Sitting in a Kiddie Seat

images AL ALCORN

“I think I really did it this time,” Nolan Bushnell told Al Alcorn. It was a few weeks before Christmas 1978, and the old friends were sharing a drink in the bar of a New York hotel. The expensive libations, the polished mahogany and brass along the bar, and the twenty-four-hour room service and beds so comfortable they swallowed a man like sleep itself—Alcorn knew that Bushnell had grown accustomed to it all. Gone was the wide-eyed Utah boy who could be wowed by a ride on a private jet. Bushnell had his own plane now (as did Alcorn, Keenan, and a number of other early Atari employees). Bushnell’s house was as nice as this hotel.

Alcorn had spent the day at an event introducing Atari’s personal computers and proprietary software that included games as well as tax preparation and record-keeping programs. The marketing for the computers, called the Atari 400 and 800, took a direct lunge at Apple’s customers, featuring a brochure striped in a rainbow pattern reminiscent of the Apple logo and emblazoned with the phrase “Computers for People.” Atari computers, an official press release noted, were “a natural evolution of Atari’s technological expertise, planning, and ongoing consumer research.”1

Bushnell had been across town at a budget meeting with Manny Gerard and other top Warner executives. He and Alcorn had connected at the bar at the end of the day.

Bushnell took a deep swallow. “After that meeting, I think they are going to fire me,” he said.2

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The meeting agenda had been standard enough: Finalize Atari’s 1979 budget. Over the past three weeks, divisions throughout Warner had met with members of the office of the president, as well as CEO and chairman Steve Ross. Typically, the head of each division presented a budget that was then discussed in an open forum around the conference table in the main boardroom at Warner’s Rockefeller Center headquarters. Surprises were unusual. The division’s staff had agreed on the budget in advance, and the Warner leadership took a loose approach, asking questions but allowing the division heads to take the lead.

Something different had happened when Bushnell unfolded his six-foot, four-inch frame from his leather chair and started to speak. As he told Alcorn, “I began calling them dumb shits.”3

The friction between the leaders of Atari and Warner had begun almost at the moment the acquisition papers were signed. Shortly after, Bushnell had taken a much-needed vacation, and then another. He had remarried. He had bought a 13,000-square-foot, thirty-seven-room mansion on sixteen acres in the foothills of the Santa Cruz Mountains—previous owners included the Folger family, of the eponymous coffee companyXI—and begun remodeling projects.4 Bushnell’s absences had become problematic enough that other employees would joke about them. Often Joe Keenan, the president of Atari, would be gone, too. “After we sold the company we were significantly less motivated to bust our humps,” Keenan admitted.5

Meanwhile, the microprocessor-based cartridge game once code-named Stella and now called the VCS was not proving the “fucking huge” success that Warner’s Manny Gerard had hoped. In the first year, chip suppliers could not meet delivery schedules. The next year, the supply side was under control, but 300,000 game systems went unsold. At the same time, competitors caught up to Atari and began selling their own cartridge systems.6 Warner had invested some $120 million in Atari, and still the division was losing money.7

Gerard decided to hire an executive consultant to spend six months at Atari and recommend changes. He says, “It was time for some adult supervision.”8 That’s when the problems really started.

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The consultant, Ray Kassar, had spent twenty-eight years at Burlington Industries, one of the fifty largest companies in the country. He had run Burlington’s sizable home furnishing division, which he preferred to call “home fashions.”9 Recently passed over for the chairmanship of the company, he had accepted the Atari consulting job mostly for the guaranteed income.10 He had never played a video game and, as a lifelong easterner, had no desire to live long term in California.

But Kassar knew how to sell into the living rooms that Warner hoped one day would have a VCS game system connected to every television. At Burlington, he had helped convince people throughout the United States to make redecorating and updating their homes an ongoing activity.

Near the end of his consultancy, Kassar reported back to Warner that the Atari subsidiary was a mess. Under Bushnell and Keenan’s leadership, he said, Atari “wasn’t about the business, the quality of the product, the returns, the advertising, the marketing—none of those things.”11 He recommended a return to business basics, coupled with the right marketing and advertising push for the VCS system. With such changes, Kassar believed, the Atari division as successful as Gerard had hoped.

