Speaker 1: Hey, snafoo fans, it's ed today.
Speaker 2: I'm coming to you with an episode of a podcast
Speaker 2: I have been loving. It's called Business History. Hosts Jacob
Speaker 2: Goldstein and Robert Smith, former Planet Money guys, dig up
Speaker 2: the wildest, most wait what stories about businesses big and small,
Speaker 2: like how Hitler's favorite car became the ultimate hippie vehicle,
Speaker 2: or why Thomas Edison got mixed up in the invention
Speaker 2: of the electric chair. Every episode is a masterclass in
Speaker 2: how fascinating people built something incredible and either watched it
Speaker 2: soar or burn to the ground. Either way, it tells
Speaker 2: us something about how we run business today. Today's tale
Speaker 2: is really wacky, fueled by hot tubs, recreational drugs, and
Speaker 2: a love of games. Nolan Bushnell took computer games out
Speaker 2: of research labs and into bars, launching an industry. His
Speaker 2: arcade game Pong was a monster hit, so he set
Speaker 2: up Atari to build a home games console, which became
Speaker 2: the must have Christmas present of nineteen seventy five. Atari
Speaker 2: was the name on every kid's lips. But then the
Speaker 2: investors came, and the investors brought pressure. Bushnell and his
Speaker 2: engineers were pushed aside as Atari expanded, and in a
Speaker 2: desperate bid to cash in on Hollywood hype, the company
Speaker 2: concocted a wild plan for a game based on Steven
Speaker 2: Spielberg's mega hit ET the Extra Terrestrial. Developed in mere weeks.
Speaker 2: It tanked and brought Atari down with it, which is
Speaker 2: ironic because I remember the game ET on Atari when
Speaker 2: I was a little kid, and I loved it. Anyway,
Speaker 2: here's the episode if you enjoy it. There's more tales
Speaker 2: of founders, business success and spectac failures on Business History,
Speaker 2: available on YouTube, Apple, Spotify, or wherever you get your podcasts.
Speaker 1: Robert Smith, here is the big question for today's show. Yes,
Speaker 1: how did Atari essentially invent the video game industry, win
Speaker 1: the hearts of millions of young people in the nineteen
Speaker 1: seventies and then blow up entirely in the early nineteen eighties,
Speaker 1: basically never to be heard from again. It's a great question.
Speaker 1: We are both of the age where we remember this personally.
Speaker 3: Yeah, I remember my dad coming home with one of
Speaker 3: the first Atari sets. It was like magic.
Speaker 1: What was it?
Speaker 3: It was pong, which was a ping pong game if
Speaker 3: you know, little paddles and you'd send a little electronic
Speaker 3: ball across the screen. And it was transformative because it
Speaker 3: was the first time you could actually interact with a
Speaker 3: television set which was sitting there in the center of
Speaker 3: your home. And to be clear, I was not an
Speaker 3: early adopter.
Speaker 1: I was not cool.
Speaker 3: Everybody had the Atari set.
Speaker 1: I'm a little younger than you, not to throw it
Speaker 1: in your face, but so for me, I don't remember Pong,
Speaker 1: but I remember the Atari twenty six hundred came to
Speaker 1: be called the twenty six hundred, which was like the
Speaker 1: first video game system like we know it today where
Speaker 1: you buy it and there's different cartridges, and this was,
Speaker 1: you know, the dominant video game in the early eighties.
Speaker 1: I loved it. I had Defender, had Journey, the game
Speaker 1: Journey like the band played it for hours. And so
Speaker 1: the big question is what happened.
Speaker 3: I'm Jacob Goldstein and I'm Robert Smith, and this is
Speaker 3: Business History.
Speaker 1: What's it about Jacob Yesterday, Business Today?
Speaker 3: On the show, How a company can invent something that
Speaker 3: changes the future, changes all of culture and wind.
Speaker 1: Up in utter failure, like literally wind up having to
Speaker 1: bury hundreds of thousands of its own products, unsold video
Speaker 1: game cartridges in a landfill in New Mexico.
Speaker 3: I feel like today's show is like walking through my childhood.
Speaker 3: We started with Atari, and our next step.
Speaker 1: Is an amusement park that I initially called the Lagoon Utah,
Speaker 1: and you pointed out it is called Lagoon. And you
Speaker 1: know this because.
Speaker 3: Because I grew up in Utah and went there once
Speaker 3: a year and it was the best day of the year.
Speaker 3: It's an amusement park, right, You play games, the rides,
Speaker 3: you eat a lot of fried salty foods.
Speaker 1: It was amazing, Robert, I guess you would have been
Speaker 1: going to Lagoon in the seventies. A few years earlier.
Speaker 1: It was this college kid named Nolan Bushnell who worked
Speaker 1: summers there on the Midway, like where there was games
Speaker 1: like whatever guess the way to the guy and knock
Speaker 1: down the milk cans or whatever.
Speaker 3: And just in case you have an image of someone
Speaker 3: who's a carne working the milk jug games, this was
Speaker 3: not Nolan Bushnell, but he.
Speaker 1: Was a carnie genius. He became king of the Midway,
Speaker 1: was running running all the games when he was like
Speaker 1: twenty years old. Because he was really good at getting
Speaker 1: people to spend their money on the games. Like one
Speaker 1: example he gave later that is dear to my heart
Speaker 1: is this. So there is that game where there's these
Speaker 1: like metal milk jugs. I guess it's like metal bottles
Speaker 1: and there's whatever four of them or six of them,
Speaker 1: and they're stacked up, and you have a like a
Speaker 1: softball or something. You throw it at it and try
Speaker 1: and you're trying to win a stuffed animal. Yeah, maybe
Speaker 1: a giant stuffed animal or something if you knock down
Speaker 1: all the milk bottles right, and it turns out he
Speaker 1: talked about this later, that like half of the bottles
Speaker 1: are heavy and half of the bottles are light, and
Speaker 1: so if you put the light bottles on the bottom,
Speaker 1: it's really easy to knock them down, right. If you
Speaker 1: put the heavy bottles on the bottom, it's really hard
Speaker 1: to knock them down. Physics, And so he had this
Speaker 1: movie he would make when like a bunch of high
Speaker 1: school students would come. There'd be like, you know, the
Speaker 1: captain of the football team, and then like the water
Speaker 1: boy kind of trailing along behind. Okay, I was more
Speaker 1: than the water boy. Obviously. He'd get the water Boy
Speaker 1: to play, and he'd set it up the easy way
Speaker 1: so that it's really easy to knock him down. The
Speaker 1: water boy knocks him down and gets the big prize,
Speaker 1: and then the captain of the football team's like, oh,
Speaker 1: I'm definitely gonna just kill at this. But then Nolan
Speaker 1: Bush Noel would set it up the hard way so
Speaker 1: that the you know, football player throws it and they
Speaker 1: don't fall down. He's like, Okay, I'll try again. I'll
Speaker 1: try again, and he'd basically take all of the football
Speaker 1: player's money because he couldn't knock him down.
Speaker 3: He realized that games are psychology. Yeah, you know, it's
Speaker 3: storytelling in psychology, and this would of course come in useful.
