Nolan Bushnell knew he had a hit when he heard about the trouble at Andy Capp’s Tavern. Atari’s founder had created only one prototype of its first video game, Pong, and it had stopped working after just two weeks – the can for collecting coins kept getting overstuffed.
These are the kinds of problems we all should have. In 1972, Bushnell’s Pong became the first commercially viable video game, and it churned out money.
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Atari’s Pong overcame earlier entrants’ shortcomings. It was simple. The arcade setting allowed for new users to easily observe others’ play and to try the system out for just a few cents. Arcades were motivated to get people to try the game.
By overcoming barriers to trial and adoption, it created a runaway success.
The company’s home version of Pong sold 150,000 units, but Bushnell had his sights on building a system that could play a range of games through inserting cartridges into a machine. By the early 1980s, Atari’s revenues were over $2 billion. It had become the fastest-growing company in U.S. history.
Atari had a market share of 75% and seemed utterly dominant.
Then it collapsed. Atari’s revenue halved in just one year. The company was sold off in 1984 and, despite a few comeback attempts, it never recovered.
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Why? Three big reasons:
1. STRATEGY — Atari made most of its money from selling game cartridges, not the console, but it did not control the supply of games. Competitors emerged from nowhere, often with low-quality games that degraded the overall experience.
2. PEOPLE — The company became a magnet for talented developers, but it couldn’t hold on to them as computing became more accessible for the general population. Its losses included one disillusioned junior employee with bright prospects: Steve Jobs.
3. OPTIONS — Today, Nolan Bushnell says his worst business decision at Atari saved all of two cents. That would have been the additional cost of making its game cartridges capable of read-write, rather than just read. They could have been upgradable, and system obsolescence would have come more slowly. But the company eliminated that critical option, to save all of two cents.
Plan your strategy, hold onto your great people, and develop options. If Atari can fail, so can any company.
Contributed to Branding Strategy Insider by Stephen Wunker, Managing Director of New Markets Advisors and Author of The Innovative Leader.
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