Kassar’s recommendations could not have deviated further from Bushnell’s vision for Atari. Bushnell believed that “Atari’s reason for everything it did was innovation.”12 That priority came from Bushnell’s experience with arcade games that were popular for only a few months. To stay profitable and ahead of copycats, he was always eager to try a new idea from Atari engineers. “An engineer doesn’t always come in a body that can talk,” he once explained. “But they’re not shitheads. You’ve got to have enough faith in them to say, ‘I don’t know what you’re talking about; here’s some money, go show me.’ ”13 When the engineers said that they could develop a better version of the VCS video game cartridge system—Super Stella—Bushnell was happy to let them try, even if the original VCS was not selling well. If they said they could build more powerful computers than the ones Atari was selling, he told them to get to work.14 His encouragement was a powerful motivator, particularly in tandem with Alcorn and Bristow’s insistence that only the most promising ideas be pursued.

Bushnell had expansive plans for Atari. He wanted to open restaurants with arcade games and use animatronic actors, like those in Walt Disney World’s Hall of Presidents, to entertain kids waiting for dinner. Bushnell had even come up with a mascot for the restaurants, a large rat called Ricky. He kept the Ricky Rat costume in his office.

Ray Kassar came from a different background and thought differently about business. The home furnishings market did not hinge on developing new products. A towel or bed does not change much from one year to the next. Instead, he had succeeded by selling old products in new ways. Bushnell’s near-compulsive pursuit of the next great new idea, in Kassar’s opinion, was misguided. He felt that Atari needed to spend the money to market the products it already had, especially the VCS game system.

Bushnell, who claims that Kassar or another representative from Warner once told him to “innovate kind of like you did last year—none of this new stuff,”15 also had a financial incentive to pursue the development of new products over the marketing of old ones. He and Alcorn, along with a few top Atari employees, participated in a bonus plan that entitled them, as a group, to 15 percent of Atari’s profits.X

The struggle between Bushnell and Kassar was a generational clash between one of the newest industries in the world—semiconductor-based electronics—and one of the oldest: textiles. It was also a regional battle. Bushnell had spent his life in the West; Kassar had spent his in New York, Rhode Island, and Massachusetts. As Kassar explained, “We’re all more serious in the East. You have a job and you do it the best you can and, you know, it’s not a playground.”16 Bushnell’s description of work at Atari is rather different: “You didn’t worry that much about legal liability, people getting drunk. Almost everybody went home with everybody else. Sexual harassment, or things like that, wasn’t an issue.”17

Bushnell hosted naked hot tub parties, loved to tweak authority, and, according to Kassar, once wore a T-shirt emblazoned “I Love to Fuck” to the office. Kassar enjoyed antiquing and claimed to have secured both a job at Burlington Industries and a scholarship to the Harvard Business School after charming the heads of each organization in a single holiday weekend.IX Perhaps inspired by the silk business his family had owned in Syria, Kassar felt best in a beautifully tailored suit.18

By the 1978 meeting that Bushnell said might get him fired, the budget, likely reflecting Kassar’s influence, called for Warner to invest millions of dollars in advertising the VCS. Bushnell’s objections to the plan were at the heart of his “shitheads” speech at the meeting, though what precisely he said is a matter of debate. Gerard says that Bushnell told Ross, “Sell off your inventory; it’s all over for the 2600,” a prediction for the VCS game system (commonly nicknamed “the 2600”) that proved wrong. Bushnell claims that he told Warner to drop the price of the console, not to abandon it.19 Keenan further recalls Bushnell telling Warner that the computer effort was doomed without a $600 million investment, a warning that proved prophetic. Gerard has no such recollection. Bushnell also objected to some of Warner’s plans for Atari’s small pinball division and wanted to spend more on product development.20

Whatever the specific areas of friction, there was only one question in the end. Who would control Atari, Bushnell or a Kassar-like executive chosen by Warner?