Speaker 1: Yeah, And he had a real sense of fun, right,
Speaker 1: Like this was fun for the water boy, not fun
Speaker 1: for the football player. But like he he loved a party,
Speaker 1: took a lot of drugs. He was studying electrical engineering
Speaker 1: in school, but it took him like seven years to graduate. Eventually,
Speaker 1: he moves to Silicon Valley, not called Silicon Valley yet,
Speaker 1: but it's becoming that. Right, this is right where we
Speaker 1: were at the end of last week's show, and he's
Speaker 1: going to invent the video game industry, but he doesn't
Speaker 1: know it yet.
Speaker 3: So at the time, he works for a company called Ampex,
Speaker 3: famous for the US in the radio business as the
Speaker 3: makers of magnetic tape.
Speaker 1: Did you use Ampex tape? Is?
Speaker 3: Of course, my closets filled with its stillcitally it is,
Speaker 3: actually can't get rid of them. But Ampex was notable
Speaker 3: not just because it was an electronics company in the
Speaker 3: Bay Area, but because it had this policy that allowed
Speaker 3: their employees to basically take stuff home and tinker with it,
Speaker 3: you know, to come up with new ideas based on
Speaker 3: the equipment. And so Bushnell starts taking stuff home thinking
Speaker 3: about games.
Speaker 1: And in particular he's saying about video games, or really
Speaker 1: video game because at this point in history, there's essentially
Speaker 1: one video game, and it was created by these guys
Speaker 1: at MIT, of course MIT in the early sixties, to
Speaker 1: be run on you know, a computer, which at that
Speaker 1: time was a big machine that you had at a
Speaker 1: university that costs hundreds of thousands of dollars. The game
Speaker 1: was called Space War exclamation mark. Great name for a game,
Speaker 1: and it was fun if you understood like Newtonian gravity, right,
Speaker 1: you like, have a spaceship and there's a star and
Speaker 1: it's like I go around the Sun to get just
Speaker 1: the gravity goes into the square of the distance whatever.
Speaker 1: So he's thinking about Space War exclamation mark. And you
Speaker 1: know when he first played it in college, he played
Speaker 1: it at the university on this extremely expensive computer, where
Speaker 1: it obviously wouldn't work anywhere else. It wouldn't work as
Speaker 1: a business because the computer was too expensive. You just
Speaker 1: did it at night for fun. But by the time
Speaker 1: he's in Silicon Valley in the early seventies, you know,
Speaker 1: Moore's law, like we talked about last time, is cranking along.
Speaker 1: Computers are getting cheaper and cheaper and cheaper and faster
Speaker 1: and faster and faster. And he's like, oh, maybe now
Speaker 1: that technology has got to a place where I could
Speaker 1: make Space War on a machine that I could build
Speaker 1: cheaply enough to put it in a bar next to
Speaker 1: a pinball machine and get people to put quarters in it.
Speaker 3: That's Bushnell's law, which is basically, if people have coins
Speaker 3: in a place of amusement, they will spend all the
Speaker 3: coins they have on something that's new and fun.
Speaker 1: Yes, And so he starts working with this other guy
Speaker 1: from Ampex, and you know, he buys up a black
Speaker 1: and white TV at Goodwill and he actually, interestingly, he
Speaker 1: builds essentially a computer from the ground up, right, because
Speaker 1: he is optimizing for cheapness, right, he wants to build
Speaker 1: the cheapest functional machine he can. And he gets like
Speaker 1: a little coin slot like they have in in pinball machines,
Speaker 1: has like a paint thinner can for the coins to
Speaker 1: go into. And they build a functional prototype of a
Speaker 1: game that is a lot like Space War and it
Speaker 1: looks like an arcade game, although there's not really any
Speaker 1: such thing as arcade gets at this point. But it's
Speaker 1: a box in the corner. Yeah, it's next to the
Speaker 1: juke box.
Speaker 3: It stands up and it has and it has computer
Speaker 3: space on it, and you're like, oh, computers space.
Speaker 1: There's a screen, and there's controls, and there's a place
Speaker 1: to put coins it, right, the three things you need.
Speaker 1: They get this company to make fifteen hundred of the machines. Right,
Speaker 1: it's going to be a thing in the world. Now
Speaker 1: it gets out into the world and nobody really wants
Speaker 1: to play it, basically because it's not that fun. It
Speaker 1: seems it's it's violating one of the tenets you laid
Speaker 1: out in your made up Bushnell's law.
Speaker 3: Right, you had to have a lot of instructions to
Speaker 3: play it. Is the way I understand.
Speaker 1: Yeah, or at least like it helps if you understood physics,
Speaker 1: you know what to think about physics when you're playing
Speaker 1: a video game, but not in a bar now, Yeah,
Speaker 1: and so you know what do you do in Silicon Valley?
Speaker 1: If you make something and it's a failure, you start
Speaker 1: your own company, exactly right, And they call it, of
Speaker 1: course sissy g s y z y.
Speaker 3: G y, really going in on the astronomical theme, which
Speaker 3: you know SIGs win like the planet's lineup something.
Speaker 1: Yeah, so I think so clearly a bad name, hard
Speaker 1: to say, hard to spell, and kind of a lucky
Speaker 1: break for Nolan Bushnell. It's already taken by a candlemaker
Speaker 1: up in Mendocino. So they go with another name Atari.
Speaker 3: And for those of you who have played the game Go,
Speaker 3: it's like check in chess. You say Atari when you
Speaker 3: have almost surrounded someone's stone.
Speaker 1: You're saying this, like you play Go? Have you played?
Speaker 1: I have played? You never talked about this?
Speaker 3: Oh yeah yeahah, Tarry, And I mean so much so
Speaker 3: that it also has.
Speaker 1: Where is your Go? Game? It's okay? Really yeah, it's okay.
Speaker 1: So now they have a company and a name one
Speaker 1: key thing. They're missing a game that people want to play. Yeah,
Speaker 1: minor thing. It's nineteen seventy two, and one day Bushnell
Speaker 1: hears about a thing happening at a hotel in I
Speaker 1: think Sunny Vale, somewhere in in Silicon Valley. Magnavox, the
Speaker 1: TV company, they're working on their own video game. This
Speaker 1: is actually going to be one not to put in
Speaker 1: a bar, but to play at home. Right. Their idea
Speaker 1: is they're going to have this machine that will help
Speaker 1: them sell more televisions. Yeah, and so they have a
Speaker 1: prototype of this machine, and you know, there's like a
Speaker 1: special preview for insiders. And so Bushnell's like, I got
Speaker 1: to see this thing. And so he drives over there
Speaker 1: and he does not say I'm a competitor. Competitor, No,
Speaker 1: he knows. He says, oh, yeah, I work at the
Speaker 1: Magnavox store whatever over down El Camino or whatever. It is.
Speaker 1: Corporate intrigue easier to get away with a lie, I
Speaker 1: guess in nineteen seventy two, Right, they're not gonna come
Speaker 1: up on the internet. And he gets to go in
Speaker 1: and and see what this product is and it kind
Speaker 1: of sucks. So he's relieved, right, It to him, is
Speaker 1: clearly made by somebody who doesn't understand games. And one
Speaker 1: thing about Bushnell is he really understands games because they're
Speaker 1: just not that fun to play. But there is one
Speaker 1: game that has some spark of promise to him, and
Speaker 1: it's essentially like a simple tennis or ping pong game
Speaker 1: where there's like two rectangular sort of paddles or rackets
Speaker 1: and then like a square ball and it goes back
Speaker 1: and forth and there's two players, but there's no score
Speaker 1: in the game, there's no music like it's it's it's
Speaker 1: just a weak version, but.
