The Electronic Arts IPO (with Trip Hawkins)

Acquired looks back at a monumental IPO from a *much* different era: Electronic Arts. We’re joined by EA’s founder Trip Hawkins to tell the incredible story of how he built the company that made video games mainstream. Starting from his high school years as both a geek and a jock, to then working for Steve Jobs as one of Apple Computer’s first employees and later completely changing the world of sports with John Madden Football, Trip always had a clear vision for what EA could become and what magic could happen at the intersection of technology and the liberal arts. Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Cool. One more time?

• 0:01Speaker 01

  This is Trip. We're on Santa Barbara Radio.

• 0:06Speaker 00

  Great. And there's our opener.

• 0:21Speaker 00

  Welcome to season four, episode seven of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. With all these A-plus IPOs going on, we wanted to do a throwback episode to another era, 1989, where an IPO meant something very different. We come to you today from sunny Santa Barbara, birthplace of Logan Green's transportation dream, if you listen to the Lyft episode, and of course, the home of Sonos, if you listen to that episode. And today, we sit here with Trip Hawkins, the founder of the most legendary gaming company in the world, Electronic Arts. Trip worked as an early employee at Apple Computer as the Director of Strategy and Marketing until 1982,

• 1:06Speaker 00

  before starting EA, taking it public, and later moving on to start other companies in the gaming space, such as 3DO and Digital Chocolate. Trip is now a professor of practice in the Technology Management Program at the University of California, Santa Barbara, and we are incredibly lucky to have him here with us today. So, welcome, Trip.

• 1:25Speaker 01

  Well, thank you. I'm delighted to be here.

• 1:27Speaker 00

  Yeah, it's great to have you. For anyone who's new to the show, here's how it works. We walk through the history and facts of a company from founding all the way through an acquisition or IPO. Then, we analyze and grade the transaction, where we issue judgment on if that was a good idea or not. So, the show is really one of storytelling, followed by one of judgment. If you are involved in startups and you want to dig in with us on company-building topics, rather than just the exit, we've got a second show for you. You can become an Acquired Limited Partner by clicking the link in the show notes, or going to glow.fm/acquired and get access to these Limited Partner episodes, featuring interviews with expert operators, investors, and of course, David and I diving deeper on topics like finding product-market fit, term sheets, and how venture firms really work.

• 2:13David Rosenthal?

  It's pretty cool. I mean, we started this as an experiment, what, like six months ago? And it's like a real show now. And we're just so pumped about how many of you guys are listening and getting value out of it. It's been super fun.

• 2:26Ben Gilbert?

  All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 2:45David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature, or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 3:06Ben Gilbert?

  Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes, and cuts the time that you'd spend on vendor assessments in half.

• 3:27David Rosenthal?

  In half! Which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor, and Snowflake all stay audit-ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 3:46Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here, and literally hundreds of Acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off, and just tell them that Ben and David sent you.

• 4:13David Rosenthal?

  All right, David, it is time. It's time. So excited to dive in with Trip here. So per usual, we like to start way back at the beginning on this show. So you grew up here in Southern California, right? In the 1970s?

• 4:29Speaker 01

  That's right.

• 4:29David Rosenthal?

  What did your family do? What brought them to California?

• 4:31Speaker 01

  I have family that came here about 100 years ago.

• 4:34David Rosenthal?

  Oh, wow. You didn't start early enough, David.

• 4:36Speaker 01

  They were back east and a few of them were obviously entrepreneurs. And I think that's how pretty much everybody in California got here is they were willing to leave some other place and head to one of the most remote parts of the planet.

• 4:52David Rosenthal?

  So growing up, you loved sports, right? You were a jock, but you also loved games. And games meant something very different back then, right? There were no video games. Games were pen and paper. They were Dungeons and Dragons. They were sports simulations. Those don't seem to me, sitting here, like jocks back then played Dungeons and Dragons. How did you meld both of those and come to love them?

• 5:19Speaker 01

  It was the golden age of television. And I found that what I enjoyed the most on television was watching football and baseball. I could tell that something really interesting was going on from a strategy standpoint. So I can't say that the time that I realized that I was a strategic thinker, I'm just able later on to look back on it and realize, yeah, that's why that spoke to me. I'm seeing these things on television because that's the medium that's available. Or in some cases, just even listening on the radio because everybody had a radio. And then, of course, I decided, hey, I want to play these things in real life. So I'm becoming a jock in real life and I'm watching on ITV.

• 6:02Speaker 01

  And I've just had this craving for more interaction with it. I found that back in the 1960s, some game designers had invented these cardboard dice games. And a lot of people remember the one, it was called All-Star Baseball.

• 6:19David Rosenthal?

  Yeah, I was gonna say there's a baseball one.

• 6:21Speaker 01

  Pieces of paper. And you'd have one for Babe Ruth and you'd have another one for Ty Cobb. And if it's Babe Ruth, there was a big pie slice for him to hit a homerun. Whereas Ty Cobb had a much bigger pie slice for hitting a single.

• 6:34David Rosenthal?

  Yeah.

• 6:34Speaker 01

  And you would put the thing on a spinner and you'd hit the spinner with your finger.

• 6:39David Rosenthal?

  I remember this. I had one of these growing up in the 80s, too.

• 6:42Speaker 01

  Yeah, so a lot of people remember that one.

• 6:44David Rosenthal?

  Yeah.

• 6:44Speaker 01

  They don't remember my favorite one, which is called Stratomatic. And again, it's a game invented in the 60s and you roll dice and there's all these player cards and you would look up the result. And heck, I was about, I don't know, 10, when I basically on my own figured out Bayesian probability theory from studying the dice. And I realized, why does this guy have this here and this other guy has it there? And then I realized, oh my God, there are more ways to roll a seven than a 12. And well, how many more ways are there? And why is that? And which guy do I want? If I'm gonna play my friend and I want to win, I better figure out, you know, how this really works. Again, I just kind of discovered that I found math and statistics fascinating.

• 7:29Speaker 01

  If I could apply it to something strategic where I was competing. I'm a very competitive guy. Ideally, as a kid, you're tuning into who you are and part of you are gifts from your ancestors. And hopefully you can discover what abilities you were already born with. You can figure out what's going on in your environment that really, that really speaks to you. And decide then, what are you passionate about doing about it? And I had the good fortune to have those things happen.

• 8:03David Rosenthal?

  And on the environment front, was it your senior year in high school you were first exposed to computers?

• 8:09Speaker 01

  Actually, earlier in high school, I think I was maybe a sophomore. And then I was trying to get my friends to play these games. And a few of the nerdiest friends loved the games too. And, you know, we all loved it. You know, we all kind of saw what the value was. But a whole lot more friends, kids, they would drift back to watching television. Like it was, it was too much work.

• 8:34David Rosenthal?

  Too much work, too much overhead.

• 8:35Speaker 01

  Yeah, so you know, and you know, things like D and D are, you know, kind of famously geeky in that way. And it's just not everybody's cup of tea. And I was just thinking about realizing, man, this is, this is a really special experience to be this mentally engaged. But not everybody can relate to it. It's just too much work to operate the thing. And that's when, as soon as I heard about computers and I could kind of see it with my own eyes, I thought, this is how you do it. We're gonna basically put all of the administrative operating stuff in a box. And we're gonna put pretty pictures on the screen like television. And what I didn't realize at the time was that I was seeing something that was going to be true forty years later.

• 9:13David Rosenthal?

  Yeah.

• 9:14Speaker 01

  And if you told me, you know, Trip, that's gonna take forty years, I'll go, oh, never mind.

• 9:20Speaker 01

  But you don't know that. So next thing you know, you spent forty years working on it. By the way, I just have to say that I didn't know I had this accurate forecast about something that would be.

• 9:31David Rosenthal?

  You were in high school, right?

• 9:33Speaker 01

  I didn't know it was gonna turn out to be a hundred billion dollar industry. I just thought it was a really cool thing that I cared about and that I wanted to go help make happen. And I think I have no idea what's gonna happen forty years from now. I don't know about you.

• 9:50David Rosenthal?

  We're thinking about it.

• 9:51Speaker 00

  We overly speculate, that's for sure.

• 9:53David Rosenthal?

  So this is all swirling around here in Southern California. You go to college at Harvard. You were there at the same time as, as Bill Gates and Steve Ballmer, right? Did you, did you interact with them at all?

• 10:03Speaker 01

  You know, we ended up using some of the same computer labs, you know, but I only knew that later. I think it's entirely possible that Bill and I would have been in the Akin Computation Center at the same time without, without having ever actually met. And, you know, honestly, those of us that were really serious about it, we would go there at night. These are time share systems.

• 10:23Speaker 00

  Right, right.

• 10:24Speaker 01

  And you didn't want to compete with all the students doing their homework during the day. You'd go at night. And there were, there were basically nerds that you could smell from ten feet away. There were guys sleeping under tables. I mean, it was just, you know, chaos. But if you were really into it, you were just thrilled to be there on a machine at night when you had more speed. Yeah.

• 10:41Speaker 00

  So you were, you were also doing something, though, that Bill Gates was not doing, and that was playing for Harvard and playing football. Talk about how on earth you were balancing being a collegiate athlete and being this person that's staying up all night in the computer lab. One of the only people at this time that were dedicated to the craft of, of learning and mastering the computer.

• 11:02Speaker 01

  Yeah, that was, that was a tough balancing act and I, I lettered in football as a freshman. And then I realized that, wow, this is so time consuming that I can't do everything I'm doing. So I, you know, I would have loved to have done it all. In fact, you know, in hindsight, if I could go back and do it differently, I probably would have loved to have played varsity football and done that longer. And what I found was that they actually had a club football program, no practices really. And it was tackle football and you would play with, you know, different dorm, dormitory groups. And that was a hell of a lot of fun. So, you know, when you're doing that, we went undefeated and unscored on.

• 11:44Speaker 01

  We only played six games and, you know, it was really hard to have an elaborate offensive playbook because, you know, nobody's spending a lot of time practicing.

• 11:51Speaker 00

  Right.

• 11:51Speaker 01

  But I, I was the free safety on that team and we never allowed anyone to score. I was the last line of defense. So that was for me, probably the highlight of my, my football life.

• 12:00David Rosenthal?

  That's amazing. So was it at this time though, was it at Harvard where you, you realized you wanted to start a company? And, and started laying in motion all the plans that would, that would.

• 12:11Speaker 01

  Well, I'd actually already done it. And so I started working on it and I got some help from my, my best friend. Who, by the way, ended up becoming a football coach. So we're, we're really into football. And so there's a, you can think of that in today's terminology, that would be about, you know, prototyping and building a minimum viable product. So we did that and, and then I thought, well, hey, why don't I actually market this? And my, my dad was generous enough to loan me $5,000 and I went and sourced all of the different parts like a, you know, silkscreen game board. And paper parts and things that you had to, you know, have perforations on it so you could punch them out and dice and, you know, had to, you know, figure out who, who am I going to buy dice from and.

• 12:56Speaker 00

  Yeah. So you're building a full tabletop game of your own.

• 12:58Speaker 01

  Yeah. And so that all got put together and customers loved it. I got incredibly positive feedback from customers. I had no idea how to run a company. I didn't have enough money to do any marketing. So it obviously didn't get very far. So I lost every penny.

• 13:12Speaker 00

  And this is during undergrad?

• 13:13Speaker 01

  I'm in high school.

• 13:14David Rosenthal?

  High school.

• 13:16Speaker 01

  I'm basically learning two things. One, wow, ouch, man, it really hurts when you have this baby, this thing you've created, it's your baby.

• 13:25David Rosenthal?

  Extension of yourself.

