by Steven Kent
Wozniak says that both stories are true. He first discovered Jobs’s deception on the plane and he did later ask Bushnell for details at his house.
I got $375, and I’ve never really known how much Steve got. He told me he was giving me 50 percent, and I know he got more than $750. I knew he believed that it was fine to buy something for $60 and sell it for $6,000 if you could do it. I just didn’t think he would do it to his best friend.
—Steve Wozniak
Dealing with Japan
Atari first began shipping Pong machines outside the United States as early as 1973. As its business expanded, Atari sought foreign partners to help with distribution and shipping laws. Namco became Atari’s partner in Japan.
At the time, Namco was Japan’s sixth- or seventh-largest arcade company, behind such sturdy giants as Taito and Sega. Unlike Taito and Sega, which were founded by a Russian and an American, respectively, Namco was founded by a Japanese entrepreneur named Masaya Nakamura.
A former naval engineer, Nakamura started his company with $3,000. He purchased two mechanical horse rides that he had to place on the roof of a department store because his competitors had exclusive arrangements with the best sites.
I initially purchased two secondhand horse rides, and I talked a department store into allowing me to set them up in its roof garden. I operated the rides myself. I refurbished the machines myself. I would polish them and clean them every day, and I was there to welcome the mothers of the children as they arrived.
—Masaya Nakamura, founder and president, Namco
Because of the size of the Japanese market and the country’s enthusiasm for coin-operated entertainment, Atari created a Japanese branch to oversee importing and distributing games. Nakamura visited Atari’s Japanese branch shortly after it was formed. He began purchasing games and met Bushnell.
In 1974, Bushnell decided to close the Japanese operation. He sold it to Nakamura, and Namco became Atari’s chief Japanese distributor.
Bushnell established Atari Japan and tried to expand his business. For various reasons, including poor maintenance and a selection of inappropriate locations, Atari Japan’s business was not really doing well.
—Masaya Nakamura
We had real problems in Japan. Japan is a pretty closed market, difficult to get your product in … closed distribution. That’s why we did the deal with Nakamura and Namco. He was willing to sort of break with tradition and start working with an American company. And he really made money on Breakout.
—Nolan Bushnell
In 1976, Atari sent Nakamura Breakout. As soon as Nakamura saw the game, he recognized it as a sure hit. To his disappointment, however, Atari set special conditions for Breakout, allowing Namco to distribute the game but retaining exclusive manufacturing rights. In response, Nakamura asked for as many units as possible.
This game Breakout was a wonderful game and I gave a very high evaluation to the game. Namco, through Atari Japan, had the sales rights on the property in Japan, and we were doing quite well. All of a sudden we encountered a great number of copies in the Japanese market.
The game was called Borokukuishi. It’s literally the Japanese translation of Breakout. And we saw more copies [units of Borokukuishi] than the original games that we were trying to distribute. It was to the detriment of our business.
—Masaya Nakamura
The Yakuza
The Yakuza, most easily described as the Japanese Mafia, operates very differently than other criminal organizations. Unlike other gangsters, members of the Yakuza do not try to hide their identity. They often cover much of their bodies with tattoos. For years they were the only people in Japan who wore dark glasses. Many of them had missing fingers—cutting off fingers was a form of punishment within the organization.
In Japan’s structured society, the Yakuza and the police coexist by setting limits on various illegal activities. Although the Yakuza frequently went beyond these limits, many of their activities involved nothing more spectacular than running the Japanese fish market and setting up concession stands at sporting events.
When it came to video games, a few Yakuza clans took a very aggressive stance. One clan tried to take over Konami, the company that made Frogger and Contra. When the owner of the company appealed to a friend in a rival clan for help, he touched off a war and had to go into hiding.
When Nakamura investigated the counterfeit Breakout machines, he discovered that a Yakuza clan had manufactured them. It was a dangerous situation.
We knew exactly where the copies were being manufactured, and I instructed my staff to go to these factories for surveillance.
They would watch from their car, then they would notice a car approaching them from behind and another car coming from the front, making their car immobile. They [the gangsters] would come out of their cars and make threats.
