs. The Otis elevators were smoother, faster, and quieter than those installed in other parts of the tower by French elevator manufacturers.
In the late 1880s and early 1890s, Otis began to apply a newly emerging technology to its elevators: electricity. 1892 witnessed the addition of the first push buttons to call elevators. Soon New York had over 5,000 apartment elevators in use, with Otis leading the field. Partnerships with local elevator companies from Canada to Australia were formed, and over time more of these companies were acquired by Otis. (Between 1887 and 1900, Otis acquired thirteen other elevator makers.)
In 1898, the brothers’ associate William Baldwin became President of Otis. The Otis Elevator Company was incorporated that year with a capitalization of $11 million. Otis also went public that year, one of the earliest companies (outside of railroads) to do so. Baldwin ran the company until 1930.
At the same time, Otis acquired the rights to a new invention, “moving stairs.” The first machine was installed in the New York subway station at Sixth Avenue and 23rd Street in 1899, followed by Bloomingdale’s New York department store in 1901, then by large orders from competitors Gimbel’s and Macy’s (for their new Herald Square store in 1902). Soon renamed “Escalators,” Otis owned the trademark on that term until 1950.
In 1904, Otis built 175 elevators for the London Underground, at a total cost of $2 million, the largest job the company had ever undertaken.
In 1902, Otis had introduced its “gearless traction (electric) elevators.” These allowed the elevators to reach even greater height and were installed in a new wave of taller buildings. New York witnessed the opening of the 46-story, 612-foot Singer Building in 1908, the 700-foot Metropolitan Life Building in 1910, and the 780-foot Woolworth Building in 1912, each the tallest building in the world at the time. All used Otis elevators and were considered modern wonders of the world (both the buildings and their majestic elevators).
Big and Global
By 1906, with demand booming, Otis operated seven factories across the United States, one in Canada, and generated annual revenues of $15.7 million. In the following decade, major new factories were added in Buffalo and Harrison, New York to supplement the main plant in Yonkers. The number of employees rose to 5,000. In 1909, the company boasted that its elevators were in use in the Forbidden City in Beijing and the Mikado Palace in Japan. Others using the company’s products in their palaces were the Emperor of Austria-Hungary and the Czar of Russia (in the Kremlin).
From 1911 to 1944, Otis’s advanced electrical engineering efforts were led by a Swede, David Lindquist. His efforts led to continuous improvements – lighter materials, faster and quieter elevators, automated control and timing systems, and lower costs. Lindquist paid especial attention to the people using elevators – how fast they entered, how fast they left, and what their travel patterns were. A high point was reached in 1931’s Empire State Building, with 58 passenger elevators serving 102 floors (and using 119 miles of rope).
The roaring twenties were good to Otis. Between 1922 and 1929, the number of Otis employees rose from 8,000 to 19,500. From 1926 to 1929, the stock rose from a price of $70 a share to $450. But those times did not last, as the Great Depression hit. Otis’s stock price collapsed as did the business, forcing the layoff of half the employees and the slashing of dividends. In 1933 and 1934 the company recorded losses, the first in the corporation’s history (since 1898). The 1930s were also a period of labor unrest, and Otis reached agreements with major unions, including the elevator constructors/installers, perpetuating the practice of building elevators onsite from parts shipped from the Otis plants.
The 1920s and 1930s also saw the development of an idea that helped the company. Against the better judgment of management, one Otis employee began promoting the idea that the company should maintain its products after installation, a job previously done by thousands of independent repairmen. By the late 1930s, Otis had over 10,000 maintenance contracts, which provided a steady flow of cash even when demand for new elevators rose and fell. A Modernization department soon followed, going back to old customers and modernizing their machines. (Today, service and modernization provide the bulk of Otis’s profits.)
Otis survived the Depression and was ready for the demands of wartime America. Like other companies, Otis made war materiel: guns, machine tools, radar, and of course hoists and elevators for ships (including aircraft carriers). Germans bombed Otis’s London plant, killing eleven people, and seized the company’s Berlin factory.
Struggling in the 1950s and 1960s
The post-war expansion of the US economy served Otis well, with 1951 revenues reaching $120 million. The late 1950s saw the full development of automatic, push-button elevators which understood daily traffic patterns, signaling the end of the line for America’s 90,000 elevator operators. Yet the 1950s and 1960s brought a new challenge to the company.