• 13:26Speaker 01

  And it has been rejected by the business world. And you can't keep going with it. And that feeling of failure and disappointment that that dream has died creatively. You know, it was a good experience to go through that. And then the second thing I learned was, man, this is so much fun. I got to do this again. This is amazing. It's so stimulating. And I thought, you know, maybe I want to learn some more before I do it again. And so I have a chance to have a better outcome. And this is again in the 1970s where I'm actively thinking about how computers can come into it. And it wasn't too long after that, where it was in 1975, and you know, I'm in a summer job in Santa Monica.

• 14:10David Rosenthal?

  You went to GSP, to Stanford Business School, right after Harvard, right?

• 14:13Speaker 01

  Yeah, so that comes a little bit later. So I'm still in college. And this is when a colleague comes back and tells me, wow, I was just in a retail store where you can rent computer terminals and take them home and have them connect through a modem to your mainframe. And they only charge you 10 bucks an hour. You can basically do computing from home. And I said, wow, that's incredible. It's happening. It's finally happening.

• 14:39David Rosenthal?

  Yeah.

• 14:39Speaker 01

  And then he said, well, that's not all. Shoot, Intel just, you know, just announced the invention of the first microprocessor chip that can combine all these things on a single chip. And I think, yeah, well, dang, well, that's going to get into homes. And this is, this is in the summer of 1975. It turns out that was the world's first computer retail store. It was Dick Heiser's computer. It's called The Computer Store, run by this guy Dick Heiser, who was at Apple, he became an Apple dealer later on. And literally, my colleague walks away and I immediately start sketching it out saying, "Okay, how long is it going to take for the hardware costs to come down, for the number of stores to grow, and for the the number of machines in homes to be big enough that you can make some money selling some games?" And that's when I realized that I could probably

• 15:24Speaker 01

  do that by 1982, seven years later, and that is exactly what I did.

• 15:29Speaker 00

  You bided your time a little bit until that. It's, you know, listeners might expect, "Okay, so you went and started Electronic Arts, but you did something else in the interim, and that was Apple Computer, and that was one of the very first employees at Apple Computer. How did that happen?"

• 15:45David Rosenthal?

  Can you tell us the story of how you got the job and the phone call you got from Steve Jobs?

• 15:50Speaker 01

  Well, you know, since you guys want to talk about the IPO of Electronic Arts, the company oddly enough, it didn't really even have all that much value until two years after the IPO. And if you look at that timeframe, creating that value was a 20-year process. And of course, a lot of entrepreneurs think, "Oh, yeah, look at this company. It's an overnight success." And it turns out, well, you know,

• 16:11Speaker 00

  Rarely.

• 16:12Speaker 01

  Often, it's really not even remotely an overnight success.

• 16:15David Rosenthal?

  That's the point of this show.

• 16:16Speaker 01

  And so, pretty much, you know, there was about a decade before Electronic Arts was founded, where I'm planning the whole thing. And then it took another decade of actually running the business before it really took off and had a lot of value.

• 16:30Speaker 00

  Long game we're in here.

• 16:32Speaker 01

  It really is. It really is a long game. And by the way, I thought about this recently when Google announced Stadia, which is their play on the idea of cloud streaming games. And I thought, yeah, my initial thought was, yeah, you know, they don't have the game catalog, and they're not going to get it, because all the guys that have the game catalogs, two of which Sony and Microsoft are now, you know, joined forces.

• 16:55Speaker 00

  And they have no first-party titles.

• 16:56Speaker 01

  Right. How are they gonna, how can they fix that problem? And then I was, "Wait a minute. Wait a minute. EA didn't have that in the beginning. Apple didn't have that in the beginning." If you're in the long game.

• 17:06Speaker 00

  Yep.

• 17:07Speaker 01

  Then you're saying, shoot, nobody knows what games are going to be popular 10 years from now. Nobody even knows what the technology is going to be that you that the games are going to run.

• 17:15David Rosenthal?

  Infrastructure and the platform.

• 17:16Speaker 01

  Well, how do we hang around this long enough? And, you know, frankly, if Google thinks, yeah, we just want to be the leader 10 years from now. So which which young, super talented data scientists, machine learning, AI experts are young indie developers now that are going to grow in their careers to the point where five, 10 years from now, they're going to make a hit that could be the next League of Legends or the next Call of Duty. The next Fortnite. Yeah, if you're willing to plan ahead like that, most of us generally are way too impatient for that. You know, we want it to happen now. And of course, Google could maybe even acquire Electronic Arts and then they would start to have the back catalog. It's that's going to be a very interesting, interesting space to watch. But getting back to our story.

• 17:59David Rosenthal?

  Yeah.

• 18:00Speaker 01

  You have this thing unfolding over a 20 year period. And I realized, man, I got to know a lot more about how to run a business. And I also need to go help somebody sell computer systems into homes.

• 18:13David Rosenthal?

  Yeah.

• 18:15Speaker 01

  Okay, how am I going to do that? I'm not really an engineer. I don't even understand how electricity works. But I love software. So I've always been around software. Software runs on hardware and I was always good at talking to other engineers and kind of understanding the system and how it worked. And I thought, you know, I'm not going to have credibility in Silicon Valley by being an electrical engineer. I'm going to have to build my credibility some other way. Now, this is something that a lot of people can still do today. You don't have to be the expert on the tech. You have to be able to relate to those people. You have to be able to learn their dialect. You have to learn when they're bullshitting you. You have to be able to call them on their their stuff.

• 18:56Speaker 01

  And then you have to command their respect and have credibility with them because you have expertise about something that they care about. So in my case, the pathway in was being more knowledgeable with the customer and the applications. And I thought, okay, how do I get that going? And here, here again, there's a lot of good fortune, I think, in a lot of these stories. But when I first got to the Bay Area, I was, you know, finishing school at Stanford. And it turns out I'm going right by the headquarters of Fairchild Seven Connector. And they had actually just come out with one of the first. Consoles, and it was one of the very first consoles, again, this is mid 70s, that you could stick game cartridges into.

• 19:38Speaker 00

  Huh.

• 19:39Speaker 01

  So I went into their lobby.

• 19:41Speaker 00

  I never knew they did that.

• 19:42Speaker 01

  Yeah, it was called the Channel F. Were they competing with Atari? In effect. It was such a new industry that you're really just competing with yourself, honestly. But all the semiconductor companies in the 70s, they're trying to figure out how to drive demand for their chips so you can get more volume. So more of them thought, let's have a consumer division. We'll make watches, we'll make calculators. Yeah. And then some of them thought, well, let's make arcade-type, simple consoles like Pong games. A lot of them made Pong games. And then only a few of them decided, well, hey, how about a cartridge system where you can change the game? Anyway, so Fairchild was one of them. It was pretty clueless. They abandoned it before too long. But while they were doing it, I dropped into their lobby and I said, I'd like to talk with somebody

• 20:24Speaker 01

  in marketing. And they go, what about, well, I'm a Stanford student and I'd like to offer to do a free market research project. Free is a fabulous word. It's the most powerful word in the history of marketing, and it opens a lot of doors. And this junior marketing guy comes out and says, what do you want? And I said, well, you know, here's the deal. And, you know, if you just, you know, give me the addresses of a couple hundred customers, I'll design a questionnaire and work with you on making sure your questions get answered. And we'll basically try to understand more about who your customers are and what they want. Of course, secretly, I'm thinking, yeah, do they prefer football or baseball? And is there going to be a demand for that? Because that's what I want to make. So he

• 21:06Speaker 01

  says, okay, sure. I continue on my drive to Stanford. And I said, okay, now I'm going to go get course credit for this. So I didn't get paid. Yeah. But I was able to build it into my curriculum that way. And then there I am in the library at Stanford not too long after that. And I'm in the copier room. And this guy just ahead of me on the copier, he pulls out this report.

• 21:30Speaker 01

  And I can, I see video games on it. And he puts it on the copier, he's making a copy of a couple of pages from this thing. And I said, what is that? And he said, yeah, this is a study I wrote last summer for this market research firm about, you know, about these simple little Pong machines that the semiconductor companies had been making. And he had done a market analysis of it. I go, oh, okay. And then I basically followed the guy as he went and returned this report to the shelf in the library. And as soon as he left, I took it off the shelf and read it cover to cover. And I realized, dang, this is cool. You know, I could do a report like this about personal computers. Yeah.

• 22:14Speaker 01

  And nobody had done a report about personal computers. They were too new. And I mean, just think about that statement. I know. So this would have been what, like 1977? So this is, uh, yeah, this 76 probably. Okay. Yeah. It was either fall of 76 or early 77. Okay, so I need a summer job between the two years of business school. And I go talk to that same market research firm, they're down in San Jose. And I said, yeah, I'd like to, you know, they're, they were in the habit of hiring MBAs and having them spend the summer writing a study. And I said, I'd like to write a study about personal computers. And the head of that firm says to me, what is a personal computer? This is in San Jose? Yeah. Hard as Silicon Valley. And he's, he's a research firm.

• 22:59Speaker 01

  Yeah. And, and I explained it to him and he goes, you know, yeah, we do business with all these, you know, big, big manufacturers and technology companies and cause, and The Hewlett Packard, it's the DEX. They don't care about that. They're not, we have no demand for that. Amazing. And I'm kind of doing an eye roll, like, boy, are you out of it? And then he said, but you know what? We do need to get a report done on computer printers. You know, and there's the kind of printers that work with mainframe computers and so on. So I tell you what, why don't you do that for us this summer? And then if that goes well, we'll talk about this other thing later. So of course that all went really well. And by

• 23:39Speaker 01

  By the, by the fall of 1977, he's beginning to hear about it because by then the first west coast computer fair had happened in the spring of 77. That's where the Apple II made its debut.

• 23:50David Rosenthal?

  Yeah.

• 23:51Speaker 00

  Yep.

• 23:51Speaker 01

  And I was there.

• 23:52David Rosenthal?

  Wow.

• 23:53Speaker 01

  And yeah, it was a very heady, exciting time.

• 23:56David Rosenthal?

  Did you meet Stephen Woz there?

• 23:58Speaker 01

  They were probably there. I didn't meet them. I remember seeing the Apple II and thinking, wow.

• 24:03Speaker 00

  Yeah. Did that feel in the moment like, oh my God, I'm a part of the world changing right now? Could, could you, could you feel that it was?

• 24:10Speaker 01

  You could totally feel that, but the other thing that really jumped out at me was recognizing it's that one. You know, it's like, I know all these companies and I'm looking at all their products.

• 24:19David Rosenthal?

  Yeah, I was thinking they were like Tandy was there or like?

• 24:22Speaker 01

  The Apple II looks like it's something from a sci-fi movie that's going to be happening in 20 years. And everything else in the entire convention hall looks like it's part of the past, like a bunch of buggy webs and, you know, carriages before the car is invented.

• 24:37David Rosenthal?

  Yeah.

• 24:38Speaker 01

  It just had that feeling.

• 24:39David Rosenthal?

  I assume you're going to get into this right now, but the home computer market at this time was dominated by Radio Shack, right?

• 24:45Speaker 01

  Right. Yeah. The TRS-80, also known as the Trashy.

• 24:48David Rosenthal?

  Yeah.

• 24:49Speaker 01

  It was a very convoluted system. And among other things, it didn't even have color. So it was basically, in fact, it didn't have bitmap graphics either. It was a really clunky thing. But they, it was cheap. Radio Shack had thousands of stores and so it was.

• 25:05David Rosenthal?

  Distribution.