—Masaya Nakamura
Nakamura met with the leader of the group that was manufacturing the counterfeit Breakout machines and asked him to stop. The man responded by offering to forge a partnership with Namco. According to Nakamura, the man offered to “suppress” Namco’s competitors and make Namco the biggest company in the industry. Nakamura declined, fearing that the offer would lead to a takeover of his company and possibly the entire industry.
Rather than try to stand up to the Yakuza, Nakamura decided to work around them. He asked Atari to send more Breakout machines as quickly as possible, but shipments of Breakout continued at the same slow pace.
Nakamura and Bushnell disagree about what happened next. Nakamura says he flew to London to meet with Bushnell at an MOA (Music Operators Association, later renamed the Amusement and Music Operators Association) convention. He claims he explained the situation to Bushnell and asked for help but that Bushnell was in no condition to listen.
My recollection is that Hide Nakajima and I traveled to London to attend a show, and Nolan Bushnell was there. Hide and I went to see him one morning to lodge a very strong claim against the copies in Japan and to ask for his assistance as the manufacturer who created the game, to counter the copies in Japan and do something about it.
Unfortunately, when we met him, it was the morning after apparently a very long night of partying on the part of Nolan Bushnell and he very obviously had a hangover. He was in no physical condition to concentrate on our very serious claim. He took it very lightly.
For that reason and for the sake of self-defense in terms of business, we decided to start manufacturing the game ourselves.
—Masaya Nakamura
Since Bushnell and his associates had a reputation for partying, and liquor bars were prevalent at most MOA parties, Nakamura may have been naïve in his decision to discuss such an important topic at the show.
Unsatisfied after his meeting with Bushnell, Nakamura returned home and began manufacturing his own copies of Breakout. Before long, he flooded the Japanese market. The game was a huge success and Namco became one of the most dominant game manufacturers in Asia.
According to Bushnell, Atari knew nothing about Nakamura manufacturing the game. He assumed that Namco did not want more copies of Breakout because the game had not caught on. “It was doing so well in the rest of the world, we couldn’t understand why they didn’t like it in Japan.”
The first time he heard about the counterfeits was when an Atari representative visited Japan and reported seeing far more machines than the company had shipped. Most of the machines had been built by Namco.
The first sign that something was going wrong was Breakout. We shipped 15 Breakouts to Japan. All of a sudden, it turns out there were more Breakouts in Japan than there were in the rest of the world combined.
—Al Alcorn
Breakout became the first issue in a growing rift that formed between Atari and Namco. The argument ended in a lawsuit that Atari won in the late 1970s.
* Years later, Steve Jobs claimed that he had developed the concept for Breakout. When asked about it, Nolan Bushnell simply responded, “P
erhaps he did.”
“Could You Repeat That
Two More Times?”
Nolan sent this memo: “To: Engineering, From: Nolan, Subject: Products. You will have in one year a consumer Pong game, an eight-player Tank game, and a 12-person game for arcade midways.”
The fact that we had no manufacturing capacity was not an issue to be brought up.
So I sent a memo back: “To: Nolan, From: Engineering, Subject: Your memo. One small issue, we have no money.”
And Nolan wrote on my memo, “NO,” in big letters, and sent it back to me.
—Al Alcorn
Gene Lipkin called me and said, “I need an advertising agency.”
I said, “No, you don’t. George Opperman [who worked for Atari] is doing very well.”
He said, “No, not for the trade magazines. I need advertising for the general public.”
I said, “For heaven’s sakes, why?”
He said, “Because Nolan has come up with a device that you can plug into your home TV set that will play video games.”
I said, “You’re kidding.”
He said, “No.” They made a deal with Sears Roebuck, and home video was born.
—Eddie Adlum
A New Phase
In 1975, Atari released a consumer version of Pong and became the first company to make both arcade and consumer products.
Throughout Atari’s early years, Nolan Bushnell constantly pushed his engineers to come up with a product that could expand his business. In 1974 an engineer named Harold Lee proposed a device that could do just that—a home version of Pong that could be attached to a television. Nolan Bushnell immediately recognized Lee’s home unit as a logical next move for Atari.