Three days after Christmas 1978, Bushnell had his answer. Warner assigned him to “other duties within Atari.”21

A week later, Warner announced that Atari had a new president and CEO: Ray Kassar.22

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By any metric used on Wall Street, Kassar did a fabulous job in his first years at Atari. The company that was losing money when he arrived in 1978 accounted for nearly two-thirds of Warner’s $227 million profit three years later.VIII Kassar’s decision to boost advertising budgets helped fuel that growth, as did his critical move to sell video games not only at Christmas but year-round. In 1980 and 1981, Kassar received $10 million in bonuses as well as Warner-covered rent on a luxury apartment in New York’s Trump Tower.23

Though Atari’s coin-operated arcade games also did well (thanks in large measure to Asteroids, which shipped 70,000 units in 1980 alone), the biggest profits came from the VCS cartridge system and its twenty-seven games—particularly Space Invaders. Each cartridge sold for roughly $30, with an 89 percent gross margin for Atari, according to Gerard.24 The VCS accounted for almost a quarter-billion dollars’ worth of sales in 1981.25 A few other companies, most prominently Mattel, made cartridge systems to compete with the VCS, but 80 percent of the 4 million video game systems in American homes in 1981 were made by Atari.26

Within Silicon Valley, Atari, which had grown to nearly ten thousand employees and fifty buildings, became a prestigious employer for computer programmers and game designers.27 Saying you wrote games for Atari, one programmer noted, “didn’t get you laid, but it was seen as cool.”28 Programmers had complete control over every aspect of a game, from design and rules to graphics and sound effects. Some programmers started developing the games on paper before typing code into the hexadecimal language the VCS system could understand. To test the game, the programmer would load the code onto an eight-inch floppy disc and carry it into the main lab space for debugging on the development system that all the programmers shared.

The debugging process provided the first hint of a game’s potential popularity. Some games were so good that other programmers could not stay away. They would cluster around a screen in the main lab space, test-playing the game, offering suggestions and shortcuts. A really good game was one that the programmers insisted be restarted as soon as play had ended. “Self-modulating feedback,” one person called it. Every game was the product of an individual mind, refined by a team of players.

The work was creative and arduous. Programmers developed original ideas for games and also found inspiration while playing coin-op arcade games (some of the most popular cartridges were versions of arcade titles). Warren Robinett modeled the wildly popular Adventure game on a similar text-based game developed at Stanford’s Artificial Intelligence Laboratory, where several members of Bob Taylor’s Xerox PARC team had once worked.29

The unwritten expectation was that a game should go from concept to production in six months, a challenging task made no easier by the technical quirks of programming for the Atari VCS. “It’s one of the most difficult hardware systems to write for that I’ve ever seen,” says Howard Scott Warshaw, who programmed the Raiders of the Lost Ark and E.T. the Extra-Terrestrial cartridges. “To program a game on it was a game in and of itself.”30 Changing something on the screen required rewriting the code to redraw the entire screen. The technical limitations of the VCS that were beginning to cramp graphics and complexity also led to creative programming.31

“I lived inside these games while I was working on them,” says Carla Meninsky, who programmed Dodge ’Em and Warlords and was one of the only women programmers at Atari. “People would be sleeping on their desks, under their computers, on the floor. These were your friends. You lived with these people.

“The light changed outside, but nothing changed inside.”32

To deal with the pressure, the programmers ran pranks, from floating a frog-shaped balloon over the building to stealing the sign from the Apple facility nearby. When Warshaw was writing the Raiders of the Lost Ark cartridge, he sported a beat-up hat and carried a whip around the office. Programmers wore jeans and T-shirts and worked long, odd hours, shoving doorstops under their doors from the inside so they could sleep without interruption. An MRB—“marijuana review board”—committee was “very much part of the creative process” and met on the roof when its members felt the need. One designer took to climbing the walls of a particularly narrow corridor. Pressing one foot against each wall, he would scooch himself up several feet above the ground and then begin scooting toward the other end of the corridor. He once clocked his head on a ceiling-mounted smoke detector.33

If the game developers’ offices retained elements of the old free-spirited Atari, other areas changed after Ray Kassar became CEO. Kassar, who had moved to San Francisco and was chauffeured to Silicon Valley every day, installed a formal executive dining room with waiters in black tie.34 The programmers derided the CEO and his business-focused executives as empty-headed “beautiful people” who had never played a video game, much less loved one. Even outsiders began to wonder if Atari had “too many pinstripes and not enough flannel shirts and long hair.”35 “Marketing thought the programmers were lazy; the programmers thought marketing was stupid,” says one programmer. “We didn’t like them; they didn’t like us.”36 A product manager hired in 1981 says that he, like many of his colleagues “on the staff side,” had never played a video game. When asked about the engineers, he said, “I didn’t deal too much with those people.”37 Tensions ran so high that some employees refused to speak to others and would send memos via overnight mail—even if the recipient sat in the next cubicle over.