• 25:06Speaker 01

  It was doing, doing a lot of volume. Anyway, so they allowed me to do this study. I got on trade all these companies and so I, that included Apple. And I went down to visit one of the first handful of office workers there. And the, the most amusing part of this was, there's only a handful of people there at that time. This is probably late 77 or, or maybe a little bit into early 78. And I said, are you guys doing any software? Because I'm a software guy. I'm like, what are you doing in software? He said, oh yeah, we, yeah, we're doing software. I said, cool. Can I see it? He said, sure. And then we walk around the corner and their entire software effort is one guy. Pretty sure this was Randy Wigginton.

• 25:47Speaker 00

  Huh.

• 25:48Speaker 01

  He's one of the very first engineers. And he was working on a Star Wars ripoff where the company didn't have a Star Wars license. But the Star Wars movie had come out in the summer of seventy seven.

• 26:02David Rosenthal?

  Wow.

• 26:03Speaker 01

  And they said, hey, let's, let's do something where we have bitmap graphics and we can do something where you're like, you're like Luke and you're, you know, you're trying to blow up the Death Star and we're gonna do that in some really simple graphics.

• 26:13Speaker 00

  Unbelievable that Steve Jobs would later buy Pixar from George Lucas.

• 26:17Speaker 01

  Amazing.

• 26:18Speaker 00

  And yet, Apple at this point didn't have a Star Wars license.

• 26:20Speaker 01

  Well, in fact, I remember after I started at Apple, we went to CES and we're showing that game. And this guy comes up and hands me a business card and says, you're gonna have to stop doing that. And sure, if he's from Fox.

• 26:33David Rosenthal?

  Oh, wow.

• 26:34Speaker 01

  And he's sort of busting us.

• 26:35David Rosenthal?

  Fox had the rights to.

• 26:36Speaker 01

  You guys can't have a Star Wars game without us having licensed it to you and you gotta pay for that.

• 26:42Speaker 00

  Like, it's a different shaped trench.

• 26:45Speaker 01

  But yeah, this is like the cowboy period, you know, where, you know, can I, you're asking for permission, you're just doing stuff until they stop you, right?

• 26:53Speaker 00

  Right. Wow.

• 26:55Speaker 01

  So anyway, I hadn't met the leaders of Apple yet. And I go back and I'm finishing school and the study gets finished and I'm doing a little bit of a tour to meet with clients and talk about it. And I, and I produced a one-page flyer and I mailed it out to everybody that I knew and everybody that had been interviewed. And then I'm just at home one day, not too long after that, and the phone rings and I pick it up and there's this guy yelling at me. And saying, why the hell are you calling Radio Shack the market share leader?

• 27:32David Rosenthal?

  This is incredible.

• 27:33Speaker 01

  And it turns out it's Steve Jobs. And he's seen this flyer that says that Radio Shack's the market share leader. He's really pissed off about it. And I knew why, because they were running an ad campaign in the Hobby magazine saying that Apple was the world's best selling personal computer and it wasn't true.

• 27:51David Rosenthal?

  Which of course was total trash.

• 27:52Speaker 01

  Yeah, exactly. Again, this is the cowboy period. And the Apple II was a frankly, a much more legitimate personal computer than the TRS-80, but it just wasn't accurate for them to say that. And yeah, he thought, who is this dude that's outing us and making us look bad, making us look like liars? So he calls you up to berate you. You turn the tables and then... Well, here's the other thing about how intimate Silicon Valley is, that he had to know somebody that knew my home number. So we knew somebody mutually.

• 28:23Speaker 00

  Did you trace back how that ended up?

• 28:25Speaker 01

  Oh, yeah. But at the time, I didn't understand how that worked. But you know, he and I were having this conversation. Of course, I'm having to hold the phone handset about a foot away from my ear, so he's yelling so loud. I managed to tell him, yeah, the study's finished. And he wants to argue with me, naturally. That's what he does. And he said, I'd be happy to bring this study and show it to you. And this is a study that in today's dollars would have cost about $2,500. There's no way Apple can afford it. So I know that being able to come in and show it to them. Right. You know, they're thinking, look at this, we're getting $2,500. Free value. Steve's probably very pleased with himself that his one phone call yielded this. Oh, totally. And of course, I'm going to say, he's arguing with what I'm saying about the company. I'm saying, well, I'll let you read what I say about the company, but I think you'll

• 29:10Speaker 01

  find it very flattering. I think you guys are great. Okay. And then I said, oh, and by the way, I'm actually looking for a job in the industry. All right, so I go down there and they offer me a job. And it's all based on this idea that I know something about the market and I know something about customers. I'm just a kid. Did Steve offer you a job on the spot when you came down there? Not on the spot. And here's what's not really known that well about Apple is that everybody thinks about the two Steves. Right, but there was, there was Mike. There were really three equal musketeer co-founders of the real corporation. It was kind of a hobby thing. And then Mike Markle came in to be the adult supervision. And he and the two Steves each had about a third of the company.

• 29:53Speaker 01

  So that's really, that kind of tells you who the real founders are.

• 29:56Speaker 00

  And Mike cashed out pre-IPO, right?

• 29:58Speaker 01

  Oh, no, no, no, no, no. Mike actually hung in there longer than anybody. So the thing about Mike is that Don Valentine had been told about the two Steves. And Don was already an elite, leading venture guy in the 1970s. And had come from Fairchild. Yes, and Intel. And so he went and met with the two Steves when they were in the garage. And he thought, yeah, this is way too early for us. And then he told Markela to talk to them.

• 30:28Speaker 00

  No way.

• 30:28Speaker 01

  So he was kind of trying to turn Markela into the angel that would help get it. Legitimize enough for Sequoia to invest. Okay, so Mike goes and meets with them and they're, you know, they're pretty much unkempt, uncivilized people. Like later, Markela would tell me that.

• 30:44David Rosenthal?

  These are the days when Steve wasn't showering, right?

• 30:45Speaker 01

  Yeah, well, literally my first week at Apple, I figured out what a hazardous person Steve was. And towards the end of that first week, I'm standing next to Mike and Steve's down at the other end of the hall going by. And I said to Mike, Mike, we really need to do something about that.

• 31:04Speaker 01

  And I pointed at Steve and I called him a that. He's a thing, right? And Mike says, Trip, yeah, look, come here. He pulls me into his office. He closes the door and says, Trip, you have no idea how much better he is now than a year ago. A year ago, he was like, you know, the wild man from Borneo. He was completely uncivilized. I had to teach him where you put the fork in the knife at a table setting. You know, he's basically explaining, almost as if he had to teach him what a fork is and how you, how you use a fork. And he's, he was just asking me, Trip, try to be patient.

• 31:37David Rosenthal?

  Look at the progress.

• 31:38Speaker 01

  There's gonna be, this guy can do a lot for us.

• 31:40David Rosenthal?

  Yeah.

• 31:41Speaker 01

  So those three guys got together.

• 31:43David Rosenthal?

  That's amazing, by the way, that Mike, I mean, these were the days of the first thing investors and adult supervision did when they came into the company was fire these people, right? Like, it's amazing that Mike saw that.

• 31:54Speaker 01

  There's a very high turnover rate.

• 31:55David Rosenthal?

  Yeah, saw that Steve had the potential to become the greatest of all time.

• 32:00Speaker 01

  Well, and was made brilliant technical contributions in the first, for several years of the company. So he recognized the talent in both of them. And the other thing about Mike though is that he didn't want to run the company either. So nothing really wanted to run it. So Mike was smart about setting it up for himself in a good way where he he brought in Mike Scott or Scotty to be the CEO and then Mike was the chairman. So he's the boss of everybody. And then his discipline was marketing. So he was in charge of marketing because that was fun for him. And then he's, he's really the, the chairman who's still the, the big boss. And, and occasionally over the next, say 20 years, he would have to be CEO for a while during some interim phase.

• 32:43Speaker 01

  But, you know, he just always remained connected with the company. He was always in, in some critical role on the board. And, you know, it kind of outlasted everybody if you look at his total tenure. But at any rate, so Mike was my first boss and then Steve was my boss later. And, but I collaborated with Steve a lot initially because on my second day at the company, Mike said, Trip, you know, something about business. Can you find a way for us to sell these to businesses? And that hadn't really happened yet. Cause only consumers were buying the Apple twos at this point. He was really just hobbyist. Were you able to sell it to businesses? We were. And, and of course the invention of the spreadsheet helped a lot. And I brought, I brought the Yeah, Visicalc. I brought the first spreadsheet into Apple.

• 33:27Speaker 01

  And that product line hung around for like 10 years. So the Apple two was a huge, turned out to be a huge business and it lasted much longer than anyone else thought, which was a good thing. It kept Apple alive. Because then Steve and I went out to scheme out the next generation. And honestly, we were way overly optimistic about how quickly that would be relevant. And ultimately, there was obviously a lot of failure there. And we had the right ideas, but the market was going to need time to develop. Is this primarily the Lisa? So it started with Lisa and then you go into the first Mac, which also didn't really do very much.

• 34:09Speaker 00

  Yeah, for how much the 1984 Macintosh is heralded today, it was not a best selling product.

• 34:14David Rosenthal?

  It was not a market success.

• 34:15Speaker 01

  Well, and ultimately, the financial struggles of the Mac is what got Steve kicked out.

• 34:19Speaker 00

  Yeah.

• 34:20Speaker 01

  So anyway, it is very interesting because then you start, you have a decade after he gets booted out where Apple keeps losing share. And it was Steve's fault, actually, because he wanted Microsoft apps for the Mac. And he was really careless about the IP license that they needed to do Windows because he didn't take that threat seriously.

• 34:42Speaker 00

  Whoa.

• 34:43Speaker 01

  And, and the licensing deal just really came back to haunt them. So by the time Apple realized, whoa, this is really not fair because Windows is copying our stuff. And they're putting it on all these PCs that are manufactured by all these different companies and we can't fight with that. And Apple's market share just kept getting smaller.

• 35:01Speaker 00

  Oh, my gosh.

• 35:02Speaker 01

  And finally, when Apple decided this is wrong and unfair and we're gonna have to sue Microsoft, Microsoft will say, well, here's the license agreement you guys gave us. And Bill had just, Bill had just outsmarted Steve.

• 35:13Speaker 00

  You didn't restrict us from, even though the Macintosh was the very first platform for Word and then Excel. And then even later in 89 PowerPoint, you didn't restrict us from putting it on other platforms.

• 35:24Speaker 01

  That's true also. And again, it was all Steve thinking it's all about us and we don't have to worry. They're not going to be able to do anything that's going to create a problem. Oops. So it's kind of funny because Steve saved Apple, but he destroyed it first.

• 35:38David Rosenthal?

  Oh, my goodness.

• 35:39Speaker 01

  And then, and then he goes back and he cleans up his own mess in pretty spectacular fashion.

• 35:44David Rosenthal?

  The Star Wars analogies are just too good.

• 35:46Speaker 00

  There's too many.

• 35:47Speaker 01

  Too many.

• 35:47Speaker 00

  Too many.

• 35:47David Rosenthal?

  So while you're at Apple, though, it's there that you realize that all of this software is a creative art. Was it at Apple that that's where you kind of started coming to this?

• 36:00Speaker 01

  I think one of the things I had learned from some of the courses I had taken in business school. That you probably don't want to start a company unless, I mean, the term distinctive competence was already around in those days. You better be good at something. But I had latched on to the notion that you'd better have a big idea. And I don't, I don't know how that seed first got planted. You know, there are people like Jim Collins, later they would call it the Bee Hag, you know, the, the big hairy audacious goal. So I thought, yeah, there's got to be some angle. There's got to be some unique dimension. In fact, that my favorite way of thinking about it is what's called the hedgehog concept.

