Lessons in Innovation: Where Pong Went Wrong

Watching my daughters duel it out over Sonic the Hedgehog for the umpteenth time this summer reminded me of a story I ran across when I was writing a book about business innovation a few years ago.

The book was chockfull of feel-good entrepreneurial stories that showed creative innovators that it was indeed possible to not only create a breakthrough product, but to get a nation to adopt it; things like Teflon coated frying pans, Silly Putty, the Xerox Machine, and even Pong.

You remember Pong, right? The very first video game, Pong revolutionized game playing. Before Atari and Pong, pinball games were all there was. Pong almost single-handedly created the home, then arcade, then computer, and then the handheld video game revolution.

And then Pong failed.

To understand the rise and fall of Pong, and Atari, is to understand that to innovate in a technological world is both ruthless and complicated. Get it right, and you end up with some cool products like my friends here are Concur produce. Get it wrong, and you become, like Pong, a footnote question on Jeopardy!

So how did Atari and Pong boom and bust so fast?

Based on a successful test, in 1974, Atari began work on Home Pong, a consumer version of the popular arcade game that could be played on a television set. Atari was a small shop started by two guys and $500. As such, money was a constant concern. Says founder Nolan Bushnell, “Atari was an all-consuming entity. And part of it was this chase for capital, this quest for payroll. Because it was perpetually undercapitalized. I was always trying to make payroll. You can tell the difference between an employee and an entrepreneur by the way they look at payroll. If they look forward to it, they’re an employee. If they hate it, they’re an employer.”

Finally, in 1975, after being turned down by toys, electronics and department stores, an Atari executive reached Sears. After several meetings with Bushnell, Sears ordered 150,000 Home Pong consoles for Christmas. Home Pong was released in 1975 and quickly became the best-selling item in the Sears catalog (which was a big deal at the time). The national exposure Sears gave Atari helped catapult Bushnell’s company to international success. Glory was at hand.

It turns out that the aforementioned cash crunch meant that Atari never trademarked the word “Pong,” so before long, a slew of “Pong” imitators came out. In no time, 20 different ping-pong games were on the market.

Beyond that, Pong would soon be viewed as too simple, but in the late 1970s it was still Pong, and Atari was still number one. Bushnell decided to get out while the getting was good. He was offered $28 million for the company from Warner and took it.

But the new owner, Warner, never really did come out with equally comparable cool products. And so, as a result, if you’re not introducing new stuff, you die. By 1983, Atari lost $538 million. Warner eventually sold the company, and the Atari brand name, once a corporate identity second only to Coca-Cola, is but a footnote in the computer world.

It was a short, wild ride.

What could it have done differently? Obviously, its failure to protect its name, its intellectual property, was a horrendous blunder. The Atari brand in general and the Pong name in particular, were valuable assets. To allow one of them, Pong, to be clobbered by their competition was a gaffe of the first order. An attorney who didn’t trademark the Pong name is like an attorney who committed misconduct.

So the lesson is this: If you are going to innovate, you need not litigate. Protect your intellectual property by filing for the appropriate copyright, trademark or patent.

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