Al Alcorn watched with mounting dismay as the antagonism between engineering and marketing, techies and suits, led several important early employees to leave. When two of the three division heads at Atari quit, Kassar hired a paper products marketing executive from American Can Company to run the computer division and a vice president at a perfume maker to run the home video game division.38 A few months after Bushnell was removed from the presidency, Joe Keenan, Bushnell’s onetime co-CEO, left as well.VII

Bushnell had paid Warner for the rights to his ideas about a restaurant with arcade games. With Keenan’s help and financing from Don Valentine, Bushnell launched a line of Pizza Time Theatre restaurants, with Ricky Rat, now called Chuck E. Cheese, as mascot. A few months later, Joe Decuir, an instrumental member of the engineering team for both the VCS and Atari’s computers, left to launch his own engineering company.

Next to go, still within a few months of Kassar’s hiring, were four of Atari’s top VCS programmers. Among them, David Crane, Larry Kaplan, Al Miller, and Bob Whitehead had written some of the cartridge system’s most popular titles; by Crane’s estimate, their cartridges accounted for 60 percent of all cartridge sales and at least $50 million of Atari’s sales in 1979. The four men had also helped write the operating system for Atari’s computers. Their combined annual salaries were less than $200,000.

The programmers had asked Ray Kassar for a pay raise or a bonus, as well as recognition as the games’ authors on the cartridges. (Already some designers had taken to hiding their initials as “Easter eggs” in secret rooms that players could discover in the games themselves.) Kassar allegedly responded that the game programmer was no more essential to the company’s success than was the line worker who put the cartridge in a box.39

The group of four programmers decided to leave, but they had no idea how to start their own company. They asked Joe Decuir, recently of Atari himself, how he had launched his engineering consultancy. He sent them to Larry Sonsini, the young attorney who had handled the Tymshare IPO and soon would begin working on Genentech’s. Sonsini, who continued to counsel the programmers, also introduced them to the venture capitalist Bill Draper, of Sutter Hill Ventures.VI Draper agreed to invest after he took home a copy of a bridge game and found the experience of playing it “magical.”40

With Sonsini and Draper’s help, the four programmers launched a company called Activision. Soon Activision was publishing game cartridges compatible with the VCS (and later with competitors’ systems as well) and fighting off a lawsuit by Atari alleging theft of trade secrets. Activision profiled its programmers in the manuals that came with its cartridges and would go on to create a number of bestselling games, including Kaboom!, Pitfall!, and River Raid.V Today Activision, in a different incarnation, is best known for its Call of Duty and World of Warcraft game series; the company’s 2016 market capitalization was $30 billion.

In 1981, Atari’s marketing vice president and a group of programmers, including the creators of Asteroids and the Space Invaders cartridge, started yet another competitor, Imagic.41

Since nearly all of Atari’s profits on the VCS system came from the cartridges, the company could not afford to have its programmers become competitors. Within weeks of the Activision team’s departure, Atari began offering programmers a bonus of roughly $10,000 for each title. That bonus was on top of salaries starting at about $20,000, a figure that programmer Carla Meninsky recalls felt like an enormous sum when she first applied at Atari, so absurd that she practiced saying “twenty thousand dollars” in front of her bedroom mirror so she could request it with a straight face at her hiring interview.42 Salaries and bonuses for experienced programmers could go much higher. Despite these efforts to encourage game designers’ productivity, the number of cartridges released by Atari dropped by half the year after the Activision founders left.43

Even with the higher pay, many on the engineering side felt that Kassar and the managers he hired did not appreciate their ideas or their work. Kassar gave an interview in which he called the technical minds behind the games “superstars” but also “high-strung prima donnas.” Many programmers felt the jab was a closer approximation of Kassar’s real feelings.44

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Alcorn understood why people he admired left Atari. Every week he and several other senior technical employees met with Kassar. Initially happy to participate, Alcorn realized after a few meetings that nothing came of them. Kassar would nod his head and even authorize people to start research, but no project ever seemed to move beyond a prototype.