• 36:41Speaker 01

  And that's where, yeah, it's not really about distinctive competence, because you can have a lot of competent competitors. But the hedgehog has to compete with a fox. The fox is really big. It's really fast. It's smart. It's got big, long teeth. And the hedgehog's not good at being a fox. What it can do is roll up into a ball and have spiky fur. And that's all it needs to do to defend itself from a fox. A fox will eventually get bored and leave it alone. So that's really what it's about. And I'm thinking about that while I'm at Apple. And I know 1982 is coming, and I know that's going to be the year. Wow, so that's in the back of your head this whole time? The whole time, the whole time. And I'm working with these incredibly creative software people like Bill Atkinson and Larry Tesler and many others.

• 37:25Speaker 01

  And it just finally occurred to me that these guys are not engineers. They're creative people. They're artists. They're, in fact, their personalities, it's almost like they're divas.

• 37:37David Rosenthal?

  Well, like you said, most of them either didn't go to college or dropped out or, you know, they're like, they're like Picasso's.

• 37:44Speaker 01

  Yeah, yeah. And, and boy, you've really got to think about how to manage them differently, organize them differently, give them their creative freedom and figure out what are the support services you need around people like that to enable them to really blossom and be their best selves. And that's when I realized that, yeah, you know, you may think of this as engineering, but this is actually an art form. And Hollywood is already turning art, other art forms into businesses. You get music and film and television and even book publishing kind of fits into this. And I thought, oh, okay. So there's a way to make a new company that really believes in this idea of a software artist

• 38:30Speaker 01

  and becomes a new kind of Hollywood around that new platform, that new medium. And I definitely saw it as an entirely new medium.

• 38:41Speaker 01

  I don't think anybody saw that before I did. I mean, I was thinking about that pretty early on.

• 38:45David Rosenthal?

  So as you're talking about this and, you know, eventually talking to Don Valentine and Sequoia about it, like, do people think you were crazy? Like, were they like, oh, yeah, this is like, you're on to something?

• 38:54Speaker 01

  Well, plenty of people thought I was crazy, like, like, yeah, like the head of economics at Harvard. I had a lot of people try, you know, try to shut me down or tell me that I had to do it.

• 39:02David Rosenthal?

  Okay, so you get this idea, it's 1982, the time has come and you're seeing, you're in the industry, PCs are coming into homes. What was the first step to electronic arts?

• 39:14Speaker 01

  So again, that maybe the last year at Apple, it was a difficult year.

• 39:19David Rosenthal?

  Apple was public, right?

• 39:21Speaker 01

  Yeah, and after the company had gone public in late 1980, suddenly there's all this wealth.

• 39:28Speaker 00

  It's a billion dollar company at this point, right?

• 39:30Speaker 01

  Yeah, well, in terms of revenue, it's in that range and the market cap is even, I think, more than that. I've kind of forgotten.

• 39:40David Rosenthal?

  This is 1980.

• 39:42Speaker 01

  Yeah, and again, it was a super high growth from the whole time I was there. The year before I got there, the revenue was around $2 million. And then my first year, it's, it was like, I think, 14.

• 39:56David Rosenthal?

  Wow.

• 39:56Speaker 01

  And then it was 60, and then it was 350. I mean, it was just crazy. And, you know, when I started, there were only 25 office workers and then we had about 25 guys on an assembly line in the back assembling a couple hundred of these hobby machines. And four years later, we have 4,000 employees.

• 40:14David Rosenthal?

  Steve's flying the pirate flag on the Mac office, right?

• 40:18Speaker 01

  And the thing is, it just kind of got out of control after we went public. It's like, when, when there starts to be the wealth, it attracts everybody. Everybody wants to work there. And then there's a lot of politics and bureaucracy and different fiefdoms and, and the CEO went a little crazy after the IPO and he ended up getting pushed out. So there was just chaos.

• 40:40Speaker 00

  Yeah.

• 40:41Speaker 01

  And, and then just various ways in which tension was growing. And, you know, the company was kind of heading into that malaise that really hit in the mid 80s. When John Sculley and Steve had their, you know, big championship prize fight. An episode for another day. Indeed. So those seeds were already getting planted and I was hanging around because I thought, you know, I'm working on products that haven't come to market yet. I really should finish that process. And, and yet I was not enjoying it. I mean, so I didn't really love being there, but I really, I felt like, wow, this company has been so good to me. They've been so loyal to me. This has been such an insane, fabulous opportunity. I've learned so much here.

• 41:25Speaker 01

  And that's actually maybe the best advice I would give anybody starting their career is don't think about the money at all. If necessary, work for free to get into the place you want to get into and then go to the place that isn't just the place that you're passionate about in terms of what they do and what their values are. But you basically want to go to the place where you're going to learn the fastest. And man, for me, the learning curve at Apple was incredible. And just the sheer talent of a lot of the people and the brilliance and the leadership and the creativity just to be around that. And then to have the thing organically growing that fast where you're seeing the outcomes of thousands of decisions and the good, the bad and the ugly. It was just amazing.

• 42:07Speaker 01

  So I just really felt like I kind of owed, there was a debt of gratitude there that kept me there, maybe even one or two years longer than I otherwise might've stayed. But I could see it coming and I'm thinking about it all the time. And then one day a fellow employee dropped off a magazine and said, hey, there's an article in here that might be of interest to you. And I found a different article, one page article about Don Valentine. And I thought, yeah, Don Valentine, I know who that is because basically Sequoia had come in after Mike had gotten things going. Around the time that I joined, the company did a very small venture round. They raised $3 million and Valentine led that deal. And joined the board, right?

• 42:49Speaker 01

  And the price per share was $3 per share. If you adjust for splits, it would probably be like a penny, maybe less. And about a year later, we did another round at $42 a share, which again would still be pennies if you adjust for splits. And that's when Valentine sold out.

• 43:09Speaker 01

  You know, so you can see, you know, it went from three to 42. He didn't do that bad, but it then from 42 went to like a hundred thousand, you know, so he missed out on most of the the value. And I remember sitting with Steve in his office around the time of that funding round and talking about what what is Valentine thinking? Why is he doing this? And we're just laughing about it because we both we both knew that $42 was actually still really cheap. Where we were headed, it was going to be much, much more than that and that he was going to miss the boat. And sure enough, he did miss the boat. But it left me with this curiosity about what did what is what did Valentine think we were doing wrong?

• 43:48David Rosenthal?

  Yeah, who is this?

• 43:48Speaker 01

  That made him want to jump off the bus. I was always curious about that.

• 43:52Speaker 00

  Has he ever talked about that? Do we ever? Does anyone ever?

• 43:54Speaker 01

  I'm sure Don would never admit that he ever made any kind of mistake about any investment.

• 44:02Speaker 01

  At any rate, I had this curiosity about Don and I'm reading this article and I'm already thinking about starting my own company. And it says in the article that a guy had come in to pitch him. And Don had intimidated the guy so badly that he passed out in his office.

• 44:18David Rosenthal?

  VC life goals.

• 44:19Speaker 01

  And in that moment, I'm thinking, I want Don Valentine as an investor. I want him on my board.

• 44:25David Rosenthal?

  Amazing.

• 44:26Speaker 01

  Because I want someone that tough, that's willing and able to stand up to me. I'm going to need that.

• 44:33David Rosenthal?

  Yeah. So you knew at this point, you know, both from your own experience and then from Apple, how hard this was, right? Starting a company and going on this journey.

• 44:41Speaker 01

  Yeah. And you know, you also realize particularly, you know, you hang around someone like Steve, it was a real blessing for me to have a really great relation with him and work closely with him for four years and get to really know him personally. We all have blind spots. And you've got to make sure in your team that there there's complementary people so that you everybody sees everything when you add it all up. And yes, Steve was really victimized by his blind spots. It would prove out in my career that I would be victimized by my blind spots. And you're just trying to figure out is to the extent of your ability at that time, you know, what kind of collaborative effort can we put? Together here. And again, I was just damn curious about this guy, Don Valentine, because I had not actually met him.

• 45:23Speaker 01

  So I contacted him and I go over to his office and I'm thinking, you know, he's, he's an older guy. He's kind of traditional and he's probably going to tell me that I really need to stay at Apple and finish the products I've been working on. To get closure and to not be a loser that would quit in the middle of my project. And that's not at all what he says. He says, I was asking, what do you think I should do? And he said, you need to quit Apple as soon as possible.

• 45:47David Rosenthal?

  Come over here and start this company right now.

• 45:49Speaker 01

  We got extra space, you know, come over, you can start right here. Because he's thinking, yeah, I want to control this thing.

• 45:54David Rosenthal?

  Absolutely.

• 45:55Speaker 01

  Have the inside track on it. And yeah, that was obviously a real breakthrough for me because I didn't expect to hear that.

• 46:02David Rosenthal?

  Can you tell us the story of, you guys went to lunch before the investment was closed, right? And what he said to you?

• 46:09Speaker 01

  Yeah, this is classic Don Valentine. So he takes me to his country club for lunch and this is before he's actually wired the money. So it hasn't quite happened yet. And he said, yeah, I just want to make sure that we're doing the right thing here to make the investment. And I just want you to understand that in the boardroom, if I'm telling you what to do and you always do what I say. Then what the hell do I need with you?

• 46:38Speaker 01

  He's basically saying.

• 46:40David Rosenthal?

  He wants you to stand up to him.

• 46:41Speaker 01

  You better, you better, you better be the dude that's got the vision for this thing and you'd better know it.

• 46:46David Rosenthal?

  I'm going to bring the fire. You got to bring the fire right back.

• 46:49Speaker 01

  And you, you better have some conviction about what you're doing because I'm investing in you. He's basically saying, if I'm the smartest guy in the room, then what the hell am I investing in you for?

• 47:01David Rosenthal?

  This is amazing.

• 47:02Speaker 00

  So we all know what Electronic Arts is today. I mean, it's like the second biggest gaming company in the world, like 30 billion, huge company. What was the vision in that conversation with Don when you said, I'm thinking about leaving Apple to do this thing? What was this thing?

• 47:19Speaker 01

  Yeah. So it was to start a new kind of game publisher. And if you go back and look at that original business plan, which I still have, it's probably the only copy that exists.

• 47:31Speaker 00

  Wow, wow.

• 47:32Speaker 01

  In that original business plan, it says that the company is a system.

• 47:38Speaker 01

  So a lot of times you think, oh, a company is a product. Or a company is a technology. A company is going to be a brand. What I wrote in that plan was, we're going to build a system. Modeled after Hollywood. Exactly. And it's basically a system that says, okay, we're going to go find these independent, brilliant, creative artists, and we're going to offer them a whole scheme of services and support. We're going to build development tools and create the equivalent of a digital arts studio. And of course, this comes to be the model of game development. And then we're going to invent new contracts, new packaging, new marketing methods, and a new channel of distribution. Because up to that point in time, nobody had sold software

• 48:22Speaker 01

  of any kind directly to retailers.

• 48:24Speaker 00

  Wow. So it really was this notion of sort of publisher first, studio or developer second. It's like, we're going to go and give the right structure and support to the right sort of developers. But we ourselves, who are core competency, is this big umbrella of distribution, services, infrastructure. I mean, it's much more so the way we think about a game publisher today. They've become much more bifurcated, but...