Speaker 3: That shows some promise to him, and for those of
Speaker 3: you who have played pong what he is about to develop,
Speaker 3: it does have this amazing sound.
Speaker 1: Dok doink, which is just so.
Speaker 3: Like I can hear it in my brain right now.
Speaker 1: Right. So Pushnell goes back to the office and there's
Speaker 1: this engineer who's just started that day, and he's like,
Speaker 1: you know, make this, make this kind of pingpong game,
Speaker 1: but make it fun, make it do all these fun things.
Speaker 1: And the engineer does a great job, and you know,
Speaker 1: a few weeks later, they have this prototype of an
Speaker 1: arcade style game that they call Pong. They just want
Speaker 1: to see how it does, right, it's a prototype. So
Speaker 1: there's this bar nearby. It's called Andy Capps Tavern.
Speaker 3: Named after a cartoon character from the newspapers of the
Speaker 3: nineteen seventies.
Speaker 1: Too hard to explore. Its basically what we would call
Speaker 1: today an alcoholic Yeah, a problem. Yes, And they say,
Speaker 1: can we just put this machine in the corner here
Speaker 1: at Andy Caap's tavern, like, you know, like a pinball machine,
Speaker 1: And the guy at the bar says sure, And so
Speaker 1: they put the machine there and it's you know, it's
Speaker 1: really simple. It's called pong. It has two knobs, one
Speaker 1: for each player, and unlike computer space, it has beautifully
Speaker 1: simple instructions. Avoid miss ball for high score. That's it.
Speaker 1: Love it just a few words, yeah, yeah, three plays
Speaker 1: for one quarter. They plug it in and they go
Speaker 1: back to the office. And a few days later, like
Speaker 1: three days later, they get a call from the bar
Speaker 1: and the guy at the bar is calling him says, yeah,
Speaker 1: the machine's broken. I don't know what's going on. It's
Speaker 1: not working. I like whatever, it's a prototype, you know,
Speaker 1: it's a new kind of computer. Of course it's gonna break.
Speaker 1: Somebody from Atari goes down there, to check it out,
Speaker 1: and it turns out it is broken because the coin
Speaker 1: box is full. It's broken because people have put too
Speaker 1: much money into the machine. It's too good. It's too good. Yeah,
Speaker 1: you know, Nolan Bush and out of his colleagues have
Speaker 1: built a machine that people just cannot help themselves put
Speaker 1: money into. We're gonna need a bigger coin You're gonna
Speaker 1: need a bigger box. People love to put quarters into
Speaker 1: a new thing.
Speaker 3: Well, to see the new technology and then tell everyone
Speaker 3: about it, right, that is the that's one of the
Speaker 3: first insights of the technology.
Speaker 1: Huh.
Speaker 3: And then it's gotta be worth playing a second time,
Speaker 3: which is what he also had.
Speaker 1: He had the two pieces. It's super fun. It's a
Speaker 1: new thing and it's super fun. Now he's got a scale,
Speaker 1: very classic startup problem. You have a thing, people want it.
Speaker 1: But remember he essentially stole the idea from Magnavox. By
Speaker 1: the way lawsuit they said a out of court whatever.
Speaker 1: Lots of people now you know it's Silicon Valley. People
Speaker 1: are coming by Andy Kapstavern who are engineers who are like,
Speaker 1: we can do this, and so he's got to get
Speaker 1: video games out into the world fast, gonna need money.
Speaker 1: He's gonna need money. Nobody's gonna give him money yet, right,
Speaker 1: He's just some stoner with one video game in a bar.
Speaker 1: So he makes a move that has already come up
Speaker 1: a few times on our young show.
Speaker 3: Your favorite negative cash conversion cycle.
Speaker 1: The negative cash conversion cycle. He's able to sell games
Speaker 1: before he has to pay for the parts. So the
Speaker 1: parts to make a game cost Atari like three hundred dollars.
Speaker 1: But crucially they don't have to pay for those parts
Speaker 1: on delivery. Right, they have like a month, so the
Speaker 1: parts come in, Ataria doesn't have to pay anything. They
Speaker 1: put them together and sell the machine for nine hundred dollars,
Speaker 1: and then a few months later they have to pay
Speaker 1: three hundred but meanwhile they got the money from that machine.
Speaker 1: They're growing. They're often running now other problem, classic scale
Speaker 1: problem hiring. And then one day this like nineteen year
Speaker 1: old hippie kid walks in and he says he won't
Speaker 1: leave until they give him a job. And the receptionist
Speaker 1: calls the head engineer and she goes, yeah, we got
Speaker 1: a hippie kid in the lobby, says he won't leave
Speaker 1: until we hire him. Should we call the cops or
Speaker 1: let him in, and the engineer says, bring him on in.
Speaker 3: It's nineteen seventy's a Silicon valley, and this guy wanders
Speaker 3: in and he is whenever you tell a story like this,
Speaker 3: you know who it is.
Speaker 1: It's Steve Jobs. It's Steve Job. So fun, it's so
Speaker 1: delightful and perfectly. Steve Jobs is very good at his job, yes,
Speaker 1: and very unpleasant to wrqu classic unsurprising. He tells Bushnell
Speaker 1: that like everybody's soldering wrong, right, they're actually putting together
Speaker 1: the hardware, slatter the hardware. He's probably right, and Bushnell
Speaker 1: was like, yeah, he was right. He keeps calling his
Speaker 1: manager a dumb shit. Probably was not kind, not necessary.
Speaker 1: Bushnell winds up putting Jobs on the night shift, partly
Speaker 1: so he won't bother so many people, and partly because
Speaker 1: he knew that Jobs like to hang out at night
Speaker 1: with his buddy Steve Wozniak, who was a great engineer.
Speaker 1: It would be great to have hanging around atari And
Speaker 1: in fact, Jobs and Wozniak helped to make Breakout a
Speaker 1: great a target. Remember breaking of.
Speaker 3: Course, you're trying to knock down the bricks in a wall.
Speaker 1: Still, games like that, we got a little paddle at
Speaker 1: the bottom of it.
Speaker 3: There's a moment when he goes through the wall and
Speaker 3: then goes so satisfying.
Speaker 1: So good. So Jobs worked at Atari for a little
Speaker 1: while and then decided he wanted to go off to
Speaker 1: India to find his guru perfect and asked Atari to
Speaker 1: pay for the trip. Nobody ever said he lacked moxie
Speaker 1: and wound up making a deal with Atari where they
Speaker 1: pay him to go part of the way there. There
Speaker 1: was they had exported some games to Germany and there
Speaker 1: was some kind of problem with the games in Germany,
Speaker 1: and they're like, we'll send you to Germany to fix
Speaker 1: the games and then you can get the rest of
Speaker 1: the way to India from there. And that's what happened.
Speaker 1: And you know, the Germans said Jobs was terrible to
Speaker 1: work with, but he fixed the games.
Speaker 3: You know, there's an alternative history where we're carrying around
Speaker 3: Atari devices in our pocket.
Speaker 1: It's true. And you know, there is something right I
Speaker 1: was thinking about, like the link between Atarian Jobs and
Speaker 1: what did he learn there, and it felt like maybe
Speaker 1: a little overdetermined, but I do think you know, clearly
Speaker 1: he had this profound sense of aesthetics and of delight, right,
Speaker 1: Like think of the Macintosh, right, this breakthrough Apple machine
Speaker 1: in the eighties. It was round and instead of squares,
Speaker 1: it was rounded, and it cost them more money, but
Speaker 1: it was beautiful and it was fun and you were
Speaker 1: engaged with it like a game.
