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The computer game

		When: 1971
		Where: USA
		Why: It created an entirely new market that is now worth billions of dollars
		How: Computer Space was the first commercially sold coin-operated video game and was released by little-known firm Nutting Associates. The game's creators founded Atari, Inc a year later
		Who: Nolan Bushnell and Ted Dabney
		Fact: The average gamer spends 18 hours a week playing video games

Computers were originally developed to automate repetitive administrative tasks. But the people who built and wrote programs for them quickly realised that they were also extremely good for enhancing their leisure-time pursuits. Initially played almost exclusively by boys and young men, games have grown steadily and spectacularly into a mass-market leisure activity now enjoyed by men and women of all ages. Such is its position now that the video gaming industry has revenue greater than the film industry, and around 1.2 billion now play games around the world.

The background

The computer games industry truly began in 1971 with the debut of the first commercially available game, though there were some rudimentary games available for main-frame computers before then. The world's first commercial computer game, a space combat simulator called Computer Space, was produced by Mountain View, California-based Nutting Associates, a producer of mechanical coin-operated games for arcades. The game enjoyed only very modest success and its creators, Nolan Bushnell and Ted Dabney, left Nutting Associates after falling out with its owner over equity in the company.

Atari founders (from left to right) Ted Dabney and Nolan Bushnell with Larry Emmons and Al Alcorn.

Convinced of the commercial potential of this new entertainment medium, Bushnell and Dabney founded their own company – Atari, Inc in 1972. Atari's first game was actually a test for a new member of staff Bushnell and Dabney had hired. They liked it so much that they decided to launch it as their first product – the now legendary coin-operated arcade game Pong. This tennis simulator was simple to understand and play – the only controls in the original arcade version are two knobs to move the paddle. It quickly captured the public's imagination. Regulars at the Silicon Valley bar where the prototype machine was installed queued outside to play and quickly broke it, filling it with so many coins that it shorted out. Atari went on to sell more than 19,000 Pong cabinets and spawned numerous competitors, giving birth to the modern computer games industry.

The world's first commercial computer game, a space combat simulator called Computer Space, was produced by ... Nutting Associates, a producer of mechanical coin-operated games for arcades.

Atari grew rapidly, and very profitably. Bushnell bought out Dabney's share of Atari and Dabney returned to repairing pinball machines, his role before video games. In 1977 Atari wanted to launch a small console that people could plug into their television sets to play video games in their homes. Needing more capital to launch this effectively, Atari was sold to Warner Communications. The console, named the Atari Video Computer System, was launched in 1977 and became so successful that at its peak Atari was the fastest-growing corporation in the USA.

Meanwhile Bushnell and Dabney's previous employer had hit hard times. The visionary Nutting Associates went the way so many first movers do –out of business.

One of the new companies set up to compete with Atari after Pong's early success was Taito, formed in Japan in 1973 by Russian immigrant Michael Kogan. In 1978 it launched a ground-breaking game designed by Toshihero Nishikado. Space Invaders tasked players with defending the Earth against endless waves of aliens, armed with a laser cannon. The game was an instant hit in its native Japan – according to popular legend, the Japanese government was forced to mint more 100-yen coins to cope with a shortage caused by so many people playing the game. By 1980, there were 300,000 machines in the country and a further 60,000 in the USA.

If some of Pong's success can be explained by its two-player mode, pitting one human player against another, one of the reasons why Space Invaders became a global phenomenon – quite apart from its exciting and innovative gameplay – was its high-score screen, compelling players to keep playing to top the leader board.

Commercial Impact

Keep playing they did. Space Invaders generated an estimated $500m in profit for Taito by 2007, making it the most successful video arcade game of all time. It also ushered in a golden age of gaming – thanks to the popularity of games such as Asteroids, Frogger, Donkey Kong and Pac Man (one of the first games with cross-gender appeal, bringing females to the previously male-dominated arcades), the industry generated $11.8bn in North America in 1982, more than the annual revenue of its film and pop music sectors combined.

Video games grew rapidly alongside the expanding home computing market. In the 1980s, gaming moved out of the arcades and into the home, thanks to the popularity of the early consoles such as the Atari 2600 and its progeny such as the Nintendo Entertainment System, and the Sega Master System, as well as home computers such as early Tandy and Apple machines and Commodore's Vic 20 and Sinclair's ZX Spectrum computers. By 1984, home gaming had surpassed the arcade in revenues.

This era was a golden age of video games, spawning not only many classics but also new genres.

The massive growth in home computing turned what had been a hobby and a cottage industry in the 1970s into a fully fledged business in the 1980s, with numerous dedicated software and hardware companies springing up to provide new games and accessories for this burgeoning market. Electronic Arts, one of the world's largest and most successful computer game software publishers, was set up in 1982. This era was a golden age of video games, spawning not only many classics but also new genres. The Legend of Zelda helped to define the action-adventure; Kung-Fu Master the side-scrolling beat 'em up; Elite the space flight simulator/trading game set in a huge universe; and Rogue, Akalabeth and Ultima, the role-playing game. Many of these games involve puzzle solving and are entirely peaceful, in stark contrast to the much-perpetuated image that all computer games are violent. These new genres broadened the appeal of the sector to many more people, fuelling further growth.

What happened next?

The technology enabling video games developed incredibly fast, advancing notably every year. This led to a series of booms and busts throughout the 1980s, 1990s and 2000s, frequently resulting in different manufacturers leading the market with every new generation of console or computer. Home-computing pioneer Commodore went out of business, while Atari eventually ceased selling consoles or computers and was eventually sold for just $5m for its brand names. Nintendo emerged as a market leader by introducing a different sort of controller instead of the traditional joystick, and by selling its consoles very cheaply and instead making its money from the games the new console owners went on to buy. Sega, initially a major arcade game producer and briefly a leading console manufacturer, now focuses on developing games, leaving Nintendo and relatively recent entrants Sony and Microsoft to compete for new console sales.

Nintendo emerged as a market leader ... by selling its consoles very cheaply and instead making its money from the games the new console owners went on to buy.

Developing software has proved similarly risky, with the majority of games losing money and publishers relying on earning more from their few hits than they lose on the misses. Typically, as with hardware manufacturers, the leading software developers for one generation of computing technology have hit financial difficulty when a new generation of hardware launches, giving rise to new market leaders. Electronic Arts is almost unique in having managed to stay at the top almost ever since its launch; its revenues in fiscal year 2011 were $3.6bn. Today, top games for PCs or consoles cost tens of millions of dollars to develop and sell millions of copies each, generating hundreds of millions of dollars in revenue.

But these games that sell in the millions are dwarfed in terms of ubiquity by Solitaire and Minesweeper on Windows-based PCs, and much more recently by games played on smartphones or over the internet. Angry Birds has now been downloaded an incredible 300 million times, earning a fortune for its developer, the Finnish company Rovio Mobile; Farmville and other Facebook games created by developer Zynga are played by 270 million people; and more than 10 million people pay $10 every month to play World of Warcraft, the massive multiplayer online role playing game published by Activision Blizzard, Inc.

Clearly, video gaming has developed into a very substantial business. In 2011, revenue for video and computer gaming will be more than $74bn. Some estimate that this could rise to $112bn by 2015, with most of that growth coming from casual games.

Meanwhile it is fitting that Nolan Bushnell is still involved. Having founded 20 companies since Atari, at the time of writing he is running Anti-Aging Games, which produces games scientifically developed to stimulate the brain.