• 48:48Speaker 01

  Yeah. And honestly, I believe it was the beginning of professional video game publishing. Because what had come before that, there were actually some pretty capable people that had gotten started as early as 1980. So comes like Broderbrun. If you look at Doug Carlsen and his brother, those guys did a fabulous job. They were really classy competitors to have. In fact, we used to regularly play softball against them, and it was a fantastic rivalry. And I was always jealous of that company, because they always had some big monster hit game that was like half their revenue. And we never had that for, yeah, like the first 10 years. We were like more of a portfolio of, we had all these singles,

• 49:31Speaker 01

  and they always had a home run with the bases loaded. You know, it's great guys, great company. And so they were part of this, I think, early experimentation of moving something out of the hobby phase and really making a real business. But pretty much before electronic cards. But they didn't know distribution, right? Well, here's all the things that really were not true until Electronic Arts. One of them is that nobody had given an advance to a developer ever. Oh, wow. Nobody had a really So nobody was financing Nobody had a really good contract Yeah. About how this is going to work. Nobody had figured out the business model of exactly how do you compensate the developer? For example, what happens if I make a T-shirt about the game? What do they get for that? What happens if we want to make marketing posters? What happens if it gets turned into a movie later?

• 50:15Speaker 01

  I mean, just thinking all of that through and figuring, okay, well, we need to make money. And we want to make sure that we make it. But what can we do for them? Yeah. And of course, the recording industry had figured out all of this. Yeah. So that's what I did is I actually went to Hollywood and I got to know some people and asked one of them, can you get me a copy of a recording contract? Wow. And, you know, I'm studying that. And of course, I'd already done software contracts at Apple. And I went to my lawyer that I'd worked with at Apple and I said, look, we're going to take these two things. And we're going to make a whole new kind of contract. And I kind of directed them on how to knit it together, what stuff it needed to cover. And nobody had really thought about that process until then.

• 50:58Speaker 01

  And it's the same thing about everything about the distribution channel. We invented a new kind of packaging. And of course, the funny thing about that.

• 51:05Speaker 00

  Didn't it look like records or something?

• 51:06Speaker 01

  They were like, they were like record albums. And this starts, this starts with me just being cheap because I'm looking at the, the baggies, you know, the first generation of hobby packaging was just like a baggie with a disc in it.

• 51:19Speaker 00

  Yeah.

• 51:20Speaker 01

  Oh, my goodness. And I said, yeah, well, that's really not even professional. So we're going to have to do something. And I said, yeah, but it can't be very expensive to make it. And I thought, well, record albums are selling at retail for nine, nine dollars. So they can't really be spending a lot of money on the album cover. We'll just go to the records manufacturer, the guys that manufacture the record albums, we'll get them to give us albums. And we literally went to the largest one of those in the world. And they, they clued us into the fact, well, actually, it's about the paper cost and we can give you your own custom design. In a smaller size and you'll save money because it'll have less paper. And that's where we were able to design.

• 51:58David Rosenthal?

  The standard software box.

• 51:59Speaker 01

  A folding album that had a sleeve where you can put the manual and a sleeve where you can put the disc. And then enough space for all the artwork about the artist and about the game. And we're really the first people to kind of put the artist on the front. And have a lot of information about the artist. And to really make it say, hey, this is kind of like, this is, this is like showbiz.

• 52:23David Rosenthal?

  Yeah.

• 52:23Speaker 01

  And of course, again, ironically, the media loved the idea of the software artist and the idea that we're pioneering this new medium. And it's a new creative art form. They wrote about that all the time. But the gamers didn't care about it for quite a long time. In fact, they barely even knew who we were. Well, I was sitting on a plane next to this guy and you gotta, it's sometimes in these conversations, what do you do? And, and he found out I had a game company and he didn't know the name. He didn't know who Electronic Arts was. And I said, well, have you heard of this game? Oh, I have that. I kept naming games.

• 52:57David Rosenthal?

  Your games?

• 52:57Speaker 01

  And he kept saying he had them and I realized after a while, oh yeah, you know what? He's a software pirate. So this guy is getting all these, because everybody was pirating games. And I realized, yeah, the reason he doesn't know Electronic Arts is because he doesn't have any of the packaging.

• 53:13Speaker 01

  So maybe he's not noticing the logo when it pops up on the screen. It took forever for Electronic Arts to really have brand power. And for any of the individual artists to really have a brand notoriety themselves.

• 53:27Ben Gilbert?

  All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team. And deploying them is no longer the hard part.

• 53:41David Rosenthal?

  Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like the risks are real.

• 53:55Ben Gilbert?

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• 54:05David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 54:23Ben Gilbert?

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• 54:39David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 54:56Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 55:05David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you.

• 55:16Speaker 00

  Going back to the original financing and starting in Sequoia. So you mentioned that Don wanted it to start in Sequoia's office so that he could sort of control it and watch it. You, when you emailed us, and we've been going back and forth, mentioned that you had competing offers. How did that whole thing go down? And you ended up signing a deal to finance the company with $2 million. What did the terms end up being on that?

• 55:40Speaker 01

  Yeah, so I did accept Don's offer. I basically had funded the company originally myself.

• 55:48Speaker 00

  That's right. You put like $200,000 into it.

• 55:50Speaker 01

  It was closer to 300. And I was basically just running it myself. I was the only person. So I incorporated, I was running out of my home office and starting to have a lot of these conversations and kind of developing the business plan. And it was as soon as I started making job offers to other people that I thought, well, I don't want them working in my home.

• 56:15Speaker 01

  So I'll take Don up on his offer. And then next thing you know, we packed six people basically into, they gave us one office. Oh my gosh. I don't know, a few people there. At that time, there were different venture firms that were making offers. Again, you talk about the intimacy. I'm at home one day and the phone rings and it's John Doerr. I didn't, I didn't know who John Doerr was. And next thing I know, I've got Brooke Byers and John Doerr, you know, whining and dining me and trying to figure out how to get on the deal. I already knew Ben Rosen. Ben Rosen was the leading semiconductor analyst. Right. At a time when he worked for Morgan Stanley.

• 56:57Speaker 01

  And he became one of the first Visicalc spreadsheet users. And so he was, he was clearly one of the hobbyist innovators that kind of understood the, the desktop. Right. Benefit and became, I don't know, one of the influencers that, you know, helped, helped Apple get established. And of course he was an early, he must have been allowed in as an angel investor in one of the early rounds. He and LJ seven ended up starting a venture firm. Seven Rosen. So I had a relation with Ben from my time at Apple and it ended up that different firms were competing. Dave Markwart from his firm, he couldn't get into EA, so he invested in this other company called Microsoft. Whoa. That worked out really well.

• 57:42Speaker 01

  Was he August Capital? Yeah. Is that his? That's what he's called now, but it was a different name then. I forgot what the, that other company name was.

• 57:50Speaker 00

  And of course for listeners, John, John Doerr from Kleiner Perkins, Caulfield and Byers. And of course you mentioned Byers as well from.

• 57:57Speaker 01

  Yeah. So I ended up allowing Securie to lead because I felt they deserved that. And then the other half of the deal was divided between Seven Rosen and Kleiner. But Brooke and John from Kleiner, you know, they really wanted more. And so we ended up doing another round six months later at a price four times higher. Whoa. And again, this is, this is a thing that was, that was happening that was different than what had happened. For hardly anybody had raised any money.

• 58:27David Rosenthal?

  Yeah.

• 58:28Speaker 01

  And so here's Electronic Arts, we're saying, well, we've just raised more money than any game company ever.

• 58:32Speaker 00

  You're like the Uber of game publishers.

• 58:34Speaker 01

  And I've got the best lawyers and the best PR firm. And I'm just making sure we got the best of everything.

• 58:40Speaker 00

  We're stacked.

• 58:41Speaker 01

  There is a belief that I had at that time that we could be number one. And it's like, this is one of those things where I had to get my ass kicked later, many times and realize, you know, you don't always have to be number one. Because it's actually really hard. And if you're playing for number one, you're probably going to have to take bigger risks. And you know, sometimes it's okay to be in the top five or the top 10.

• 59:04Speaker 00

  Yep. How much of the company did you sell to raise that 2 million?

• 59:09Speaker 01

  You know, I think it's not that different than it is today. I think after those two rounds that EA did it, they probably owned close to half.

• 59:16David Rosenthal?

  Yeah. Which, and that was all the capital you raised as a private company.

• 59:20Speaker 01

  Well, actually, many years later, when we know we're pre-IPO, and we also know we're going into the console business and we're going to be manufacturing our own cartridges and, and probably fending off a big lawsuit because we're reverse engineering Sega Genesis.

• 59:35David Rosenthal?

  We're going to get into that.

• 59:36Speaker 01

  Knowing, knowing all of that, it's like, okay, let's do a mezzanine round. And, and then let's do an IPO. But, but yeah, pretty much the company was built on those, those first two rounds of capital. And even the IPO, which only brought in 8 million, which is kind of shocking by today's standards. That, that money had been sitting in, that 8 million has been sitting in EA's bank account ever since. I mean, they've never had to dip into it.

• 1:00:00David Rosenthal?

  Wow.

• 1:00:01Speaker 00

  It's amazing.

• 1:00:02David Rosenthal?

  That is different today.

• 1:00:03Speaker 00

  David, I know you're going to take us forward and we need to. One, one thing that I want to pull out of Trip is, does your business plan have the name of the company on it? And what was the name of the company that you incorporated as?

• 1:00:16Speaker 01

  Okay, so when I incorporated the company on May 27th, 1982, it was called Amazing Software.

• 1:00:24Speaker 01

  And it's funny because some people loved it and others hated it. And after I hired some employees and there's people hanging around the office and people are calling and they're having to answer the phone and say, amazing software.

• 1:00:38Speaker 01

  They, some of them just, no, this is not it. This is not the winning name. And it rather rapidly boiled down because of course I'm pushing for the idea that, you know, it's got to be about this idea of software as an art form. And there's different words that can come into that. And so we pretty quickly had it boiled down to either electronic artists. And I had just read a book about the history of United Artists. Right, of course. So, United Artists for me, you know, for a couple of years already at that time, was a great source of inspiration because it was a similar kind of analogy, what had happened there because these four great Hollywood talents had disrupted the system by forming their own studio. And that's what became United Artists.

• 1:01:23Speaker 01

  And so that's why Electronic Artists was on that list. And then Steve Hayes, also known as Shays, he said, well, we're not the artists, they are. And it was like, oh, okay.

• 1:01:40Speaker 01

  And this is about two o'clock in the morning. Yeah. And everyone goes, oh yeah, that's true. Yeah, okay, Electronic Arts then.

• 1:01:46Speaker 00

  They being the developers.

• 1:01:48Speaker 01

  Yeah, so we're serving the artists, but we're Electronic Arts. You're about the arts, but you are not the artists. We're the partner company. Of course, you know, that obviously changed over time. Eventually we had our own internal studios, et cetera. But this is what a lot of people don't appreciate about names is that in the beginning, they're completely arbitrary. They don't actually have any meaning. Any rate, you can get really personally attached to a name and think it really matters. But what really matters is how you go make that name mean something. And Electronic Arts was that kind of a mashup where at a minimum, it helped us tell the story to the media and got the media engaged in helping us spread the word. Because at the start of company, you can't do saturation bombing with advertising. You don't have the capital to do it.

• 1:02:32Speaker 01

  And if you're pioneering something new, it's going to build slowly. It's going to, word of mouth is going to be really important. Your reputation, based on the quality of what you're doing and the creativity in it.

• 1:02:42Speaker 00

  Yeah.

• 1:02:42Speaker 01

  That's what's going to have to drive it.

• 1:02:44David Rosenthal?

  Cool.

• 1:02:44Speaker 00

  So, we're going to dive in here and open up a chapter on EA Sports. There's one thing that happens before, and that's in 1983, you recruited Steve Wozniak to join the Board of Electronic Arts. How did that go down? And at that point, was then the board you and Steve and Don? And did it stay that way through IPO? And what was that relationship like?

• 1:03:05Speaker 01

  Well, actually, I founded the company in 1982, and the venture funding happened in December of 1982. So, from May through December, I owned the company.