Speaker 3: It almost looked a little bit like an arcade game
Speaker 3: with the curves. Yeah, but more than that, I think
Speaker 3: that especially at Silicon Valley at the time when they
Speaker 3: were dealing in actual silicon Right, if you're making chips
Speaker 3: for somebody, you're thinking about the future and the computer.
Speaker 3: You're not thinking about the psychology of the customer, because
Speaker 3: the customer was another electronics.
Speaker 1: Company, right.
Speaker 3: And so Atari and the strength of it was really
Speaker 3: the first time where they're just like, how will a
Speaker 3: regular human being who has no training whatsoever interact with technology?
Speaker 1: Yeah? Yeah, with a computer? Right, Like what they are
Speaker 1: making is going to become essentially the first widely adopted
Speaker 1: home computer, the first computer that ordinary people literally children
Speaker 1: can just plug in and turn on and interact with.
Speaker 3: But the inside Bushnel had is that it wasn't labeled
Speaker 3: a computer. Yeah, it was a fun game.
Speaker 1: Yeah. Yeah. So Atari now mid seventies, they're selling all
Speaker 1: the machines they can make. They're growing, they need more space,
Speaker 1: and so they rent an abandoned roller rink. They stencyle
Speaker 1: Atari on the window, and they turn it into this
Speaker 1: office slash video game factory. I've been ten years older.
Speaker 3: I would have loved to have worked in a roller
Speaker 3: rink video game factory.
Speaker 1: Yes, everybody smoked weed. Yeah, there was a hot tub.
Speaker 1: There was a pool party where everybody ended up naked
Speaker 1: in the pool at Bushnell himself looked back on it
Speaker 1: later and said, if that isn't a horror show for
Speaker 1: any HR person today, I don't know what is. But
Speaker 1: it was the seventies. It was a weirdo startup. I'm
Speaker 1: guessing they didn't have an HR department. I don't know.
Speaker 1: This is a company that's making games, right, and so
Speaker 1: you need engineering brains, but you also need a sense
Speaker 1: of play, of fun, of freedom, right, And clearly Bushnell
Speaker 1: was deliberately trying to create that. You know, he he
Speaker 1: had this culture that was free and creative. His office
Speaker 1: door was always open, and right next to that open
Speaker 1: door was a keg of beer. So Atari's doing well.
Speaker 1: You know, Pong is a huge hit, but Bushnell knows
Speaker 1: the big opportunity. The hockey stick will be if they
Speaker 1: can make a home video game, you know, like Magnavox
Speaker 1: was trying to do, but that nobody has cracked yet.
Speaker 3: All they have to do is get rich people into
Speaker 3: a roller rink with a hot tub and some beer
Speaker 3: and it's all going to work out. Yeah, they need money,
Speaker 3: and in order to get money, he's going to have
Speaker 3: to convince people that this is going to be a
Speaker 3: global phenomenon.
Speaker 1: After the break, Okay, that's the end of the ads.
Speaker 1: We're going back to the show nineteen seventy four, Atari
Speaker 1: Nolan Bushnell has dreams of selling a version of Pong
Speaker 1: that people can play at home. We know it's going
Speaker 1: to work because you played it young Robert Smith's waiting.
Speaker 1: How are they going to get the money to do it? Well?
Speaker 3: At this point, as we've earned in the last show,
Speaker 3: like venture capital is just starting to be a thing.
Speaker 3: Rich people on the East Coast are starting to realize
Speaker 3: that there's a bunch of geniuses who can make money
Speaker 3: on the West Coast and are starting to at least
Speaker 3: shop around that money.
Speaker 1: But there's not a whole system for it. There's not
Speaker 1: a whole system for it. The culture hasn't caught up
Speaker 1: that much. He talked about the culture shift last time.
Speaker 1: And so, you know, a few vcs do go by
Speaker 1: Atari and they see that it's a roller rink full
Speaker 1: of weed smokers, and they're like, this is not the
Speaker 1: business we're in. But one day a venture capitalist named
Speaker 1: Don Valentine walked in. Valentine had worked at Fairchild Semiconductor,
Speaker 1: that a company that was at the heart of the
Speaker 1: birth of Silicon Valley that we talked about last time.
Speaker 1: Valentine was the sales manager there and Fairchild was like
Speaker 1: this fountain of startups, they called them the fair Children.
Speaker 1: Somebody from there started AMD, still one of the biggest
Speaker 1: chip makers in the world. And Valentine, because he had
Speaker 1: worked with these guys knew them, had invested out of
Speaker 1: his own pocket in some of the companies, understood what
Speaker 1: was happening in technology, and he started in the early
Speaker 1: seventies a venture capital firm called Sequoia.
Speaker 3: A little bit famous, right. They invested in Apple, Google
Speaker 3: and Video Instagram, WhatsApp, like one of the you know, maybe.
Speaker 1: Two or three biggest most important VC firms, But at
Speaker 1: this time it was Valentine and he went to visit Atari.
Speaker 1: He smelled the weed smoke. He said it was enough
Speaker 1: to knock you to your knees. At some point he
Speaker 1: took a meeting in the hot tub, and so he's like, yes,
Speaker 1: it's obviously super sketchy, but also he was like, Oh,
Speaker 1: these guys are onto something. This could be a way
Speaker 1: to get the computer into the house, this giant, transformative thing.
Speaker 1: And so he offers Bushnel this interesting deal. He says,
Speaker 1: I'm not going to give you money to start with,
Speaker 1: but i will help you. I will help you, you know,
Speaker 1: find a partner essentially, so that you can get to
Speaker 1: the next level. And if you don't screw it up,
Speaker 1: then I'll give you money. Yes, And you know, the
Speaker 1: key thing Valentine wants to help Atari with at this
Speaker 1: point is how do you get this little stoner video
Speaker 1: game company connected with a big national retailer to distribute
Speaker 1: their first consumer product across the country. So they're working
Speaker 1: on this together and toys Rus turns them down, Radio
Speaker 1: Shack turns them down.
Speaker 3: Oh, they're waiting for the big Tandy computer they were
Speaker 3: going to sell years later at out the Tierrasadi.
Speaker 1: They go to the New York Toy Fair. Nobody is
Speaker 1: interested and this is partly because the Magnavox Odyssey, it
Speaker 1: was called the game that Bushnell saw under development from Magnavox,
Speaker 1: had come out. There was a you know, somebody tried
Speaker 1: a home video game and it had done badly. But
Speaker 1: it turns out that's because it was a bad game,
Speaker 1: and Magnavox just thought of it as a way to
Speaker 1: sell TVs Classic Incumbent mistake, right, They're just thinking about
Speaker 1: their old product. Eventually, Valentine does get Atari a key break.
Speaker 1: He sets up a meeting with Sears, which of course
Speaker 1: was the biggest retailer in the country at this point,
Speaker 1: as we talked about a few weeks ago, gets inm
Speaker 1: this meeting to pitch Home Pong right Pong for the
Speaker 1: home Valentine's sent Bushnell to Sears headquarters in Chicago for
Speaker 1: a meeting, told him to wear a suit, or at
Speaker 1: least that's Valentine's version of the story. Interestingly, Bushnell has
Speaker 1: a different version. According to Bushnell, Atari Cold called Sears
Speaker 1: got put through to a buyer who was immediately interested
Speaker 1: and came out to California right away. And I actually
Speaker 1: love these two different stories. I think there's like a
Speaker 1: little in stop looking at your computer. I'm sorry, Plan Pung.