“It was like sitting in a kiddie seat in the back of the car, turning a toy steering wheel,” Alcorn said.45 Kassar was willing to give his most senior and technically knowledgeable employees an illusion of influence, but he wanted them in the back seat playing with their toys while he figured out where to take the company. The technical team had a private name for their sessions with Kassar: the “limp-dick meetings.”46

Alcorn resolved to earn Kassar’s respect through technical ingenuity. With Bushnell no longer around to goad him into trying things that seemed impossible, he photocopied a list of “Idea Killers” to avoid: “Too radical.” “Contrary to policy.” “It won’t work.” “The boss won’t like it.” “What’s the potential profit?” “Can you guarantee that it will work?” He kept the list, which opened with neurosurgery pioneer Wilfred Trotter’s warning that “we have begun to argue against a new idea even before it has been completely stated,” with his most important work papers.47

At a meeting in 1980, Alcorn proposed that Atari build a cartridge-type system like the VCS—but the games would include three-dimensional holograms. Holograms were an exciting prospect at the time. In the blockbuster 1977 movie Star Wars: A New Hope, the droid R2-D2 projects a three-dimensional hologram of Princess Leia asking for help, and two characters play Holochess, in which three-dimensional chess figures hover over a circular chessboard.48

Alcorn was less interested in reproducing Star Wars fantasies than in an excuse to research holographic technology, which he thought looked “hard” and “fun,” with “technical challenges that were just fabulous.”49 Of course, he provided a different justification to Kassar, who measured success in dollars, not technical accomplishment. He said that the hologram-enhanced game system could sell for perhaps half the price of the VCS system and thereby open a new market for Atari.IV

Kassar told Alcorn to talk to marketing. The marketing manager told him to write a business plan.

“We didn’t need a business plan for Pong or the VCS,” Alcorn replied.

He needed one now.50

Once marketing approved Alcorn’s plan, he began assembling a team. Several of the people he recruited told him that no matter how good the product was, Kassar would never release it. Kassar cared only about the VCS, they said.

Alcorn was unconcerned. “I’m Al Alcorn,” he reminded them. His work had helped launch the company in 1972 and save it in 1975. That had to be worth something.

It took only a few months for his team to develop a prototype of the holographic game system. Called Cosmos, it was about the size of a thick paperback book, with its own tiny screen. Cosmos could play eight cartridge games, each of which loaded a hologram into the system to serve as a backdrop with the illusion of three-dimensional playing fields. In the Super-Man game, for example, Superman flew past and between buildings that seemed to pop out from the screen slightly. Cosmos was no Star Wars Holochess, but Adweek called the game system “the most dramatic technical video development since color TV.”51

Alcorn took the prototype to the 1981 Consumer Electronics Show and says he received some eight thousand orders for the system. Atari’s marketing vice president told the press that Atari had budgeted “in excess of $1 million” for the Cosmos introduction.52

When Alcorn returned to Atari and reported on this progress at the next meeting with Kassar, the CEO seemed unimpressed. “He sat there with his lips pursed together,” Alcorn says. “Then, after a minute, he just shook his head.”

Atari never sold the Cosmos game.III Alcorn saw Kassar’s decision as proof of a cultural shift at Atari that he describes in four words: “All creativity had ceased!”53 The team behind the original VCS system had designed a follow-on system, but it was not released until the end of 1982, and many members of the technical staff were unhappy with it. Next-generation computing efforts met similar frustrations.II Steve Bristow, one of Atari’s most senior engineers, spent years on a networking project, complete with advanced telephone systems (some with video capability) that would combine voice and data and perhaps even make it possible for gamers to play against each other over the telephone lines. The system, called Atari-Tel, was announced but never released.54

Kassar was simultaneously afraid to say no to engineering and afraid to release a new product that was not as successful as the VCS. He allowed Atari engineers to pursue new ideas—but only to a certain point.

