Pong no more: Three lessons you can learn from Atari’s collapse

It’s the end of an era.

Atari, the videogame company responsible for popularising interactive entertainment in the home with Pong, has filed for Chapter 11 bankruptcy in the United States.

The company hasn’t made any substantial products for years, but the collapse represents a significant fall from grace for the business. In the 1970s and 80s Atari was on top of the videogame market, selling millions of pinball machines, arcade games and home consoles with annual sales of nearly $US2 billion.

The business even counted a young Steve Jobs as an employee, and popularised the idea of a casual workplace. Its impact on the entertainment market, and popular culture, has been massive.

But after a few decades of success with titles like Frogger and Space Invaders, the company began to see the end of the tunnel. With mounting competition, a huge amount of infighting and too many ownership swaps to count, Atari simply lost its relevance in a rapidly changing market.

“The good news for Atari was that Pong could be built in a garage shop,” founder Nolan Bushnell once said. “The bad news was that anyone else with a garage shop could build them, too.

Founded by Bushnell and Ted Dabney in 1972, the company’s first product – Pong – revolutionised the videogame industry and popularised the idea of playing games in the home.

The realistic nature of the game, at the time, proved enormously popular and made Atari into one of the most successful tech businesses on the planet, with game consoles such as the Atari 2600, a hugely successful product in the early 1980s.

But Atari’s history is filled with scandal and corporate failure. From the resignation of its frustrated founder, to the revenge story of employees who went and formed what is now one of the biggest videogame companies in the world, Atari’s history is full of potential – and disappointment.

Here are three business lessons you can learn from the collapse of Atari:

1. Treat your people well

Here’s a nice revenge story. When Atari was under the control of Warner in the late 1980s, its games started becoming more popular. At the time, games were published by the companies which made them, and not the individual developers. This meant developers weren’t given any extra money if the games sold well.

A group of employees were frustrated by this arrangement. They met with Atari chief executive Ray Kassar in 1979 to negotiate a new way of paying developers, with royalties and their names on game boxes.

In the meeting, Kassar said the four developers were “towel designers” and said “anyone” could make a game. The four employees left and started Activision in 1979.

Activision is now one of the biggest videogame companies in the world, with several billion in revenue. The lesson is obvious – don’t treat your employees like they don’t matter.

Atari became complacent and treated its employees like assembly workers. Never underestimate what actually makes your company run – the talent you hire. Treat them right, and you’ll reward each other.

2. Too many cooks

Atari started with a singular vision to make games people would love. But the sheer number of ownership changes introduced too many competing motives.

The company was first sold to Warner for a reported $28-32 million. This is when founder Nolan Bushnell started having disagreements about the way the company should be run – he left after being forced out in 1978, saying “we started fighting like cats and dogs”.

Over time, the company has been sold and sold again to businesses such as Tramiel, Hasbro and currently Infogrames. The business has continued to record substantial losses during the 2000s as a division of Infogrames, leading to its bankruptcy announcement this week.

This legacy is far from what Nolan Bushnell sought in the 1970s. Selling your company is a decision which shouldn’t be taken lightly – it can lead to a change of ownership which may ruin everything you’ve worked for if you don’t pick the right partners.

3. Never slow down your innovation

The videogame market crashed in the early 1980s after too many companies tried to make knock-offs of popular Atari games. Companies collapsed left and right, and price plummeted. Atari’s owner, Warner Communications, lost $US500 million in value.

While Atari survived, it never was able to catch up to the popularity of home computers. The company dabbled in making portable computing, but lost that battle to Nintendo.

The company never made innovation as big a priority, and with frustrated employees already leaving the business, Atari wasn’t able to catch up. The result is a business which was swapped around for a fraction of its original price.

Tech businesses understand innovation is critical. Putting resources into your R&D is never a mistake – unlike Atari, business owners need to focus on how they’ll continue generating revenue in years to come.