• 1:03:17David Rosenthal?

  Right, right, right.

• 1:03:19Speaker 01

  And, and I'm paying for everything.

• 1:03:21Speaker 00

  Yep.

• 1:03:22Speaker 01

  And, and then we didn't really have to have a board meeting.

• 1:03:25Speaker 00

  Right.

• 1:03:25Speaker 01

  Until December, when, now, now there's venture investors and Kleiner's on the, you know, so Brooke Byers is on the board from Kleiner Perkins, Don Valentine's on the board. And that's, so Woz actually was on the board from the very beginning.

• 1:03:39David Rosenthal?

  Was he the independent board member?

• 1:03:40Speaker 01

  Yes, and we actually then added a couple of other spectacular independent board members the next year, including my all-time favorite board member, Dick Asher.

• 1:03:50David Rosenthal?

  So, the next year, 1983, after you get the venture financing wrapped up, one of, I don't believe it was your first title, but one of your first titles, this is where your other thread of sports reenters the story, is Dr. J and Larry Bird Go One-on-One.

• 1:04:06Speaker 00

  Which David and I watched some YouTube videos of last night and is still an awesome game.

• 1:04:10David Rosenthal?

  Is still awesome, incredible.

• 1:04:12Speaker 01

  You know, if you had a chance to actually play it, you'd even appreciate it more because the design was so simple and elegant that anybody could play it. In fact, it's actually, I think it might even be the only time in history that retailers, when you're out on a sales call, even you could get the retailers to play it.

• 1:04:30David Rosenthal?

  Wow.

• 1:04:31Speaker 01

  Mostly the retailers, you know, even like,

• 1:04:33David Rosenthal?

  They just want to move product.

• 1:04:34Speaker 01

  Honestly, even like John Madden. John Madden has never played Madden football. He would get his sons to play it.

• 1:04:40David Rosenthal?

  Yeah.

• 1:04:40Speaker 01

  You know, we worked very heavily with his two sons. But most people are intimidated. You hand them a joystick and they're thinking, I'm gonna screw up.

• 1:04:48David Rosenthal?

  Right, right, right.

• 1:04:48Speaker 01

  It's gonna be embarrassing and I don't want to humiliate myself, so no, you do it. And, you know, I've been on so many sales calls with so many different kinds of customers where they're saying, oh yeah, just show it to me.

• 1:04:58David Rosenthal?

  Yeah.

• 1:04:59Speaker 01

  But with that one-on-one game, basically, if you press the button, the guy would shoot the ball and it might go in. That's all you had to do.

• 1:05:07David Rosenthal?

  It's amazing.

• 1:05:08Speaker 01

  And then you would realize, oh hey, okay, I can do this. And then you start to move the stick and realize, oh, I can actually run around and I can go get that rebound.

• 1:05:17David Rosenthal?

  Yeah.

• 1:05:17Speaker 01

  And, you know, I can make this other kind of shot and I can do this. And then, you know, pretty soon you're realizing, I got this.

• 1:05:22David Rosenthal?

  Yeah. And it's so funny, last night in preparation, we played a little bit of NBA, the latest NBA Live game. We couldn't even figure out how to play basketball in it. Like, you started, it's just like, it's such a different world.

• 1:05:36Speaker 00

  We were playing it on the iPad, which I'm not sure is intended to be the real thing, but it was a nightmare.

• 1:05:41Speaker 01

  Yeah, this is an ongoing challenge, not just with games, but technology in general, is that the people that make it understand it really well because they're the ones making it.

• 1:05:50David Rosenthal?

  Yeah.

• 1:05:51Speaker 01

  And they underestimate the speed at which an average person can figure out what their intentions were and everything's still too difficult.

• 1:05:59Speaker 00

  There's that great aphorism in the gaming industry that a truly great game is easy to play, but almost impossible to master. That you can have this incredibly wide continuum of anybody can start playing, but you can't just beat it right away.

• 1:06:15David Rosenthal?

  Yeah.

• 1:06:15Speaker 01

  The way I always put that is great games are simple, hot and deep. You know, you, you, you need to be able to instantly get engaged. And, and then it's got to take full advantage of the powers of the medium to present itself. But then you've got to be able to keep going deeper. So I, I, I often would use the analogy of the ocean, you know, you go, you go down to the beach and there's people of all sizes and shapes and ages. And there's kids playing in the sand, they're the little babies that can't get in the water yet. And then there's slightly older children that are playing, you know, at the ankle level. And then as you go further out, eventually get all the way out to the dudes that are scuba diving.

• 1:06:56David Rosenthal?

  Yeah.

• 1:06:57Speaker 01

  And yeah, there's just no limit, you know, to where that can go. Yeah, that's what, that's who you want your game designer to do.

• 1:07:03David Rosenthal?

  Wow.

• 1:07:03Speaker 01

  Everybody can use that water.

• 1:07:05David Rosenthal?

  Yeah. So this game comes out. I believe this was the first, certainly athlete, but, but celebrity endorsement of a video game. Period. Ever, right?

• 1:07:18Speaker 01

  Yeah. What, what was new about it? It was really the birth of EA Sports, even though we didn't call it EA Sports at the time. It was the first time that any kind of celebrity had appeared in a video game. Doing either being themselves or being an actor even. So it was the, the first of its kind in that way.

• 1:07:38David Rosenthal?

  Back to the idea of, you know, records and the packaging and the distribution. I mean, this is, this is just the next step in that process, right? In that breakthrough of making games mainstream.

• 1:07:48Speaker 01

  I really wanted to make games like football and baseball.

• 1:07:50David Rosenthal?

  Right.

• 1:07:51Speaker 01

  And, and we, we did a variety of things in the, from the very beginning. So we did a golf game really early that didn't have any licensing. It was called World Tour Golf. And we, you know, fairly quickly got to something involving driving. I don't remember what the first one was, but there were a lot of things that we did. But Dr. J and Larry Bird was really the start of EA Sports. And I wanted to do a team game, but with 8 bit technology. It's kind of limited. And I thought, well, how about just two guys?

• 1:08:20David Rosenthal?

  4K memory.

• 1:08:21Speaker 01

  And, you know, you know, yeah, hey, Dr. J was a big hero of mine. And this is one of the ways you can learn about yourself is if you notice who your heroes are, they have values and passions and abilities that resonate with you because they're deep in you. And so I was, I was a huge fan of Joe Namath, a huge fan of Dr. J. And those guys broke all the rules. You know, they went to the rebel leagues.

• 1:08:48David Rosenthal?

  Yeah, yeah, yeah.

• 1:08:49Speaker 01

  They got outrageously paid. They did crazy things with their hair. They, they wore crazy, you know, pioneering the use of white shoes and football and

• 1:08:58David Rosenthal?

  Yeah.

• 1:08:59Speaker 01

  And the ABA with the multicolored basketball.

• 1:09:02David Rosenthal?

  Basketball, yeah.

• 1:09:03Speaker 01

  And then obviously their style of play, right?

• 1:09:05David Rosenthal?

  Yeah.

• 1:09:06Speaker 01

  Just super creative. So these, these guys were the, you know, the rebels with that pirate swagger.

• 1:09:12David Rosenthal?

  Yeah.

• 1:09:13Speaker 01

  And that's pretty much something you see that's really common with good entrepreneurs.

• 1:09:17David Rosenthal?

  Yeah.

• 1:09:17Speaker 01

  They've got that swagger.

• 1:09:19David Rosenthal?

  Example number one.

• 1:09:20Speaker 01

  Yeah. So anyway, so here I am. I'm a, this guy, I worship this guy. And Dr. J happened to be one of the top one or two most popular athletes in the world at that time.

• 1:09:29Speaker 00

  You see a lot of yourself in his sort of, uh,

• 1:09:32Speaker 01

  Yeah. So he's just a hero to me.

• 1:09:33Speaker 00

  Yeah.

• 1:09:34Speaker 01

  And, you know, I'm, I'm just delighted by the concept of see if I can do a business deal with him. And we, we were working with a lawyer that knew his agent. And so we had a pathway. And I was able to present to Julius, the idea that this is going to be something good for the world. This is a new medium. It's going to have all this educational value. And he had had kids already. And so I was able to help him frame it as your kids are going to grow up through this, and this is going to be a new thing. And one of the fabulous things about Julius is that he was already basically an ambassador for basketball.

• 1:10:08David Rosenthal?

  Yeah.

• 1:10:09Speaker 01

  And he understood that this was a new medium that was going to be, allow basketball to happen in a new way.

• 1:10:16David Rosenthal?

  Yeah.

• 1:10:16Speaker 01

  That would in fact have educational value. And by the way, John Madden was attracted to the same thing. John and I knew.

• 1:10:21David Rosenthal?

  It absolutely became true.

• 1:10:22Speaker 01

  Yeah. We, we knew that players and coaches are going to use the football game that we're making because it's going to be a serious.

• 1:10:29David Rosenthal?

  When I was playing football in high school, this would have been 90, 99 to 2000. And three, my coach, who was his first year as a head coach was my freshman year and or my sophomore year, and he would assign, he would say, go on Madden, draw up the plays, like, you know, create the plays on Madden that we're running in our playbook.

• 1:10:50Speaker 01

  Right.

• 1:10:50David Rosenthal?

  Input the stats for all of us, who's I think your stats are, and then like, go home and learn the plays.

• 1:10:56Speaker 01

  Yeah, learn to read defenses.

• 1:10:57David Rosenthal?

  That's wild. Yeah, it was amazing.

• 1:11:00Speaker 01

  Yeah. So anyway, Julius agreed. He was paid $25,000 and got a 2.5% royalty.

• 1:11:09David Rosenthal?

  Wow.

• 1:11:09Speaker 01

  And then, as soon as he was on, we offered Larry Bird the same contract, and that made it easy to get him on board.

• 1:11:17David Rosenthal?

  Wow.

• 1:11:18Speaker 01

  And Chris, what a perfect rivalry. I mean, they were, they were already banging heads and they're, both of them played on great championship caliber teams. And, and then it was a matter of, you know, make, making a design that worked well for what the platforms could do then.

• 1:11:32David Rosenthal?

  Wow. So way back to the beginning of the story, football is always your dream. What came next after that? After, after you saw that this could work?

• 1:11:40Speaker 01

  The Dr. J game, it was pretty successful for us, and it made me think, yeah, this is really going to work. And I thought, okay, well then, let's do football because that's what I, at that time, cared about the most.

• 1:11:53Speaker 00

  Yeah, that's got to be quite validating because while it seems obvious now that sports video games are, I mean, a huge and ridiculous market, at that time, it wasn't even clear that like, it could work because no one had really done it before. And so it had to be incredibly validating that you, you ship that title, like literally ship that title, and people play it and like it, and you get good feedback. I mean, that had to be this like sigh of relief almost.

• 1:12:15Speaker 01

  Yeah. And again, you're, you're noticing that there's an audience that wants a more authentic sports experience. That's, that's a more accurate simulation of the real thing.

• 1:12:24Speaker 00

  Yeah.

• 1:12:25Speaker 01

  As compared to, say, the other treatment that it was generally getting, where it's like a form of amusement. So Pong is a great game. It's a great form of amusement, and you could say that it has something in common with tennis. But it's not a simulation of, of the game of tennis.

• 1:12:43Speaker 00

  Right.

• 1:12:43Speaker 01

  Anyway, I didn't want to have some simple action arcade mechanic that allowed you to swing at a pitch and hit a baseball or run around as a football player and have it not be the real thing. And of course, with football, you've got 22 guys running around the field. So I didn't realize at that moment, and this is like 1984, because 60-bit technology, it's already coming.