In Alcorn’s mind, the problem boiled down to risk aversion. “When we were young at Atari, every year we risked the whole company on new products. If the VCS had failed, or Home Pong had burned up, we’d have killed the company,” he says. Bristow concurs: “The thinking moved from ‘We don’t know what we can do, so let’s give it a try’ to ‘You need to prove why you need to do this new product.’ ” Decades later, Alcorn still cannot understand why, at a time when Atari’s revenues were so high that it would have made no discernible difference to the bottom line if the Cosmos hologram system failed, Kassar was unwilling to risk its release. Kassar and the rest of the Warner executive team, in Alcorn’s estimation, were paralyzed by “the fear of failure”: “They weren’t Silicon Valley, they weren’t start-up guys, they were not risk takers—so nothing came out!”55

Even more important than Kassar’s East Coast roots, however, was his lack of technical background. He was a marketing expert who believed, correctly, that much of the success of the VCS had come from the marketing push behind it. He somehow failed to recognize that Atari had a product to market only because its engineers had been given the freedom to develop it. Kassar seemingly had only one way to evaluate a new idea: he asked if it would make as much money as the VCS. That was a flawed metric, as Alcorn knew. No new product could, from the moment of its release, compete with the VCS, one of the most successful consumer electronic products of its decade. Moreover, no product is a hit forever; for evidence, Atari needed to look no farther than a few miles down the road. Around the time Alcorn was lobbying for the Cosmos game, 75 percent of Hewlett-Packard’s sales revenue came from products that had not existed five years earlier.56 No good comes to a consumer electronics company without follow-on ideas. As Alcorn likes to say, “If you don’t obsolete your own products, someone else will.”

After Kassar’s final dismissal of the Cosmos hologram game, Alcorn tried to follow up with a private conversation. It was impossible. “Been trying to contact [Kassar] by telephone for the last few days and have had very poor results,” he noted in a memo to himself. 57

The lack of response was itself a response. “They didn’t need me anymore,” he explains.

Alcorn, the onetime careful adventurer, no longer needed Bushnell to push him to pursue radical change. He quit.I


I. Alcorn took the same “on the beach” arrangement Bushnell and Keenan had taken in 1979: he officially remained an Atari employee but did no work for the company.

II. Although Atari’s computers initially sold relatively well, largely on the strength of the company’s superb reputation in video games, the machines’ appeal soon dwindled. Atari computers lacked expansion slots and suffered from a shortage of software as well as confused marketing that positioned them as a hybrid game system and personal computer.

III. Somewhere between 250 and 1,000 game systems had been at least partially built when the Cosmos project was killed; none was sold.

IV. Alcorn would lower the price by embedding the game software in the console itself, rather than in the cartridges (as with the VCS). A cartridge would contain only a hologram and a key that told the base unit which game to play.

V. Some Activision games overlapped with Atari’s offerings. Both companies offered Checkers, for example, and the competing programmers (Carol Shaw at Atari and Al Miller at Activision) unknowingly consulted with the same professor at Stanford, Arthur Samuel, who was working on a computer version of the game.

VI. Draper’s father cofounded Draper, Gaither & Anderson, the first venture capital firm in Silicon Valley to embrace the limited partnership model. Draper’s son, Tim Draper, is a founding partner at the venture capital firm Draper Fisher Jurvetson (DFJ).

VII. Bushnell and Keenan legally remained Warner employees. When Warner acquired Atari, the parent company reserved the right to remove key employees from authority but keep them on the payroll until 1983, seven years from the acquisition. While in this well-paid limbo—“on the beach” was the Warner term for it—Bushnell and Keenan could not work in any capacity that competed with Atari.

VIII. The figures are for the consumer electronics division, which was almost entirely Atari. Figures for 1982 were 50 percent of sales and 62 percent of profits.

IX. Kassar says he got his start after spending a holiday break at the Palm Beach villa owned by Spencer Love, the founder of Burlington, who also happened to be the father of Kassar’s roommate at Brown. The dean of the Harvard Business School was also a guest, and by the time Kassar returned to school, the tycoon had offered him a job and the dean had offered him a scholarship.

X. Bushnell says, “Warner would say, ‘Well, hey. We’re all in the same family.’ Bullshit. Our bonus program was set up on that [profit].”

XI. The Folger family had sold the estate after twenty-five-year-old Abigail Folger, granddaughter of the Folgers founder who had built the house, was murdered in Los Angeles by members of the Manson family in 1969.