Speaker 3: Yes, it's addictive, yes, God, And I.
Speaker 1: Actually think there's something interesting in the fact that these
Speaker 1: two guys remember this so differently, because it speaks to
Speaker 1: this divide between venture capitalists and founders that persist today. Right,
Speaker 1: and the question is what is venture capital really doing.
Speaker 1: A lot of founders will say, oh, they're just putting
Speaker 1: up the money, and most of the ventures will be like, no, no,
Speaker 1: these are guys who don't know what they're doing. We're
Speaker 1: putting up the money.
Speaker 3: We make introductions, right, we help guide your decisions.
Speaker 1: Yeah. Yeah. And so I don't know what happened in
Speaker 1: this case, but whatever was the case. A buyer from
Speaker 1: Sears did come out to Atari one day in April
Speaker 1: of nineteen seventy five, showed up at eight am, and
Speaker 1: of course nobody from Atari is in the office yet.
Speaker 1: But eventually Bushnell and the others show up. They let
Speaker 1: the Sears buy or play with their pong prototype. It's fun,
Speaker 1: you know. Bushnell gives him a sales pitch. Bushnell's a
Speaker 1: great salesman, and the Seers guy wants in and he
Speaker 1: asks Atari, how many of these you know, home video
Speaker 1: game devices? Can you make for this year's Christmas shopping season?
Speaker 1: It's April right at this point, Atari has made zero
Speaker 1: of these home machines. Yes, not even really this prototype,
Speaker 1: because it's a fake prototype. It's this wood box painted
Speaker 1: to look like it's plastic and like glued to whatever
Speaker 1: coffee table, and it's got a hole underneath it, and
Speaker 1: there's wires running down to like a much bigger, essentially
Speaker 1: computer they've jerry rigged in like an apple crate hidden
Speaker 1: under the table, and then an eight year old moving
Speaker 1: the pixels around. Yeah. Right, it's a mechanical turk home pong.
Speaker 1: So the Seriers guy asks, you know, how many can
Speaker 1: you make for Sears, the biggest retailer in the world,
Speaker 1: I believe still at this point, And Bushnell's like, give
Speaker 1: me a minute to talk with the team, and he
Speaker 1: goes out and he talks to his head of manufacturing,
Speaker 1: and you know, they've been making it at this point
Speaker 1: big arcade games where a big run is five thousand machines.
Speaker 1: The head of Manufacturing's like, how many can we make,
Speaker 1: you know, in a few months to get him in time,
Speaker 1: we can make twenty five thousand, twenty five thousand, So
Speaker 1: Bushnell goes back in with the Seers guy and he says,
Speaker 1: for this year, we can make you seventy five thousand.
Speaker 1: Just multiply it by three. That's good. That's a good
Speaker 1: CEO move. If they asked him how he did it,
Speaker 1: he didn't even say multiply by three. He's talking about it
Speaker 1: later in an interview he said, quote, I was just
Speaker 1: pulling it out of my butt. Also a good CEO.
Speaker 3: Sears guy here seventy five thousand and thanks, we're Seers.
Speaker 1: Come on, come on, wit seventy thousand. You think you're
Speaker 1: talking to J. C. Penny here, Montgomery Ward, come on
Speaker 1: Radio Shack. One hundred and fifty thousand is what they order,
Speaker 1: and Bushnell says, okay, they have a few months to
Speaker 1: do it. Now. Bushnell really does need that capital, but
Speaker 1: he also has a huge order from the biggest retailer
Speaker 1: of the world. Much easier to get funding. And Valentine
Speaker 1: Sequoya comes through with the money. Atari becomes Sequoia's first
Speaker 1: ever investment, and Sears now does the Sears thing that
Speaker 1: we talked about on the Sears Show. Right. They help
Speaker 1: this little company figure out how to scale really quickly. Right,
Speaker 1: They get Bushnell set up with the Sears Bank, which
Speaker 1: is cool at a like nerdy finance way. They create
Speaker 1: this bonded warehouse so that now when Atari makes this
Speaker 1: you know, one home Pong game, they don't have to
Speaker 1: to get money for it. Then get eighty percent of
Speaker 1: the value of it right as soon as it goes
Speaker 1: into the warehouse. Clearly, a roller rink is not going
Speaker 1: to work to make one hundred and fifty thousand home
Speaker 1: video game consoles. So they get a you know, a
Speaker 1: kind of real factory with a conveyor belt where Bushnell
Speaker 1: loves to ride around in a box on the conveyor belt.
Speaker 1: The guy loved to play, right, he loved he loved
Speaker 1: to play, which is essential. Actually, one day some serious
Speaker 1: execs in suits show up and Bushnell's in fact riding
Speaker 1: on the conveyor belt in a box. They're like, okay, whatever,
Speaker 1: just keep making the games, and they do. Atari that
Speaker 1: year shipped over one hundred and fifty thousand units. They
Speaker 1: exceeded that one hundred and fifty thousand number for the
Speaker 1: nineteen seventy five Christmas season, and Sears sold all of them.
Speaker 1: Pong was the hit game of the year. Merry Christmas, tiny,
Speaker 1: Robert Smith happy ending. There are no happy endings in technology. Nope,
Speaker 1: they're only happy middles. Right. You do not get to
Speaker 1: make Home Pong and then coast on it forever. It
Speaker 1: is not Barbie, it is not monopoly. Right. Because of
Speaker 1: Moore's law, essentially every year people are going to make
Speaker 1: better video games. Right. This is clear to anybody in
Speaker 1: Silicon Valley. It's clear to Bushell. And in fact, the
Speaker 1: year after Atari wins Christmas in nineteen seventy six, our
Speaker 1: old friend Fairchild, Fairchild Semiconductor. Yes, they start selling a
Speaker 1: home video game console that is not just one game
Speaker 1: like Pong, but it allows you to buy different cartridges
Speaker 1: and swap in different games. It's called Channel F like Fairchild,
Speaker 1: but also Channel Fun. Because I was reading that, I
Speaker 1: was also like, remember channels. I don't think my kids
Speaker 1: know what a channel is, I guess. And then there
Speaker 1: were six of them. They were free and they sucked.
Speaker 1: So now Atari needs to make its own cartridge based game,
Speaker 1: and they need much much more money than they needed
Speaker 1: for Home Pong, right, like Sears Bank funding them isn't
Speaker 1: going to do it that. The capital costs are just
Speaker 1: too high. Venture capital isn't big enough at this point
Speaker 1: to fund that they consider going public, but it doesn't workout.
Speaker 1: So in nineteen seventy six, Bushnell and Valentine decide that
Speaker 1: they need to sell. They need to sell Atari to
Speaker 1: get the capital to take the next step, and they
Speaker 1: look around at you know, big incumbents who might buy them,
Speaker 1: and one possibility is Warner Communications, based in New York.
Speaker 3: It owns movie studios, record labels, getting into cable TV
Speaker 3: at this time.