• 1:13:10David Rosenthal?

  Yeah, but it's not there yet.

• 1:13:11Speaker 01

  But it's gonna be, it turns out it was gonna be a while. And 8-bit wasn't really quite good enough. So we thought, okay, this will take a year. And of course, it took four. I knew that, yeah, to make a really effective game, you're gonna have to do it literally like a football play where the offense is at the bottom, the defense is at the top, and you're moving up the screen. And then, of course, you're gonna want to try to present that with a little bit of a 3D view that's a little bit like it's behind the quarterback.

• 1:13:40Speaker 00

  Yeah, which amazingly, like, two incredible things about this. One, still the visual metaphor used to this day in the most popular gaming franchise, or one of the most popular gaming franchises in the world. And two, they literally fly a camera now on the field that is that angle.

• 1:13:57Speaker 01

  Yeah, that's actually my favorite thing about the evolution of sports games is the way the broadcasters and the game companies keep referencing each other and they get inspired by each other's ideas. So they're sort of co-evolving.

• 1:14:09David Rosenthal?

  There was, I think it was, it was a year or two ago, in a game, I wish I'd written down who did it, a wide receiver ran parallel to the end zone to run out time on the clock, which is a Madden move. This happened in an NFL game.

• 1:14:22Speaker 00

  Madden 2000, I did that all the time.

• 1:14:24David Rosenthal?

  Absolutely. But for the first time, it happened in a real NFL game. It's amazing. Okay, so this is 1984, the technology's not there yet. John Madden, I will get into, but he was not your first choice, right? For the football version, for the football celebrity endorser, right?

• 1:14:42Speaker 01

  Yeah, at that, at that point, I was, I was thinking, you know, um, maybe, maybe we don't have to pay a royalty because there isn't anyone athlete that can really represent football. And I could work with a coach and that would actually help me fill in gaps in my own knowledge. But, you know, maybe we just pay a coach consulting fee and it doesn't have to be, we, we can just make up our own brand and own the brand. But I thought, you know, if we're gonna, if we're gonna have a brand name and we're gonna be paying a royalty, who's the biggest brand? Human being. And I instantly thought of Madden because, look, the guy had already won a Super

• 1:15:22Speaker 01

  Bowl and proven to be a Hall of Fame caliber coach. He'd been a player also. And then he'd become an Emmy award winning, multiple Emmy award winning broadcaster and he was in the middle of a, what would be a very long career. So the guy was always gonna be on TV.

• 1:15:36David Rosenthal?

  Yeah.

• 1:15:36Speaker 01

  And he's the ace hardware man.

• 1:15:38David Rosenthal?

  Yeah.

• 1:15:39Speaker 01

  He's in the Miller Lite beer commercials, breaking through barriers and.

• 1:15:42David Rosenthal?

  And of course, I, I mean, I think probably most listeners don't remember this, but, uh, his Hall of Fame coaching career was with the Raiders and Al Davis, you know, the just win baby era, you know, he was, he checked all the boxes in credibility.

• 1:15:55Speaker 01

  Yes. So, and I thought, okay, well, let's just go to the top of the food chain and talk to them. And by, by this time, we had enough contact with enough agents, there was easy to find out, okay, who, who do I talk to? And I had, I had a flight in New York City to meet with his agent. She agreed that it was a good proposition. And then she sold John on it. And not too long after that, it got turned over to a more junior agent who really became John's kind of personal agent, this guy Sandy Montag, who was, worked with John for decades. And we signed the deal. And then at that point, okay, we have a signed agreement, so we need to start actually doing the work. And that's when a couple of colleagues and I flew to Denver and got on the train.

• 1:16:39David Rosenthal?

  Wow, because John famously doesn't fly.

• 1:16:41Speaker 01

  Yeah. And we, he, he wasn't at the, at the Madden Cruiser yet. He was still taking Amtrak. He eventually got tired of the limited train schedules. But we basically got on a train and the train went. West and for two days, all we did day and night was talk football. Wow, that's so amazing.

• 1:16:58Speaker 00

  And so, John insisted on something that, that the technology arguably couldn't do yet. And that was put 11 players on the field because his strong feeling was that if we're going to do a football game, we're going to do an authentic football game. How did that sort of negotiation go? And then how did you guys get to work on, on that requirement?

• 1:17:17Speaker 01

  Well, you know, like the Dr. J game, I was the designer.

• 1:17:21Speaker 00

  Mm hmm.

• 1:17:22Speaker 01

  And to come into that meeting with John, I, I had already done a lot of work on a design. I had probably at least a 60 page design document already for an 11 on 11 football game. But we were worried about how it would work on an eight bit machine. And as a player, I was already familiar with skeleton, which is where you take the guards and the tackles off the field. You don't worry about the, the trench warfare and all the blocking. Seven on seven. And, you know, in, in that kind of seven on seven framework, you're still running the ball. You just don't have as many blockers and tacklers in the equation. And you've got all the pass patterns and all, all the passing game stuff and all the open field stuff.

• 1:18:01Speaker 00

  So it's 80 20 football.

• 1:18:03Speaker 01

  Yeah. And to go into this, that two day meeting with John, I had to prepare a list of questions. And this, it was just page after page after page of questions. And I think the question about, hey, what do you think about skeleton? It was like question number five or something. And I, I wanted to bring it up as I just thought, hey, you know, it just, this, this is, this is just an idea. It wasn't something I was committed to. It was just one of the many things I had to ask him about. How violent was his reaction? Well, here's the thing about John.

• 1:18:33Speaker 01

  You have to understand, if you're an NFL coach, there are 60 very large men who could probably just grab your head and pop it like a grape. And some of them are on steroids and so they're sometimes really angry. So you have to control those people. So how the heck do you actually command and control those kinds of people? And what, what do you find with John is here's a guy who's a big guy. He was an offensive lineman. Yep. And he's got all the dominance traits of a highly masculine human being.

• 1:19:03Speaker 01

  And that include the fact that every third word out of his mouth is the F word. And, and yet, he's an incredibly intelligent guy and a brilliant strategic thinker and a brilliant operational thinker.

• 1:19:15David Rosenthal?

  Yeah.

• 1:19:15Speaker 01

  So if you were building a giant factory in China, he would be a great guy to go run that factory because he's that kind of a.

• 1:19:21David Rosenthal?

  Well, then he could see, he could see, you know, obviously his, you approached his agent, the agent said it was good, but like, he became so involved, he could see that this was a project worth doing.

• 1:19:31Speaker 01

  Yeah.

• 1:19:31David Rosenthal?

  And worth doing.

• 1:19:32Speaker 01

  Totally. But that's where I began to realize why he was so good at what he does, because the guy is really, really smart. And of course, great strategic thinker, I'll give you a couple of examples in a moment, but it was, it was, it was very clear that he knew how to function well in football because of this combination of abilities that he had. And he was, he was always very blunt, always very direct. So the, the whole thing comes up about skeleton, he just says, well, that's not football. That's all he had to say is, okay, next question.

• 1:20:05Speaker 01

  So it's funny, the, the media has blown it up into this big thing.

• 1:20:08Speaker 00

  I was gonna say, yeah, my research made this like seminal moment of the negotiation.

• 1:20:12Speaker 01

  It, it really wasn't because none of us really want, all of us wanted 11 on 11.

• 1:20:16Speaker 00

  Right.

• 1:20:17David Rosenthal?

  Yeah.

• 1:20:17Speaker 01

  And, and he, he just said, yeah, no, we're, we all, we all want the real thing. Yeah, we're all going, yeah, we all want the real thing, so we'll just suck it up and figure out how to make it work. And ultimately we did, I mean, that eight bit Apple version, that was the eight bit product that also got onto the IBM PC.

• 1:20:32David Rosenthal?

  And that came out in 1988.

• 1:20:34Speaker 01

  Came out in 88. And the, it won awards and the guys that reviewed that game said, this is kind of unbelievable that this thing actually works at all. You know, and people were really impressed, like, how did they manage to do this on an eight bit machine? It was, but of course it took forever.

• 1:20:50Speaker 00

  I was gonna say, a lot of blood, sweat and tears. I mean, the, the, um, do you want to share the story of the nickname of, of Madden?

• 1:20:56Speaker 01

  Yeah, well, towards the end of that phase, the auditors that were doing an annual audit of the company financials, they came to me and said, hey, I just want to make sure you know that the advance that you paid to Madden, it has no asset value because we've decided that you're never going to recoup it. So we're going to cause, you know, in your financials, it's going to be written off as a, as a complete waste of money. Basically, it's an expense. It has no asset value. And I'm going, uh huh. And I'm saying, it's interesting, why am I not hearing this from my CFO or some of the other executives?

• 1:21:33David Rosenthal?

  They're too scared to tell you.

• 1:21:35Speaker 01

  And that's when I learned that, yeah, none of them wanted to tell me. And that's where the auditors were sent directly to me to tell me. And that's when I learned that, yeah, they actually called, yeah, Trip, they actually call this project Trip's Folly.

• 1:21:47David Rosenthal?

  Wow.

• 1:21:48Speaker 01

  And by the way, Walt Disney had, had that happen to him. Walt's Folly was the film Snow White.

• 1:21:56David Rosenthal?

  Oh, wow. Which of course.

• 1:21:57Speaker 01

  Started it all.

• 1:21:58David Rosenthal?

  Started, yeah.

• 1:21:59Speaker 01

  Yeah.

• 1:22:00Ben Gilbert?

  Transformed.

• 1:22:01Speaker 01

  But that Snow White was the first full-length animated film. And everybody thought, you can't do that. It's got to be a short.

• 1:22:06David Rosenthal?

  Yeah.

• 1:22:07Speaker 01

  And Walt says, nah, I don't think so.

• 1:22:08Ben Gilbert?

  Meanwhile, I think as of 2013, Madden had done $4 billion in revenue as a franchise and has only continued to grow from there.

• 1:22:19David Rosenthal?

  Yeah.

• 1:22:20Speaker 01

  Yeah. So that was a pretty good folly.

• 1:22:21David Rosenthal?

  Yeah. Sometimes folly is, I mean, even foreshadowing for a future episode, but Snow White had a very large impact on Airbnb. Yes, these things are sometimes worth pursuing.

• 1:22:31Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 1:22:45David Rosenthal?

  Yep. It's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:23:01Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 1:23:17David Rosenthal?

  And that's how you get features that customers love, like Tabular Review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 1:23:41Ben Gilbert?

  And they recently launched Legora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 1:24:00David Rosenthal?

  And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Legora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 1:24:30Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at legora.com/acquired and just tell them that Ben and David sent you.

• 1:24:55David Rosenthal?

  So the game finally comes out for the Apple II. Like you said, it got ported to the IBM PC, but that wasn't the market and that wasn't what made Madden and that frankly, that wasn't what made EA. It was in 1992 years later, the game comes out for the Sega Genesis, but there was, in our research, it seems like this was the pivotal moment for EA as a company. Can you tell us about, about how you go from PC game publisher to the console market and then going from, at IPO, I think the market cap was 60 million to then 2 billion a couple of years later?

• 1:25:35Speaker 01

  Yes, so in the mid 80s, the whole industry is struggling to grow because the console market had imploded with the collapse of Atari and that had acquired kind of a bad image and a bad reputation with the public.

• 1:25:52Speaker 00

  And was that because of intense competition? Why did Atari collapse?

• 1:25:55Speaker 01

  Well, they were heavily promoting something that had very limited capacity. So it was at some point kind of seemed like a hula hoop because it pretty much was. And they didn't, they didn't understand that.

• 1:26:08David Rosenthal?

  And the NES came out, what, like 86, 87?

