The REAL Apocalypse...the Console Crash 30th Anniversary

ET Go Home. And Don't Come Back.
Well, it's almost 2013 and thankfully the Mayans were wrong...or maybe someone just screwed up the calendar conversion. As I look forward to 2013, I am actually remembering a time almost 30 years ago, when an Apocalypse really did occur and a certain set of circumstances got a very young, then hair abundant Borys interested in business and technology...not because of any great success, but because of the exact opposite - a disaster that cost many individuals and companies astronomical sums and served as a brutal illustration about the realities of some business basics.

To those of you who are old enough to remember, I speak of the Great Console Gaming Crash of 1983/1984 - the consoles who were the forefathers of the PS3, Wii and Xbox 360. This was hinted at in an article I read, about how the toymakers Mattel and Hasbro fear the rise of the iPad/tablet market and its impact on traditional toys.

Toymakers Tremble as Tots Turn to Tablets

It may be 30 years, but what happened back then is still a lesson for us now.

And to a kid who actually followed the news closely on this back when Thriller was at the top of the charts, it was a scary lesson that the bright, wonderful world of technology that I was dabbling my toes in was not a perpetual licence to print money, and that what others did could have an impact on me no matter how right or smart I may have been (OK, OK..."thought I was").

A little background. Back in the very early 1980s, the golden age of console gaming was in full swing: the Space Invaders craze of 1978 had launched an entire industry of arcades that spawned attempts to replicate the experience at home, new developers were jumping into the sector with venture capital money that was not going to be seen for another 15 years (yep, the ultimate warning sign - will we ever learn?), Pac-Man was taking off, the Atari 2600 reigned supreme and every company in America that had more than 5 people seemed to have a console gaming division.

And then, starting in 1983, this world blew up. How bad? In 1982, the total revenue of console gaming in the US was about $3.0 billion.

By 1985, it was barely over $100 million.

And unlike many other cataclysmic business events, this was not triggered by a war or by a sudden introduction of new technology (though this did play a part), but by a combination of events that some toy making executives need to be mindful of.

Let's take a look at the key reasons for the downturn.

1) Console Saturation
Firstly, there were simply too many players in console gaming by mid 1983: Atari, Coleco, Mattel, Vectrex, Magnavox, Balley and Emerson were just a few of the companies that had consoles out - and forget about cartridge compatibility. Consumers naturally became confused and many held off purchasing units until they got an idea of the standards that would dominate. And add to that there being no easy way to get opinions on which was the best console - you couldn't go online and find out for yourself what the world was thinking...(well, actually, 1983 was the year when ARPANET came into being, but it was a very limited system).

2) Awful high profile games
After a few fine titles, the inevitable happened and people who had no idea started to think they did...and people who should have known better didn't. Case in point, the ET game for the Atari 2600. With the ET movie, 1982 saw a mega film that not just smashed box office records, but was one of the first real examples of combined product placement and spinoff marketing.

Warner was convinced. They paid almost $25 million for the game licensing rights in 1982, a mind bending sum back then.

And they spent a grand total of 6 weeks developing it to get it out for the Christmas 1982 shopping season. And this was before anyone knew about Agile or Lean Software development.

The result was inevitable. To say this game sucked is insulting to the word "sucked". Even if could use every combination of 4 letter words in the book for a dozen pages it would not come near to describing how horrid this game was. The gameplay was ridiculous and graphics were mediocre even for the time. Whilst at least it wasn't too buggy, this had the effect of making you realize someone actually thought the whole concept was a viable product.

And then came other games that insulted consumers: PacMan for the 2600 was also rushed, and was a far cry from colorful, funky play of the arcades.

These two games butchered consumer confidence in Atari.

But other consoles would also suffer: many titles were released by studios and fly by night 3P developers too quickly; they had stability issues in addition to mediocre gameplay - and some went beyond that, being little more than ads for various companies who knew nothing about games - anyone recall Kool Aid Man and Chase the Chuck Wagon?

Consumers were rightly offended.

3) PC Competition
Interestingly, many individuals today think that all the consumer high tech sector suffered through this period - far from it: the PC industry actually thrived fairly well.

By the end of 1982, the Vic-20, Commodore 64, the Texas Instruments 99/4A, the Atari 400 and 800 were all dropping in price and the marketers hit a stroke of genius: appeal to parental responsibility and kids desire for the 'best'. With the possibility of gaming and learning from the one console, parents began to see advantages in spending a little more to gain the flexibility of  playing and teaching kids about the basics of word processing and accounting (though trying to get kids to do anything other than play games proved quite challenging for he vast majority of parents). Next, the more advanced hardware of the PCs compared to the consoles meant for a better gaming experience. Finally, the comparative standardization of media and formats of the computers meant games could be copied far more easily than on consoles, making a long term PC ownership proposition for serious gamers cheaper than a console.

4) Retail Stores confusion
With the console saturation came retailers who didn't have enough shelf space for all of the consoles and cartridges and who were hardly gaming experts, leading to further dismay among consumers.

5) The Other Straws...
The camel that was the industry also suffered from the usual straws of development cost blowouts, high component failure rates (Americans never really got the hang of Lean Six Sigma for another 15 years) and general anger by programmers and developers with the studios, who refused creative credits, licensing fees or decent pay.

So what's the lesson for today?
Perhaps when one thing goes wrong you can overcome it, but when you have a lot of things going wrong at the same time, then that is something else. Back then, many things conspired to hit console gaming, and some of those events can teach us things today.

Now companies such as Mattel and Hasbro are looking longingly at a company such as Rovio and thinking how can we get our own Angry Birds? How can we get in on the tablet (read iPad and iPhone, or light gaming platform) craze?

Children today are at the forefront of this technology, and it is indeed a very different world to the one I grew up in. Today every middle class child - whether 5 or 15 - wants an iPad or Nexus for Xmas...but when every 20 to 60 year old wants pretty much the same thing, these Toymakers see an opportunity. The age gap of consumer desires may not have been eliminated, but it is now more selective, with toymakers presently  really only able to appeal to children in the sub 5 age bracket, losing them rapidly afterwards, with the exception of nostalgia buffs.

Toymakers are now reported to be working on games that can appeal to older individuals, using tie-ins with TV and movie characters from the past 30-40 years. They are hoping to reintroduce an older generation to their childhood and hook a younger generation into the next big thing. And the spinoffs for plush toys and other physical goods are also drivers.

So, the margins are stunning and the spinoffs amazing. Can they do it? Maybe, maybe not, but if they turn to 1983, they need to carefully look at why the ET and Pacman games doomed the Atari 2600 - despite the potential, the concept and execution were mediocre, simply because non-experts were involved in key decision points...and just maybe, too much money was being thrown at the problem, with too tight deadlines...and not enough focus on user experience. And there was market saturation too - perhaps not so much an issue now, but could we get there again in the not too distant future?

In 1983, too much money was thrown at marketing tie ins, at concepts, at tiny parts of a business model without consideration for the whole and without any thought to user experience. Hot money suddenly began to look for a home and started to believe the snakeoil guys.

In 2013, we could be in for another painful lesson about core strengths and not venturing out of what you're good at, as well as respecting your customers. Or it could be a lesson in people doing their homework and getting things right...if we're lucky.

History doesn't always repeat itself, but hopefully that is because, on the odd occasion, we learn our lessons.