Lee’s timing could not have been better. The Magnavox Odyssey was now more than three years old and nearing the end of its retail life. Magnavox executives had committed two grave errors in marketing Odyssey: They allowed only Magnavox-exclusive dealers to sell the system, and their advertising suggested that Odyssey worked only on Magnavox televisions. Approximately 85,000 Odysseys were sold in the first year, and only 100,000 Odyssey systems were sold over the product’s two-year life.
Alcorn and Lee, who worked together on Home Pong, decided to use the same basic digital technology used in Atari’s coin-operated games. (Odyssey used much older analog architecture.)
I hunkered down and worked with a guy named Harold Lee on the chip prototype. He designed the logic in the daytime, and he would give me a logic design that my wife would wire-wrap at home in the evenings and I would debug. I would give the corrected design to Harold and he would lay out the chip on the design computer at night to save money.
—Al Alcorn
Once the design was approved, Alcorn, Lee, and an engineer named Bob Brown constructed a working prototype. Originally code-named Darlene, after an attractive employee, the finished product was called Home Pong.
With the price of digital circuits constantly dropping, Atari’s digital home console ended up costing far less to manufacture than Odyssey. Home Pong had a sleeker cabinet and created sharper-looking images on television screens. Since it had Alcorn’s segmented paddle design, it only required one knob per player. Odyssey used an extra knob for adding spin to the ball.
On the other hand, Home Pong played only one game—ping-pong. Despite its weaknesses, Odyssey could play twelve games.
The finished prototype was attached to a wooden pedestal that contained hundreds of wires. Alcorn and Lee had designed a chip that could replace the wires, but until the first prototype of the chip could be tested, the console could be built only with wire connections. Bushnell placed an order for chips, without even stopping to decide how to market Home Pong.
Breaking into Sears
In the fall of 1974, the first prototype of the Home Pong chip was delivered from the foundry. Alcorn and Lee carefully plugged it in and turned on the console. When they switched on the power, the game came to life. At that time, the chip in Home Pong was the highest performance-integrated circuit ever used in a consumer product. Alcorn ran to get Bushnell, and the design team celebrated.
The next day Bushnell and Gene Lipkin began approaching retailers about Home Pong. In later interviews Bushnell described being turned down by several toy stores. He says he got the same response from electronics stores. Electronics buyers, remembering that Magnavox had sold only 100,000 Odysseys, asserted that consumers weren’t interested in television games. Toy-store buyers said that the asking price, $100, was too expensive. One buyer told Bushnell that his stores carried nothing that cost more than $29 unless it was a bicycle.
Lipkin didn’t give up. He decided to approach department stores with Home Pong. Since Sears Roebuck was the biggest chain at the time, he started there. The buyers from the toy and electronics departments turned him down. As a last attempt, someone looked through the Sears catalog and noticed that the sporting goods department advertised Odyssey. Lipkin asked the operator to connect him to sporting goods.
The guy [Tom Quinn] had done really well the year before on ping-pong tables. In the winter, Sporting Goods would sell some hockey equipment and a few basketballs and that was about it. To make his Christmas numbers, the Sears buyer was focusing on ping-pong tables and pool tables, and he thought consumer Pong might be just the thing for the family rec room.
—Nolan Bushnell
We talked to Tom Quinn and said, “Remember the Magnavox Odyssey? We got a better version. Would you be interested?”
He said, “Sounds interesting. Next time I’m in California I’ll stop in and see you.”
Three days later he was on our doorstep at 8:00 A.M. Now, none of us were there at eight o’clock, but he was. He was very excited about the prospect of this thing and proceeded to try to get an exclusive.
We said, “No, we’re too smart for that. We don’t want an exclusive with Sears. It could be very dangerous.”
—Al Alcorn
Seeing Quinn’s enthusiasm, Atari’s executive team decided against signing an exclusive contract. Still convinced that the toy industry offered the best channel for selling Home Pong, Atari ran a booth at the January 1975 Toy Show in New York City.
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 pres
sure 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.
The Wizard of the Valley
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.