Speaker 1: Yeah, it's a media company. It ess actually big media
Speaker 1: company run by a guy named Steve Ross, who coincidentally
Speaker 1: had recently taken his kids to Disneyland, where they spent
Speaker 1: a long time putting quarters into an Atari video game
Speaker 1: called Indy eight hundred, a driving game. So he had
Speaker 1: a steering wheel. Steering wheel, I'm sure, yeah, so good.
Speaker 1: Remember the one where you could sit in it and
Speaker 1: it will go around you. Yeah, it was rad. So
Speaker 1: Ross sends the Warner jet out to California to pick
Speaker 1: up Bushnell and Valentine to discuss a possible acquisition. On
Speaker 1: the way to New York, the jet stops in Sun
Speaker 1: Valley to pick up Clint Eastwood, who is starring in
Speaker 1: a Warner Brothers movie at the time, and they get
Speaker 1: to New York and Ross puts them up in this
Speaker 1: beautiful suite at the Waldorf Astoria and invites him over
Speaker 1: to his you know, penthouse on Fifth Avenue for a
Speaker 1: screening of the Clint Eastwood movie that's not out yet.
Speaker 1: This is a.
Speaker 3: Whole different league and a whole different business coming into
Speaker 3: video games.
Speaker 1: Yes, and bush Nell loves it. Here's here's here's what
Speaker 1: he said later looking back on this experience. Were we impressed? Yeah?
Speaker 1: Were we smitten? Yeah? Did he warm us up and
Speaker 1: you know, ready for the kill? Yeah? Yeah. I Mean,
Speaker 1: when I think about it, you just have to really
Speaker 1: hand it to somebody that's a bigger con artist than
Speaker 1: you are. I love this guy, Byschanel. He's so good. Yeah,
Speaker 1: he knows, he knows what's happening, at least he knows
Speaker 1: in retrospect, and he respects it. It's like the Midway, right,
Speaker 1: It's like Steve Ross is like the Carney, and bush
Speaker 1: Nell is the room. Is the Room. He's played at
Speaker 1: a much higher level respect, respect, and he respects it.
Speaker 1: So the next morning, the morning after the screening, Bushnell
Speaker 1: agreed to sell Atari to Ross to Warner for twenty
Speaker 1: eight million dollars, and Bushnell stayed on, kept running the
Speaker 1: company as he had been, and now he has the
Speaker 1: capital to work on this console that you know we
Speaker 1: will eventually know as the Atari twenty six hundred.
Speaker 4: It had the stick of joy, had the literal stick
Speaker 4: of joy, one joy stick, the orange button, one button
Speaker 4: that you usually you would fire or jump with the things.
Speaker 3: It would do a million times yead so.
Speaker 1: Fast, not just a knob. Now there's a button comes
Speaker 1: out in nineteen seventy seven, and it does It does
Speaker 1: like okay does pretty well, but it does not do
Speaker 1: amazingly well. It is not the success that we know
Speaker 1: it will come to be. And the executives in New
Speaker 1: York at Warner decide the hippies out in California need
Speaker 1: a grown up to help them become a real grown
Speaker 1: up company. Classic moment. Barry and Warner brings in this
Speaker 1: guy named Ray Kazar to work with Atari. Not a
Speaker 1: tech guy. I'd been an executive at a big textile firm,
Speaker 1: started his own shirt company, O Shirts, Kids Love Shirts,
Speaker 1: and you know, initially because Kazar is kind of consulting whatever,
Speaker 1: but after a few months, the executives at Warner tell
Speaker 1: Bushnell that he can stay on his chairman, but Kazar
Speaker 1: is going to be the CEO of Atari, and Bushnell says, no, no,
Speaker 1: this shirt guy is not going to be the CEO
Speaker 1: of Atari, and Warner says, yeah, we own the company.
Speaker 1: He is going to be the CEO and if you
Speaker 1: don't like it, you're fired, and Bushnell says, no, I'm not.
Speaker 1: You can't fire me. I quit Ah.
Speaker 3: Expect something a little more creative from Bushnell.
Speaker 1: But maybe he made up. Maybe he was the first
Speaker 1: guy to say this, and it's definitely on Bushnell's kind
Speaker 1: of cowboy brand, right. He doesn't need the money, made
Speaker 1: a bunch of money selling Atari, And interestingly he has
Speaker 1: this little side hustle at this point a place he
Speaker 1: started in order to collect all the quarters that people
Speaker 1: were putting into the Atari Arcade games. A place called
Speaker 1: Chuck E. Cheese's Pizza Time Theater. Oh yeah, he had
Speaker 1: started as part of Atari, and then when Warner bought Atari,
Speaker 1: they're like, we don't want to own a pizza place,
Speaker 1: so he bought it from them for five hundred thousand dollars.
Speaker 1: So Bushnell is, you know, riding off into the sunset
Speaker 1: on an animatronic singing rats. Yeah, yeah, he's done an Atari.
Speaker 3: But luckily the geniuses at a giant media company know
Speaker 3: how to run a video game company.
Speaker 1: Right, that's after the break. We're back from the ad break.
Speaker 1: Bushnell is out and Kazar the shirt guy is in
Speaker 1: at Atari. And the next thing that happens is really surprising.
Speaker 1: This East Coast businessman who doesn't know anything about video
Speaker 1: games or engineering turns the Atari twenty six hundred into
Speaker 1: a smash hit. Turns out he's a really good marketer
Speaker 1: as a sense of what's going on, and he has
Speaker 1: the good sense to license a hit arcade game that
Speaker 1: was not made by Atari, a game called Space Invaders
Speaker 1: I'm sure you remember, well, of course, beautiful game. He
Speaker 1: licenses it for Atari to develop for the twenty six hundred,
Speaker 1: and it is a huge hit.
Speaker 3: And this is a smart thing that a big media
Speaker 3: company can do. Recognize basically franchises, right that are popular
Speaker 3: at the pizza place, which is where I played it,
Speaker 3: Red Banjo Pizza in Parks of Utah, and then get
Speaker 3: that into a home game, right, make money off of
Speaker 3: the name, and that's great.
Speaker 1: Yes, And remember they're in the console business, right, console
Speaker 1: business is not doing great. The console business needs its
Speaker 1: killer app. Space Invaders becomes the killer app, and the
Speaker 1: popularity of this piece of software drives the sales of
Speaker 1: the hardware. Right, everybody goes out and buys a twenty
Speaker 1: six hundred so they can play Space Invaders. So revenue
Speaker 1: at Atari, before Kazar got there it was less than
Speaker 1: one hundred million, And after he'd been running Atari for
Speaker 1: a few years, revenues are over a billion. Right, he
Speaker 1: has ten ext it more. And now it's the early
Speaker 1: eighties and America is going bananas for video Pacman Fever.
Speaker 1: I don't know the name mac fever is an actual.
Speaker 1: It was. I got a pocket full of quarters and
Speaker 1: I'm headed for the arcade. I don't make a lot
Speaker 1: of money, but I'm spending everything I make. I didn't
Speaker 1: look it up. I remember it, and if I'm misremembering it,
Speaker 1: you can tell me business history at pushkin FM. Everybody's
Speaker 1: getting into the video games business now. Toy companies in
Speaker 1: particular are looking at this and being like, oh, this
Speaker 1: is a toy so Mattel Barbie. You know they make
Speaker 1: the intelevision Kaliko, which around this time is making Cabbage
Speaker 1: Patch Kids. Another eighties shout out, Kalico makes Calliko Vision,
Speaker 1: but Atari is winning. They are dominant. They have something
Speaker 1: like eighty percent market share. Incredible, and this is the peak.
