Will Microsoft Suffer Atari’s Fate?
Is Microsoft (MSFT) imploding the way Atari destroyed itself during the video game crash of 1983? Before you answer, compare the performance of Windows 8 with Office (Word, Excel, PowerPoint) to the Atari 2600 with Space Invaders, Asteroids and Pac Man. Here are the potentially tragic parallels.
Let's look at each chapter of the story…
1. In the Beginning
Atari rose to fame with a single offering — Pong. But the real hit came when Atari built a hardware (Atari 2600) and software ecosystem with third-party ISVs like Activision and iMagic. Atari's own titles (some licensed) included the widely popular Space Invaders, Asteroids and Pac Man.
Similarly, Microsoft rose to fame with a single offering — MS-DOS. But the real hit came when Microsoft built a Windows software ecosystem with third-party ISVs like Borland, WordPerfect and Lotus.
2. Establishing a Monopoly
Gradually, the Atari 2600 became a near monopoly in the video game market. Not because of great technology. Instead, the real secret to success involved the biggest catalog of games. Similarly, Windows 95 gained a near monopoly not cause of its superior technology. Rather it was all about ISV support and its own applications.
4. Bad Products
But success led to arrogance and bad products. For Atari, the big misstep was E.T. — a lame video game based on the hit movie. Millions of unsold E.T. cartridges allegedly wound up in landfills.
Microsoft's big misstep? Windows Vista, which lacked backwards compatibility with a range of applications and devices.
4. New, Disruptive Rivals
By the early 1980s, Atari faced hot alternatives like ColecoVision and Intellivision. ColecoVision offered arcade-quality graphics and hot titles like Donkey Kong. Intellivision specialized in lifelike (for the time) sports titles, with official licenses from the NBA, NFL and Major League Baseball ("Yer Out!).
Similarly, Microsoft eventually faced new, disruptive rivals like smartphones (Apple iPhone, Android) and tablets (iOS, Android).
5. Weak Responses
How did Atari and Microsoft each respond to their respective rivals?
Atari developed the Atari 5200 game system — a promising hardware platform. The problem: The new system lacked hot new games, and instead depended heavily on "updated" versions of aging classics like Pac Man.
Somewhat similarly, Microsoft developed Surface tablets — a promising hardware family. The problem: The new tablets lacked hot new applications, and instead depended heavily on "updated" versions of aging classics like Microsoft Office.
6. Falling Empires?
Atari ultimately imploded around 1983. The company has been purchased and sold multiple times over the past 30 years, and is now an empty shell of its former self.
Will Microsoft suffer the same bleak fate? Actually, The VAR Guy doubts it. Unlike Atari, Microsoft has a diverse revenue stream. Server software and cloud services like Windows Server, Hyper-V, SQL Server, Exchange Server, SharePoint and Lync remain popular. Office 365 and Azure are coming on strong.
For Microsoft it's not game over. At least not yet…
VAR Guy, some of the history
VAR Guy, some of the history regarding Atari was a little off. 1) E.T. had very little impact on the company (and no, millions of carts were not dumped in Alamogordo, that was simply the emptying of stock from their Texas plant as it converted over to automation and a focus on hardware manufacturing), their financial problems started in ’82 and came to a crescendo in December of ’82 and finally lead to the splitting of the company in ’84. Additionally, their monopoly (which was established by ’81) had little to do with more titles – the overflow of titles didn’t come until the ’82 through ’84 period. It had to do with having popular titles tied in to it’s strong arcade division, as well as popular licensed titles like Space Invaders during that period. Likewise, Pac-Man was hardly an aging game by ’82, and in fact it first appeared in consoles that year, and as a very anticipated titled. Finally, point number 6 is also wrong. “The company” has not been sold multiple times. Only the brand name and IP has. The original Atari, Atari Inc., was split in half in 1984 and ceased to exist. It’s Consumer Division was sold to Jack Tramiel to start Atari Corporation. Jack’s company then merged with drive manufacturer JTS in 1996 and was closed, becoming purely paper assets and a brand name. These paper assets (IP) were then sold to Hasbro, and then to Infogrames, who in turn named some of it’s subsidiaries and eventually itself to Atari branded names. The companies currently facing bankruptcy have nothing to do with the Atari being discussed here. The current Atari Inc. is simply the former GT Interactive, renamed to Atari Inc. Likewise Atari Interactive is simply a holding company created by Infogrames (who themselves are now Atari SA).
Martyg: Well, you just
Martyg: Well, you just schooled The VAR Guy on the history of Atari.
-jp
But Microsoft does continue
But Microsoft does continue to backtrack unlike in its past – take Windows 8, the recent Xbox backtrack and now the We want to come clean re Prism although only cos we’ve been caught out and are trying a PR recovery exercise. Add to this their lacklustre tablet success and the PR around Windows 8 being an amazing sales success when in reality it hasn’t been sold simply pre-installed on OEM hardware agreements and they have counted the pre-ship contractual numbers !! If many like us get their new laptop and downgrade the OS at work as fast as they can the numbers don’t stack up at all!
MS knows it has to change – its cloud offerings it is selling mostly directly and cutting channel margins down, its bread and better route to market prior and it remains that the majority of MS revenues are around Office. The world and customers are changing and the MS brand loyalty is starting to wein.
Hi Anonymous: I think Steve
Hi Anonymous: I think Steve Ballmer’s top concern is selling direct vs. cloud companies. Seems like new Microsoft offerings don’t initially involve the channel until a year or so after launch. Good to see Surface and Office 365 partner programs expanding. But those moves should have happened at launch…
-jp
Well, it was a kind of unfair
Well, it was a kind of unfair schooling, I’m the co-author of the book Atari Inc. – Business Is fun. So we had access to actual internal documentation, financials, and the people involved at the time.
That’s one more book I need
That’s one more book I need to read.
-jp
Nice way to compare the
Nice way to compare the issues. And since Microsoft keeps me working, I hope it doesn’t sit back and does like Atari did. Sometimes I miss the classics and would hate to say that about Office as well….
I think Microsoft is hungry
I think Microsoft is hungry but very diversified and therefore slow-moving at times.
-jp
it’s time for Microsoft to
it’s time for Microsoft to die! Gates has stolen enough money with his garbage software and an inferior operating system. Why pay for ramen when you can have steak (Linux) for free.
Hi Anonymous. Thanks for the
Hi Anonymous. Thanks for the note. Let’s not forget: Microsoft freed corporate IT from expensive Unix and RISC hardware. Long live NT (aka Windows Server)…
-jp