Authors: Steven Kent
The Ultimate History of Video Games: From Pong to Pokémon and Beyond—The Story Behind the Craze That Touched Our Lives and Changed the World (15 page)
Like most industries, the toy business had a unique protocol. Although hundreds of companies displayed toys at the show, the real business was conducted around town in private suites. During the show, toy companies set up meeting rooms so that they could close deals with buyers away from the floor. No one from Atari knew anything about setting up a private showing.
According to Alcorn, dozens of buyers stopped by Atari’s booth, curious to see
Home Pong.
Although they said they liked it, no one placed orders because they had already finished buying products at private showings. Atari did not sell a single unit at the show.
Tom Quinn stopped by the Atari booth to say “hello” and ask how things were going. The staff at the booth lied, saying that the show was going well. A few days after the show, Lipkin called Quinn to ask for a meeting.
Before Quinn could purchase
Home Pong
, however, he needed permission from the head of the Sporting Goods department. At Quinn’s suggestion, Alcorn and Lipkin flew to Chicago to demonstrate
Home Pong
at the Sears Tower.
Quinn set up a demonstration in a conference room on the 27th floor. A large group of executives in business suits flooded the room and watched as Alcorn hooked the prototype to a television set. When he turned the game on, nothing happened.
The Sears Tower has an antenna on the roof that broadcasts a signal on channel 3. The
Home Pong
prototype was set for channel 3, and the broadcast blocked out its signal. Quickly figuring out the problem, Alcorn removed a panel from the bottom of the prototype and made adjustments so that the prototype’s signal could be picked up on channel 4.
I told Gene, “You cover for me.”
I turned it [the prototype] upside down and opened the bottom up. I got it to work in about ten minutes. I was sweating now and ready to jump out the window. This was too much pressure for the kid.
So I finally played the game and it all worked and they were okay, but I could see that something was bothering them. They had seen something inside the prototype while I was adjusting it.
I said, “We’ll replace the wires with a silicon chip that’s the size of a fingernail.”
Carl Lind, head of the department says, “Mr. Alcorn, you’re telling me that you’re going to reduce that rat’s nest of wire to a little piece of silicon the size of your fingernail?”
“Yes, sir.”
He looked at me, leaned over the table and said, “How you gonna solder the wires to it?”
—Al Alcorn
Once he received approval to carry
Home Pong
, Quinn asked Bushnell how many units he could manufacture by Christmas. Bushnell promised 75,000. Quinn responded that he needed 150,000. Bushnell agreed, fully aware that Atari did not have the manpower or facilities to fulfill such a large order. He would simply have to borrow the money. With the new business from Sears, Bushnell decided this was the time to expand.
I read a story about Valentine…. In the story, a guy had gone into his office and Don intimidated him so badly that he passed out. Don denies it, of course.
—Trip Hawkins, founder, Electronic Arts and 3DO
Engineers and designers comprise only one side of the computer industry. The other side is made up of shrewd businessmen and investors who look at the latest technology in the same dispassionate way they view utility companies and pork bellies. Technological breakthroughs do not excite these people. A hefty return on investment does.
Known as venture capitalists, these businessmen do not part with money easily. They are willing to invest in promising companies, but they demand stock and control in exchange for their investment. Once, a venture capitalist fired the founder and chairman of a home computer company over a disagreement about the company’s future.
Don Valentine, the founder of Sequoia Capital, was one of the computer industry’s first and most successful high-tech venture capitalists. Extremely conservative and intense, Valentine had a reputation for intimidating prospective clients. Al Alcorn once bragged, “I have actually seen Don Valentine laugh.”
As a venture capitalist, Valentine’s work involved sifting through hundreds of proposals a year. He invested in a very small percentage of the companies that approached him.
According to Valentine, when Bushnell first came to Sequoia, he mostly talked about “coin-operated games for bars.” Like the bankers Bushnell approached four years earlier, Valentine associated the coin-operated amusement business with organized crime. He was not interested. When Bushnell described
Home Pong
, however, he changed his mind.
One of the things that I was concerned about and interested in was that there be a product or series of products that were designed for consumers. Only after we were persuaded that the company would be taken in the direction of a home product were we persuaded to invest.
—Don Valentine
Valentine minimized the risk of investing in Atari by demanding an active role on the company’s board of directors. He decided to raise the capital from a network of partners that included Time Inc., the Mayfield Fund, and Fidelity Venture Associates. Combined with Atari’s annual earnings of $2.5 to $3.5 million, Valentine’s capital opened a $10-million credit line at a bank.
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Valentine took longer than expected to close the deal. By the time he was ready, the new business Atari received through its merger with Kee Games had resulted in increased earnings. While Bushnell waited impatiently to open a new money line with Valentine’s capital, his company amassed a balance sheet that was strong enough to get a loan. When Valentine finally decided to close the deal, Atari no longer needed him.
What happens with venture capitalists [is that] time is in their favor usually. They love to delay and delay because the more they wait, the more they’re squeezing your nuts and the more the deal gets better in their favor. In this case, we had pulled ourselves out of the fire. Things were going along pretty smoothly by the time Don was ready to cut the deal.
I don’t know the exact numbers, but two or three days before the deal was going to close, we had a board meeting and our corporate attorney told us, “You know, guys, the valuation on this deal is all wrong. You made the valuation back when you were in trouble. You’re no longer in trouble. The deal is way out of whack.”
We had two choices. We could let the deal go as is or change the price—basically, double the price. If we pissed Don off, we knew we’d never get the deal. I think we still needed some money, and he was our only chance of getting financing because he was the top venture capitalist in the valley.
We decided to roll the dice. We doubled the price Don had to pay us—double or nothing. If he didn’t buy it and we went out of business, what the hell, we’re all young.