Speaker 1: This is the moment. You have finished the rise, and
Speaker 1: now we begin the fall. The fall starts with pac Man. Interestingly,
Speaker 1: this huge hit game, this huge hit arcade game, Atari
Speaker 1: doesn't make it. So they license it. Figure like work
Speaker 1: for Space Invaders, it'll work for pac Man. They make
Speaker 1: twelve million cartridges of Packman, despite the fact that only
Speaker 1: ten million people own Atari twenty six hundred. They think
Speaker 1: this game is going to be so popular that everyone
Speaker 1: with an Atari will buy it, and two million more
Speaker 1: people will buy Atari consoles to play. It doesn't happen.
Speaker 1: The game kind of sucks, just technically doesn't play as well.
Speaker 3: Because part of the pac Man appeal was that it
Speaker 3: was a very fast movie game, like you had to
Speaker 3: turn on a dime. You have like like you had
Speaker 3: these whole systems you had when you played in the arcades,
Speaker 3: and you wanted to use those systems at home. And
Speaker 3: if there's a little bit of a lag, it doesn't
Speaker 3: really quite work.
Speaker 1: It's not fun enough. Right. There is this thing where
Speaker 1: a videogram has to be really fun to be a
Speaker 1: big hit, and pac Man for the twenty six hundred
Speaker 1: is not fun enough. So it's starting to get bad,
Speaker 1: and it's gonna get worse. And the reason it gets worse,
Speaker 1: which I love, is Et the Extraterrestrial.
Speaker 3: Wait Et never made anything worse. He was so adorable.
Speaker 1: It's not his fault out. So Et comes out in
Speaker 1: the summer of eighty two. So giant hit holds up
Speaker 1: by the way, at least I held up by budget.
Speaker 1: I don't know. Eight years ago, with my children made
Speaker 1: Reese's Pieces a big hit. Two toful movie was not
Speaker 1: distributed by Warner Brothers. It's not distributed by Warner the
Speaker 1: company that owns Atari, Right and a. Ross. The guy
Speaker 1: running Warner Brothers really wants to work with Spielberg. Of course,
Speaker 1: you want to work with Spielberg. You're running a movie studio.
Speaker 1: You want to work with Spielberg. And so he thinks
Speaker 1: that turning Et into a hit game would help entice
Speaker 1: Spielberg to come work at Warner Brothers. So he makes
Speaker 1: this deal with Spielberg in the summer of eighty two.
Speaker 1: First of all, he pays a ton of money to
Speaker 1: license the game, and he tells Spielberg, we will have
Speaker 1: a great version of et for the Atari twenty six
Speaker 1: hundred out in time for the Christmas season. A problem
Speaker 1: with this is it takes like five or six months
Speaker 1: to make a new video game, but to have the
Speaker 1: game in stores in time to sell it for the
Speaker 1: Christmas season. This is the summer already. Yeah, and they
Speaker 1: have to, you know, produce the games. They're gonna have
Speaker 1: to write this game in like five or six weeks
Speaker 1: instead of five or six months. And people that are
Speaker 1: tired like, no, we can't do it. You can't make
Speaker 1: a good game that fast. It's just not the way
Speaker 1: it works. Kazar, who's running Atari, is like, no, whatever,
Speaker 1: it's Spielberg. What are you gonna say no to Spielberg?
Speaker 1: You say no to the CEO. No, we can make
Speaker 1: a shirt. We can make a shirt in like three hours.
Speaker 1: Not many shirts we could make my Christmas. You just
Speaker 1: gotta make one game. So they eventually find an engineer
Speaker 1: to make the game. A good engineer, guy who made
Speaker 1: Yars Revenge. I don't know if you remember that one.
Speaker 1: It was a hit game at Atari. He gets it
Speaker 1: done in a matter of weeks. Atari makes five million copies,
Speaker 1: gets them on the shelves in time for the Christmas season.
Speaker 1: And the game is bad. The game is not fun.
Speaker 3: You just like you move them along and he like
Speaker 3: falls into holes and holes and he makes it like
Speaker 3: it's like.
Speaker 1: I'm gonna read a couple of reviews from the time,
Speaker 1: one from a publication called Joystick. No c ET has
Speaker 1: nothing to phone home about? What another review from Electronic Games.
Speaker 1: If ET does call home, please don't tell them about this.
Speaker 1: I see a theme. So a there are millions of
Speaker 1: unsold copies. The engineer who made the game ends up
Speaker 1: leaving Atari, leaving the business eventually becomes a therapist. It
Speaker 1: goes a lot for him to deal with. And Atari sucks.
Speaker 1: Now right now, the thing is like, oh, I went,
Speaker 1: I paid a lot of money for this game and
Speaker 1: it sucks.
Speaker 3: It's interesting, right, Like the thrill of a new invention
Speaker 3: only lasts so long. Right, you know, the very first
Speaker 3: movie of you know, people moving around a garden, everybody's like,
Speaker 3: oh my god, it's amazing. You know, three weeks later
Speaker 3: they're like, eh, the plot kind of sucks. Maybe an
Speaker 3: explosion or something, right, you know, probably same with Gutenberg, right, Yeah, Yeah,
Speaker 3: that's amazing.
Speaker 1: Yeah, I read the Bible. You got else? What's the
Speaker 1: Hotness book? Was it your harness? I think it's your
Speaker 1: honest but don't know business history of pushing dount of him.
Speaker 1: End of the eighty two actually Warner announces earnings. Right,
Speaker 1: they're a public company. They're way worse than expected. The
Speaker 1: stock crashes, and as we go into eighty three, now
Speaker 1: it's not just Atari, the whole video game industry collapses.
Speaker 1: There is this incredible glut of consoles. All these different
Speaker 1: companies are selling consoles of games. There's a lot of
Speaker 1: really bad games. There's like third party companies are selling games.
Speaker 1: Apparently chuck Wagon dog Food. There's like a Chuck Wagon
Speaker 1: dog Food video game. And on top of all that,
Speaker 1: now you have home computers, real computers like we would
Speaker 1: think of as computers with keyboards. You know, there's the
Speaker 1: Commodore sixty four is coming out. At this time. At
Speaker 1: my house, we had the lesser known Texas Instruments ninety
Speaker 1: nine four A which I remember for its cassette deck
Speaker 1: instead of a disk drive. So Atari is now losing
Speaker 1: hundreds of millions of dollars. Kazar, the CEO, he gets
Speaker 1: accused by the sec of insider trading of selling shares
Speaker 1: just before that bad earnings announcement at the end of
Speaker 1: eighty two. He leaves the company in the summer, says
Speaker 1: he didn't do anything wrong, but he's out word of
Speaker 1: replaces him with a marketing guy from Philip Morris who
Speaker 1: helped come up with the Marlborough Man, and a few
Speaker 1: months later in the second half of eighty three, Atari
Speaker 1: actually has so much unsold merchandise, so many video games
Speaker 1: that nobody wants to buy, that they actually go and
Speaker 1: supposedly dump hundreds of thousands of unsold cartridges in a
Speaker 1: landfill and a pit in Alamo Gordo, New Mexico, and
Speaker 1: cover it up. It's heartbreaking. It's heartbreaking, and does is
Speaker 1: it even true? Delightfully, ten years ago or so, they
Speaker 1: made a documentary they actually went and dug up the
Speaker 1: landfill in Alamogordo, and in fact they found et cartridges
Speaker 1: there and other video games. This is really the end
Speaker 1: for Atari, and it's perfect obviously metaphorically right, like it's
Speaker 1: a burial. They are burying video games, and you know,
Speaker 1: Atari is going to have this sort of shambalic afterlife
Speaker 1: as brands do as companies do. They get acquired and
Speaker 1: acquired and whatever. So let's go back to the question
Speaker 1: we asked at the beginning and try and answer it right. Like, Atari,
Speaker 1: practically speaking, invented video games. They changed culture, they changed business,
Speaker 1: They brought the computer to the home. Video games continued
Speaker 1: to be this giant thing. Atari disappeared. Why, Like why
Speaker 1: did that happen? And I think there are a few
Speaker 1: answers that it's worth going through. Right on. One is
Speaker 1: just timing. One is just kind of bad luck, right,
Speaker 1: Like the crash of eighty three, The video game crash
Speaker 1: of eighty three was brutal, and it took out everybody, right,
Speaker 1: It took out Atari, but it also took out Callco,
Speaker 1: which was making Calleco Vision. It also took out you know,
Speaker 1: Mattel gave up on intelevision.