The challenge was the rise of the south and west, with new cities more horizontal than vertical. Unlike New York and Chicago, Phoenix, Los Angeles, Dallas, and Atlanta were more spread out, with fewer skyscrapers. The number of new skyscrapers built in the older cities declined. Like its long-time competitor, Westinghouse Electric, Otis focused on big, tall, high status jobs. Small hydraulic elevators only serving two to five floors were not of much interest to Otis, though those were the most common building heights for offices, hotels, stores, and apartments in the sunbelt. Smaller companies, led by Dover Elevator, seized the opportunity in small elevators and Otis lost share. Otis was slow to react, only gradually entering the small elevator industry segment. By 1975, Otis’s share of the American new elevator and escalator market had fallen from 45% to 31%.
The 1960s was also the era of the conglomerate craze, the idea that a company could acquire totally unrelated businesses to alleviate fluctuations in your core business and achieve “synergies” (2+2=5) across these diverse businesses. Before the concept was largely proven ill-advised by the 1980s, most major companies went “diversification” crazy. Otis, under CEO Leroy Petersen (in charge from 1944 to 1966), was one of them, deciding that Otis should be a “short distance transportation company.” Under his leadership (or lack thereof), Otis bought a forklift truck maker, ventured into electric vehicles including buses, and purchased electronics companies. Going even further afield, Petersen even tried the bowling pinsetter business, then in a short-lived boom, against industry giants Brunswick and AMF. None of this worked, the new ventures lost money, and Otis gradually became a weakened company despite its continuing leadership in elevator technology.
The Big Changes
Meanwhile, in Hartford, Connecticut, the United Aircraft Company had problems of its own. United’s Pratt & Whitney division made over 90% of the engines for jet airliners, but General Electric was gaining market share on them and would eventually become #1 in jet engines. The other parts of United, including Sikorsky, were too dependent on defense department spending, which had fallen as the Vietnam War ended but were always unpredictable. United’s new CEO, Harry Gray, hired from early conglomerate Litton Industries, was committed to diversification. Looking around for companies with solid futures but inexpensive stock, his advisors pointed him to Otis, whose stock was selling in the high $20s. in 1975, Gray offered over $40 in cash to buy Otis, a total of under $300 million. While Otis at first fought the deal, they finally caved when no other buyers could be found. United Aircraft, renamed United Technologies by Gray, made back that much money off Otis within a few years, and went on to buy air conditioning pioneer and giant Carrier in 1979.
While United Technologies swallowed Otis, two key executives from Otis rose to power in the combined company. One was Hubert Faure, a Frenchman who built Otis’s International business to be bigger than its American side, partially by building small elevators to serve the “less tall” European market. The other was one of Faure’s hires, George David, who became President of the Otis division in 1986 and president of United Technologies in 1992. David ran United Technologies until 2007, building a stronger company and winning many kudos as a top CEO from industry groups and trade publications.
For forty-five years, Otis served as an important revenue and profit contributor to United Technologies. Over time, as more companies moved away from diversification and toward focusing on their “core competencies,” it became clear that perhaps the parts of United Technologies were worth more than the whole. United decided to spin off its two key non-defense businesses. In March 2020, United’s shareholders each received one share of a new company, Carrier Global, and one half-share of another “new” company, Otis Worldwide, for each share they owned in United. The remaining aerospace business merged with Raytheon and is now called Raytheon Technologies.
Since the split-up, as of July 2021, Raytheon Technologies’ stock has risen about 40%, Otis has almost doubled, and Carrier has almost tripled.
In 2020, under CEO Judy Marks, Otis Worldwide generated profits of $900 million, 83% from services, on revenues of almost $13 billion. 85% of its 69,000 employees are located outside the United States. The company’s two million installations carry two billion passengers every day, perhaps making Otis the world’s biggest transportation company. Otis elevators and escalators are found in eight of the ten tallest buildings in the world, including the record-setting 2700-foot Burj Khalifa in Dubai. Among other large recent jobs were 670 elevators and escalators built for the Hyderabad, India, metro system.
When one steps into an elevator in a modern skyscraper, we usually do not realize the immense complexity of the overall machine. Dozens of elevators in one building are controlled by central systems which determine which car to send to which floor when and where to have them waiting before they are called. Otis now has Internet technologies that allow the systems to be controlled and monitored remotely. To test their new ideas, Otis has built massive test towers around the world, with one in China 886 feet tall. Otis’s elevators and escalators can be found everywhere, even on the outside of tall buildings and in cruise ships.
While the global “vertical transportation” industry remains highly competitive, Otis still tops the field, leading key competitors Schindler of Switzerland (which bought Westinghouse’s elevator division), Mitsubishi of Japan, KONE from Finland, and ThyssenKrupp from Germany (which bought Dover). And thus, this very old company, started by one tinkerer with an idea, has lived on through times good and bad, through changes in its environment, but still leads its industry. And that industry is one which is required for the existence of the world as we know it and use it every day.
American Business History Center