The Atari 800
Atari company, founded by Nolan Bushnell, the
inventor of Pong, had grown to become the largest manufacturer of video
games and had been sold to Warner Communications. Sales hit 2 billion
dollars in 1982, but they plunged to less than 1 billion in 1983 as the
public turned to home computers instead of video games. This decline
represented a 580 million dollar net loss to Warner. Steven J. Ross,
Warner's Chairman and CEO, wanted to unload the business, which he now
felt was a drag on Warner and not compatible with the rest of his
company. However, it was not easy to find a
buyer who could rescue Atari and was willing to take on the job.
had gone into the home computer business producing a line of 8-bit
machines based upon the 6502 CPU. The Atari Models 400 and 800, which
were the company's first models, were excellent graphics computers, but
had several problems in competing in the highly competitive home market.
The Atari 400 had a plastic membrane keyboard and was overpriced at
$600. The Model 800 was much better, but it was priced just below the
Apple II, and it was perceived as more of a "home" computer
while Apple was considered as a "serious" computer.
later 1200XL systems were not much different except in physical
appearance, and although they had 64K of memory instead of 48K maximum
on the 800, there was not too much inducement for Atari 800 owners to
upgrade their machines. Atari also produced peripherals for their
computers, including the Model 1010 cassette program recorder, the Model
1025 printer, and a number of disk drives.
of the problem was that Atari, hoping to repeat its success in the video
game business, had played its game too close to the chest. They kept
important programming information "secret" and disclosed them
only to programmers who agreed to market through Atari. Serious
application programming companies who were producing 6502 software for
Apple refused to comply with Atari's demands and turned their backs on
the products. The game programmers, however, seized the opportunity to
use the excellent color graphics capabilities of the Atari machines to
develop intricate games. By the time Atari recognized their error,
lowered the prices of the machines, and tried to woo back the business
program developers, it was too late. The software companies felt the
potential sales would not justify their conversion costs.
problem was Atari's identification with their video games. They had
called their game machines "VCS" (Video Computer System,) and
now potential buyers felt that their personal computers were merely
advanced game machines.
Tramiel had started Commodore Business
Machines, presided over its growth, and now had resigned from the
company. Within a short time, many of the Commodore team responsible for
the success of the company followed their leader as the culture of the
company changed under the direction of the new management.
Jack Tramiel left Commodore, Steven Ross
recognized the opportunity. What better person could purchase Atari than
Jack Tramiel, whose success with low-cost
home computers was partly responsible for the decline in simple video
leaving Commodore, Jack and his sons formed a new company, Tramiel
Technology Limited (TTL,) with the stated intention of developing new
electronic products. At that time, Steven Ross approached Tramiel
with the idea of taking over Atari, and they entered into negotiations.
By the beginning of July 1984, Tramiel
Technologies and Warner Communications became shareholders in each
other's companies, and TTL bought Atari.
got most of Atari's assets for only $240 million in notes, at a reported
very low rate of interest. To give Jack time to re-organize Atari,
payments on the interest were not due to start until 1985. Wall Street
viewed the deal as Warner selling Atari to Tramiel
and loaning him the money to buy it! In addition, Jack got 5-year
warrants for one million shares of Warner stock executable at $22 per
share‑the market price of Warner when the deal was made. With the
Atari drain removed from Warner, its stock price would rise, and Jack's
profits would further sweeten the deal.
return, Warner got warrants for 14.3 million shares of TTL stock
representing over 30% of TTL. Warner also agreed to assume obligations
for past Atari debts. It was a sensational deal for Tramiel
and the end of a costly adventure for Warner. All that Jack Tramiel
had to do was to make Atari into a profitable business once again.
wasted no time and flew to
believed that everything would sell at the right price. Atari went on an
ambitious project to find the best price at which the Atari 8-bit
machines would move out of the warehouse. Since Jack had only paid $80
each for them, a fraction of their original cost, he could afford to
sharply cut the price. Moving them out was not difficult. The new Atari
team managed to clear the decks for the next generation of computers.
which had suffered by the loss of key people who left with Jack and by
the Atari price cutting, immediately started a lawsuit charging Tramiel
and his associates with taking valuable designs and information when
they left Commodore. Jack Tramiel
immediately retaliated with a $100 million lawsuit against Commodore.
The suit charged that Atari had a previous understanding to purchase the
Lorrane Amiga Company because Atari had lent
it money to develop the Amiga Computer. Jack charged that Commodore
snatched Amiga from Atari by offering a better deal. This suit was
without much merit because it happened before Tramiel
took over Atari, and Warner had never pursued their claim. Jack's
counter-suit did serve to discourage Commodore from their lawsuit
against him and his people.
all these legal maneuvers were going on, the new Atari crew was working
on a design that would outdo both the Amiga and the Macintosh and
undersell them by 50%. The Atari 520ST was the result. This computer,
without the monitor, was priced under $1,000, an incredibly low price
for a 1/2 megabyte computer. This gave rise to the motto that Atari used
to identify the company, "Power Without The
price and computer capability were the only criteria for computer
business success, Atari would have become one of the giants of the
industry. Instead they managed make management decisions that in the
long run proved to be unwise. It was said that they managed "to
snatch defeat from the jaws of victory."
the time of the Tramiel takeover of Atari,
there were many computer dealers who specialized in the Atari computers.
There was also a sizable user community, and both the dealers and owners
must be counted among the most loyal of all families of computer users.
They were almost fanatical in their loyalty to Atari computers.