Speaker 3: And so as the incumbent Atari had more money invested
Speaker 3: they had, they were further out over their skis when
Speaker 3: the crash came. Yes, Yes, and huge warehouses, employees, engineers,
Speaker 3: the whole.
Speaker 1: Thing, hundreds of thousands of cartridges.
Speaker 3: Yeah, and they have to keep, you know, putting out
Speaker 3: these things to support their legacy systems, right, it's a classic,
Speaker 3: classic incumbent proplem.
Speaker 1: Yeah, and the glut goes on for a few years
Speaker 1: through the mid eighties, and and you know, retailers themselves
Speaker 1: don't want to stock video games anymore. They were left
Speaker 1: with them. And in fact, when the next video game
Speaker 1: revival comes, it's driven notably by a game that doesn't
Speaker 1: call itself a video game, calls itself an entertainment system,
Speaker 1: the Nintendo Entertainment System Classic. So you know, maybe anybody
Speaker 1: would have got wiped out. Maybe there was nothing Atari
Speaker 1: could have done, But I do wonder. You have to wonder, right,
Speaker 1: what would have happened if Bushnell had managed to hold
Speaker 1: onto the company, if he'd managed to say, go public,
Speaker 1: to not have to sell to Warner, Because clearly Bushnell
Speaker 1: was the perfect guy to run a video game company,
Speaker 1: right he was the amusement park carneie genius, who knew
Speaker 1: what fun was, who knew what games were, who was
Speaker 1: also an engineer, who also created this culture where engineers
Speaker 1: could come and play and be creative. And when he sold,
Speaker 1: he sold to an entertainment company. It's not about the
Speaker 1: engineering for them, which is why they sent a shirt
Speaker 1: guy to run Atari.
Speaker 3: Right, He knew logistics, he knew selling, he knew how
Speaker 3: to get things into stores.
Speaker 1: Sure, but it does seem like he thought the engineers
Speaker 1: were just employees on an assembly line. And that was
Speaker 1: a key mistake. And there's one story that I want
Speaker 1: to end with and I think really reveals this fact
Speaker 1: what a mistake that was. And that's this, long after
Speaker 1: Kazar took over a few of the engineers, the game designers,
Speaker 1: the guys actually creating these games, realized that they had
Speaker 1: created games that were making the company millions of dollars,
Speaker 1: and they were, you know, staff employees making like twenty
Speaker 1: thousand dollars a year or something, and so they went
Speaker 1: to Gazar to ask for a better deal. They're like, look,
Speaker 1: we're making these games, they're making all this money, give
Speaker 1: us a better deal. And because I said no, he's like,
Speaker 1: anybody can do that, you know, you guys are just
Speaker 1: cranking out these things. And so these game designers left
Speaker 1: and they started their own video game company, not to
Speaker 1: make hardware, just to make games, which was not a
Speaker 1: thing yet. Right, they are inventing the standalone video game company,
Speaker 1: and they create a company called Activision, and Activision survives
Speaker 1: the crash of eighty three and goes on to become
Speaker 1: one of the biggest video game companies in the world.
Speaker 1: They create Call of Duty, this gigantic franchise. They eventually
Speaker 1: with another company called Blizzard, and in twenty twenty two
Speaker 1: Activision Blizzard gets bought by Microsoft for sixty nine billion dollars. Nice. So,
Speaker 1: so you know, when you look at the video game
Speaker 1: industry over the long arc, what you see is the
Speaker 1: companies that wind up dominating it are not media companies,
Speaker 1: right basically Nintendo, Sony, Microsoft, These are all companies with
Speaker 1: very deep roots in electronics. They are all at some
Speaker 1: level technology companies. And once Bushnell left Atari, I think
Speaker 1: at a deep level it wasn't fundamentally run like a
Speaker 1: technology company anymore, and that is why Atari failed. I disagree.
Speaker 3: I think Bushnell had his moment, he changed the world,
Speaker 3: but as we often see with technology companies, the person
Speaker 3: who founded the company might not be the person to
Speaker 3: take it all the way. You know, he was using
Speaker 3: it as a game company, and it would eventually become
Speaker 3: a multi media you know, essentially movies in a box,
Speaker 3: a huge technological innovation that I'm not sure he could
Speaker 3: have done. And we see this across other industries.
Speaker 1: Right, the first mover.
Speaker 3: Advantage is usually not an advantage, right, because you have
Speaker 3: to spend all this money solving problems that other people
Speaker 3: can come and just take from you. But also you
Speaker 3: have a certain arrogance, right you are the successful leader.
Speaker 3: Everyone wants an Atari, everyone has an Atari system, so
Speaker 3: you don't really have to innovate to make a better
Speaker 3: Atari system. You just have to get them to just
Speaker 3: keep buying cartridges. And yes, Atari did try and come
Speaker 3: up with a new system and it was okay, right,
Speaker 3: It just didn't work that well because I think they
Speaker 3: were like, the world will always have Atari. Atari will
Speaker 3: always be number one. You can't conceive of a world
Speaker 3: without Atari.
Speaker 1: And then it happened we live in a world without Atari.
Speaker 1: If you were into video games, there's a good chance
Speaker 1: you have thoughts about the things we got wrong on
Speaker 1: today's show.
Speaker 3: And I don't take it to Reddit.
Speaker 1: Take it to the email systems. Write to us at
Speaker 1: business History at pushkin dot fm, or leave us a comment.
Speaker 1: I will read all the emails in the comments because frankly,
Speaker 1: we don't get that many yet, and I want to
Speaker 1: get more and I want to make the show better.
Speaker 1: Tell us if you listen to the show, if you
Speaker 1: watch the show, what do you want to hear? What
Speaker 1: do you want to see? We want to make shows
Speaker 1: that you like. We're very grateful that you're listening, and
Speaker 1: tell a friend if you like it. Today's show was
Speaker 1: produced by Gabriel Hunter Chang, it was engineered by Sarah Bruguerer,
Speaker 1: and it was edited by our showrunner Ryan Dilley, who
Speaker 1: told me that if you had told him in nineteen
Speaker 1: eighty two that he could play et at home and
Speaker 1: have a Coca cola, he would have thought it was
Speaker 1: the greatest thing in the world.