Don showed up that night with a station wagon full of champagne to celebrate closing the deal, and Joe Keenan told him, “Oh, by the way, we’ve doubled the price.” Don blew up, but when he calmed down, he went ahead and did it at double the price.
—Al Alcorn
Valentine took his role as a member of the Atari board seriously. He attended board meetings and participated in the decision-making process. Though he did not particularly enjoy video games, he took Atari games home and played them. Despite the culture clash, he visited the manufacturing facility to observe the progress.
According to Valentine, he had to hold his breath whenever he visited Atari. Straightlaced and conservative, Valentine did not smoke. He claimed that the manufacturing plant reeked of marijuana, and if he wasn’t careful where he breathed, he sometimes accidentally inhaled it.
Valentine’s association with Atari ended two years later. Though he profited from the investment, Atari was far from his most lucrative deal. A few years later, Steve Jobs and Steve Wozniak asked Valentine to help them start Apple Computers. In 1986, Valentine was approached by Cisco Systems, a company that pioneered the development of Internet equipment. He invested $2.5 million in the company in exchange for one-third of its stock. Over the next decade, Cisco’s equipment became an integral part of the success of the Internet. By 1996, Valentine’s one-third share of the company was valued at more than $10 billion.
Don Valentine was not the only partner who clashed with Atari’s corporate culture. Sears Roebuck was a no-nonsense, button-down business as well.
By this time, Bushnell had used his new line of credit to purchase a manufacturing facility in Sunnyvale, California. One day, a number of Sears executives visited the new location for an inspection.
The plant was not yet in operation. Workers had recently installed a new conveyor line that Bushnell sometimes rode while in a box, as a diversion. The Sears executives arrived just in time to see Bushnell climbing into a box and “surfing” the line. They were shocked by his unorthodox behavior.
The difference in corporate cultures became even more apparent as the day went on. The Sears people had come in suits and ties. The Atari people wore T-shirts and blue jeans. By the end of the day, Bushnell was concerned that he had alienated his visitors.
Not wanting to leave a bad impression, Bushnell had one final chance to soften the situation. That night he and his board were scheduled to have dinner with the Sears team at a local Italian restaurant. In an effort to look more professional, Bushnell had his board attend the dinner dressed in suits and ties.
Unfortunately, the Sears executives, too, were worried about the impression they had made. Not wanting to appear too stuffy, they attended the dinner in T-shirts and blue jeans.
I thought of Nolan as the great visionary, someone who would be bored by day-to-day operations. Joe Keenan was the volunteer who took care of most of the day-to-day operation.
—Don Valentine
For a brief period in 1975, Atari faced no emergencies. With the new factory in Sunnyvale, the company had enough manufacturing muscle to fulfill Sears Roebuck’s order for 150,000
Home Pong
consoles. Under Jim Tubb’s direction, the manufacturing process moved along smoothly.
Through the merger with Kee Games, Joe Keenan became president of Atari. Because he was the least wild member of the original Atari board, Keenan made an excellent point man for working with Don Valentine and Sears.
During this time, Al Alcorn was vice president of research and development and Steve Bristow was vice president of engineering. Al’s department focused largely on home game technology but also built a prototype of an extra-wide pinball machine and developed a high-speed modem. Bristow’s team developed new arcade games. Of all the departments at Atari, Research and Development and Engineering were the departments that intrigued Bushnell the most.
Bushnell often visited. He looked over engineers’ shoulders as they designed new games. Sometimes he saw ways to improvise and improve designs. On occasion he suggested changes.
Alcorn referred to Bushnell’s visits as “Nolan Attacks” and said that they slowed the engineers’ progress. According to Alcorn, Bushnell would approach engineers in the middle of the design process with solutions, and because he had not been involved with the projects from the start, his suggestions did not always work.
Let me tell you what happens when you’re Nolan Bushnell. You go into a lab and you sit down and you’re talking with guys, and they’re having a problem. And they’ll say, “What about this?”
Unless you’re being very clear, sometimes junior guys think that you’ve told them what to do when in fact you’re really asking, “Have you considered this solution?”
Two or three times people thought they were following orders when in fact I was just trying to help them solve a problem they were having.
—Nolan Bushnell
Hoping to keep Research and Development running smoothly, Alcorn made a new rule—engineers were not allowed to follow Bushnell’s orders unless he repeated them three times. Bristow was even more straightforward: “Nolan could do and discuss anything he wanted, but my staff made no changes until I OK’d them.” Since Bushnell rarely followed projects closely, he seldom checked to see if his suggestions were implemented.
Before long, Bushnell discovered Alcorn’s strategy. He held a brainstorming meeting for the research and development staff in Grass Valley. During an opening speech, Bushnell said, “I understand there’s a new rule that says you don’t have to do what I tell you unless I say it three times. Well, I’m telling you now, when I tell you to do something, you do it.”
An engineer sitting across the room shouted back, “Could you repeat that two more times?”
In an attempt to control Bushnell’s visits, Alcorn set up a security system. Whenever Bushnell entered Research and Development, Alcorn distracted him by leading him from project to project. If Alcorn was out of the department when Bushnell arrived, his engineers could reach him with a special beeper.
I couldn’t keep him out; but when he went in, I’d just follow him around and tell the guys, “If you do what he tells you to do, you’re fired. You’re working for me, not him.”
—Al Alcorn
According to Alcorn, this strategy worked for a while, but Bushnell eventually concocted a method of monitoring Research and Development that even fooled Alcorn. He placed an ally in the department to tell him about each project. His informant had to be unimportant, someone so small and insignificant that Alcorn would never notice him. Bushnell’s informant was Steve Jobs.