Atari Forums on Compuserve, led by Ron Luks,
were among the largest groups of organized computer users. All of these
computer users, plus a sizable contingent of Apple II and Commodore
users who had been priced out of the ability to upgrade to 16-bit
graphics machines, looked forward to buying the Atari 520ST and
represented a huge potential market.
of the best graphic software was being written for the Atari 8-bit
machines, and developers also were more than anxious to write for the
new Atari 520 ST. The potential market seemed almost unlimited.
retrospect, it is hard to understand some of the counter-productive
management decisions made by Atari, even though they might have seemed
correct at that time.
it is axiomatic that new computers must be put into the hands of
software developers as soon as possible, and companies like Apple employ
evangelists to encourage this. Atari, on the other hand, made it as
difficult as possible for software developers to get into the 520ST
software game. They initially charged them up to $5,000 for a Software
Development Kit consisting of a computer and some manuals. Since in the
beginning there would not be too many computer users to buy the
software, the developers would be unable to recover their large
investment for a long time. This discouraged many software developers
from writing for the
Rostek, writing in Computer
Shopper for October 1985, described how Atari made another bad
decision. They squeezed out the loyal, existing Atari dealers for the
8-bit machines. Atari decided to distribute the new computers through
manufacturer's representatives who had to qualify the existing dealers.
This policy eliminated many dealers who had supported Atari in hard
times in the past. As the dealers dropped away to sell other lines,
Atari turned to the mass merchandisers and discount mail order houses.
This further antagonized the dealers who remained, and did not work
were also severe quality control problems with the early machines. Due
to poor packaging and long shipping routes, the chips in the computer
tended to become loose, and the computers would not work. The failure
rate in the first few shipments was almost 50%. This was not serious in
the case of experienced dealers, who burned-in their computers before
selling them, but with mass merchandisers who sold sealed boxes, it was
a disaster. It took strict application of quality control to cure the
second computer Atari made was the Atari 1040 ST with a full megabyte of
RAM and with a built-in single floppy drive. The older 520ST did not
have room for internal drives, but could support two external floppies.
It also had a port for an external hard drive. Provisions to support two
floppies and an external hard drive were built into the TOS operating
system from the beginning of the first 520ST. One problem with adding
hard drives to the
520ST and the 1040 ST were the two computers that comprised the ST line
until 1987, when Atari came out with the Mega ST computers. These new
machines had a separate keyboard and built-in hard drives.
1989, when other companies were improving their computers, Atari
produced the Atari 520STE, 1040 STE, and Mega STE models, which were
somewhat improved versions of the ST computers.
IBM, Compaq, and the countless clone manufacturers spent millions of
dollars on advertising. Commodore advertised in spurts when a new
president took over, but Atari spent hardly anything on advertising.
Even when they did advertise, they used Atari magazines, where they only
talked to the converted. And so with few dealers and no ads in general
computer magazines, they gained few new customers. Atari's answer to
declining sales was always to cut the price. However, with the huge
growth of the AT-clone market, they could never match the features and
prices offered by the clone manufacturers.
the population of
more Atari's business declined in the
Atari did very little development work on new computers and very few
updates to the TOS operating system. Atari did come out with machines
like the portable laptop Stacy and The 68030 TT line, but very few
machines became available in this country.
all the years from 1985 to 1989, Computer
Shopper magazine, one of the few general computer magazines who even
covered the Atari, had only one cover and feature story devoted to Atari
and that featured the packaged Desk top Publishing System put out by the
Atari Business Systems Group. This featured a Mega STE computer
, a scanner, and the Atari Laser Printer. It had some fairly good
DTP software, but the laser printer could only be used with an Atari
Mega because the intelligence was in the computer rather than the
printer. It was priced about $5,000 for the whole package, not a bad
price for the time. The same package now sells for $3,000, but even at
that price, it is no great bargain today.
must be credited with marketing one of the first practical palmtop
computers. Their Portfolio has an excellent keyboard and a good display.
It comes with five built-in applications, a PC card drive for uploading
and downloading files to a desk top PC and has 128K of RAM. Originally,
the Portfolio sold for about $500, much less than competing palmtops,
and was well received. Again, however, Atari failed to come out with new
models with featuring provisions for expanded memory, or the new
standard flash cards for application software. Instead of offering
upgraded models with increased MS-DOS compatibility and new features,
they lowered the price. As new palmtops come on to the market at any
price, the sales of Portfolio will continue to decrease.
Atari is completely out of the large-screen video game business, the
Atari Entertainment Division, with its Lynx color hand held video game,
has done much better than the computer division. The Lynx sells well,
and there is a fairly large assortment of software for it. The Lynx
hand-held game business is only a small fraction of the multi-billion
dollar video game business, which is now completely dominated by
most glaring failure recently took place in the courts rather than in
the stores. In a 150-million-dollar lawsuit, Atari has sued Nintendo for
domination of the industry, charging Nintendo with being a monopoly,
operating in restraint of trade.
was a setting for the biggest Atari potential victory since they
introduced the 520ST. There was little doubt that Nintendo almost had a
monopoly of video game machines. Their software policies were very
monopolistic, and at one time Atari had a large share of the business,
which they lost when Nintendo came in. In addition, here was an American
company suing a Japanese one in a
trial was a long one. Nintendo admitted they dominated the market and
were a monopoly! However, their defense was that they had not acted in
restraint of trade. They just provided a better product that people
wanted to buy. In addition, they claimed that the many negative business
decisions Atari had made cost them their position in the industry.
Nintendo was not to blame for Atari's problems_Atari
make matters worse, Nintendo was able to prove their claims, and Atari
lost the case. Not only did Atari not get an award of 150 million
dollars, but they have to pay Nintendo's costs to defend the case. This
could amount to an additional million dollars, in addition to their own
look very bleak for Atari. The loss of the Nintendo lawsuit and decrease
of business in