• 1:26:11Speaker 01

  Yeah, so the NES had come out in Japan and they brought it to America in the mid 80s. And the problem there was that the guys making the personal computers didn't care that much about graphics and sound, which mattered a great deal with games. And of course, that equipment was fairly expensive. And then Nintendo comes in and they're offering a pretty good multimedia platform for a hundred bucks.

• 1:26:38David Rosenthal?

  Yeah.

• 1:26:39Speaker 01

  And yet, it's a very different business model where Nintendo controls everything and there's no creative freedom and the manufacturing cost is really high because you have to make circuit boards and chips.

• 1:26:48David Rosenthal?

  Yep, yep.

• 1:26:49Speaker 01

  You know, it's not the incredible efficiency of, say, an optical disc.

• 1:26:53David Rosenthal?

  Nintendo didn't view, maybe even their own first parties, they did, but even that, they didn't view game developers as artists.

• 1:27:00Speaker 01

  That's right. In fact, they do that about Miyamoto-san. They had their own brilliant people that have in fact always made great first-party games.

• 1:27:10David Rosenthal?

  But the third parties were...

• 1:27:12Speaker 01

  They were happy to let some third parties tag along as long as they got overpaid by them for permission. And yeah, it never really worked out all that well for anybody to be a third-party Nintendo licensee. That's why, pretty much forever, it's been about, for Nintendo's platforms, it's always been more about the first-party games that Nintendo's making. But I was really worried that there was a hardware problem between the business model of Nintendo and the lack of multimedia features. And so I'm already thinking about that. And I was already a really big fan of the Motorola MC68000 processor because Steve and I had picked it

• 1:27:53David Rosenthal?

  Right.

• 1:27:54Speaker 01

  For Apple's next-gen machines.

• 1:27:56David Rosenthal?

  Yeah.

• 1:27:57Speaker 01

  Well, anyway, when we started EA, the first development systems we bought were Sun Workstations with that processor. And then CoinOp machines started using that processor. And we licensed games like Marvel Madness from Atari CoinOp. And we were able to port it to the Commodore Amiga, the Atari SD, which also came out in the mid-'80s with that processor. So we were very familiar with that processor. And we find out that Sega, which had been limited to only 1% market share of 8-bit consoles

• 1:28:28David Rosenthal?

  Yeah, with the master system that they had, yeah.

• 1:28:30Speaker 01

  They were going to come to market first with the first 16-bit console, using that processor with a sound chip, with a graphics chip, and a price under $200. And I thought, wow, we've built a tremendous arsenal of 16-bit technology, tools, and game brands. And they just don't line up with the right platform. This could be that platform.

• 1:28:54David Rosenthal?

  This is the iPhone moment, right?

• 1:28:57Speaker 01

  And the funny thing about it is that Nintendo was so successful. They had 98% market share. So all of the third-party game developers, they either refused to do Nintendo because the cost structure and the risk and the controls, they just said, I don't like that, and I'm just not going to do it. I'll stick with this little business I have on the IBM PC or whatever. So they either did that, like the guys at Broderbund.

• 1:29:21David Rosenthal?

  Yeah, yeah.

• 1:29:22Speaker 01

  Or they said, well, if I'm going to be in the console market, it's going to have to be on Nintendo because they have all the market share. And there's really only one company that had a pretty good ride that way, which was Acclaim.

• 1:29:33David Rosenthal?

  Right, right, right.

• 1:29:34Speaker 01

  And even they eventually went under because of all the constraints about the console side. And there were some other big Japanese companies like Konami that had a pretty good run, but even they faded. So it just the bigger third party in that business model has never really worked out that well. Anyway, so I'm looking for a different kind of answer and I think, okay, it could be this machine. So it's coming out in the fall of 1988 in Japan. And so we, we buy one at retail or buy a few at retail and bring them back to the United States.

• 1:30:05David Rosenthal?

  And Sega's ambition was to recreate the Nintendo ecosystem for themselves, right?

• 1:30:09Speaker 01

  Well, I didn't know that yet. We didn't know what they're gonna do because they had, they had not had a third party program for their eight bit machine. So maybe they're gonna make, maybe they're still gonna do that and they would just have their own games. So we get the machine and we're thinking, wow, yeah, this thing's pretty badass. We really like what it can do. And, and then I, then I said, well, we're, let's reverse engineer it. And let's make sure we do that legally correctly. So we don't infringe copyright law. And then we'll be able to make our own games for it. We don't have to be a licensee.

• 1:30:40David Rosenthal?

  Wow.

• 1:30:41Speaker 01

  And that's when basically I decided that it was time to take the company public because they're like, yeah, you know, they're gonna sue us.

• 1:30:49David Rosenthal?

  Yeah.

• 1:30:49Speaker 01

  And we're gonna probably be tied up in court for a while. We need some more ammo before we go into that battle. Just a mezzanine isn't gonna cut it.

• 1:30:56David Rosenthal?

  What did your board think about this, by the way?

• 1:30:58Speaker 01

  Well, it took a little while to get everybody behind it.

• 1:31:01David Rosenthal?

  Were they fired up? Like, did they see the potential here too, or?

• 1:31:06Speaker 01

  You know, I think there's two layers to that. First of all, you gotta, you gotta get the management team in support of it. And once, the management team believes it's a good adventure, then you go pitch the board. Because the board, the board wants to make sure, you know, they're gonna look around the room and go, is everybody in on this? Or because, you know, why would they support it if they can tell there's, there's factions in the management team that don't believe it's a good idea? And, you know, thankfully, everybody was in and, and off we went. And I compare this to what Lawrence of Arabia did by attacking Akaba from the rear. And this was a turning point in World War I in the battle with the Turks.

• 1:31:46David Rosenthal?

  Yeah.

• 1:31:46Speaker 01

  And they, they did basically what everybody thought was impossible to do. And by the way, that's still my favorite movie and I've. Actually been to several of the locations where Lawrence, the real Lawrence was, and I've been to several locations where they made the movie. So I'm a complete fanatic about it. Oh, cool. But at any rate, we embarked on that adventure and there was some really heroic work done by Jim Nicholls and Steve Hayes and David Maynard. To go into a, what's called a clean room. And you can't even take anything in there with you. You go in there and you've got the equipment and you can't bring. This is to reverse engineer the Genesis. Yeah, you can't bring tools in with you. You go into that room and the room is essentially sealed. And then you have to create tools from scratch.

• 1:32:31Speaker 01

  And figure out a way to unravel the mystery of how that machine, that black box, how does it work? And it took a year. Wow. So they're off doing this for a year and they're doing that heroically, knowing that they won't get to be able to make games for it. And here's the quirk of the copyright law is that they're going to need to use a disassembler to take an existing game. And look at the code of that game on a screen. Mm hmm. And they're violating copyright. They took the game down to assembly code and. Well, if you're trying to understand, what is this machine doing? You're going to need to look at images of what's in memory. Yeah. Wow. Okay. Now you're looking at something that is being visually represented on the screen.

• 1:33:14Speaker 01

  A copy of what's in memory is being shown on the screen. That is a copyright infringing act. Yeah. However, in the context of a clean room, it's covered under fair use. That if you're just, if all you're trying to do is figure out how this black box works, that's okay. But if you exploit that information to make software for that machine, now it's not a fair use anymore. So. Steve Hayes, David Maynard, Jim Nicholls, these are guys that had made games for Electronic Arts. They know they're not going to be the ones making games for the sake of Genesis. This is like a Star Wars movie. Oh, these guys are the greatest heroes in the history of Electronic Arts. Wow. And Jim Nicholls.

• 1:33:56Speaker 01

  Always a serious alcoholic, dead at a very young age. Wow. And I'll just treasure this guy forever because he was the one who stuck with that and did the heavy lifting in the end. Wow. That figured it out and made that sacrifice and it's still to this day kind of makes me want to start crying. Wow. Oh, my goodness. And it just, what those guys did. Anyway, it was going on for months. We knew that the product was going to come to the US in the fall of 1989 and we're thinking, well, hey, we're beginning to figure this thing out and we don't see any reason why we can't make our own games for it because it's not like Nintendo. Nintendo had a little security chip.

• 1:34:39Speaker 00

  Yeah, they've always been good at DRM.

• 1:34:41Speaker 01

  You know, there's a security chip on the cartridge and it's handshaking with a security chip that's in the console. Yeah. Saying, are you a legitimate Nintendo cartridge? Yes or no? And in order for you to do that, you would have to infringe a patent. Hmm. So we actually did work reverse engineering the Nintendo, but then we realized that, you know, because of the patent.

• 1:35:00Speaker 00

  It's not, yeah.

• 1:35:01Speaker 01

  You know, we'll get our ass kicked. So let's not do that. And as a result, you know, EA did make a few Nintendo games, but we were never able to really put enough attention on Nintendo. There wasn't a way to make enough money. So meanwhile, we're kind of all in on the Sega Genesis and we're worried that, like Nintendo, see Nintendo had released that console, the Famicom.

• 1:35:23Speaker 00

  Yep.

• 1:35:23Speaker 01

  In Japan with no security chip. It was the American version. BNES. That introduced that chip.

• 1:35:30Speaker 00

  I see.

• 1:35:30Speaker 01

  And we're worried, well, what if Sega does the same thing? Well, they didn't. Wow. So, okay, the coast is clear.

• 1:35:35Speaker 00

  So their entire mechanism, just to like, really make sure I have it, to make sure that their games were the only ones that would run on the platform was to just not publish any documentation on how anyone could publish for the platform.

• 1:35:47Speaker 01

  That's right.

• 1:35:47Speaker 00

  But since you guys.

• 1:35:50Speaker 01

  It's a black box and you only get the information if you sign their license agreement. Apple does that to this day.

• 1:35:54Speaker 00

  Yep.

• 1:35:55Speaker 01

  Right. Although the Supreme Court has recently had a few things to say about that.

• 1:35:58Speaker 00

  And also there's iPhone jailbreakers. So famously Craig Hockenberry with Twitterific for the first iPhone before there was an App Store figured out, reverse engineered, similar to you guys, what the API structure was to write code for it. Like you guys in figuring out and reverse engineering the black box were able to write games for it and then they would just work.

• 1:36:18Speaker 01

  Yeah, so we got it all figured out. And then we started getting development teams started making games. So that was starting in the fall of 89. And that's when we went public. And we're ready for the war, which is going to start the next year.

• 1:36:34Speaker 00

  You got fresh 8 million in your pocket.

• 1:36:37Speaker 01

  So here we go. And then by the spring of 1990, we've got games ready to come to market. And this is where some of the first games like Budokan and Populous.

• 1:36:49David Rosenthal?

  Oh, yeah.

• 1:36:50Speaker 01

  And by this time, by the way, I was talking to third-party game publishers that were, we handled their distribution and competitors. I'm going around talking to a lot of people saying, hey,

• 1:37:01David Rosenthal?

  You're forming an alliance.

• 1:37:02Speaker 01

  This is what we're doing. And if you want to be partners with us, there's various ways we can partner with you to have us all operate something. It's a little bit like what Epic is doing now, challenging

• 1:37:11Speaker 00

  Google.

• 1:37:11Speaker 01

  The Steam Store and Google Play.

• 1:37:13Speaker 00

  Yep.

• 1:37:14Speaker 01

  And I'm really so delighted to see that, by the way. I mean, I just, I love what they're doing.

• 1:37:18Speaker 00

  Yeah, this seems to be a theme in your career is figuring out how to allow the creators of the games to have that more direct relationship.

• 1:37:25Speaker 01

  Yeah, and honestly, it's really simple. What I've always been passionate about is the power of the medium and the freedom of creative people to exploit it in a variety of ways that the public can have access to. So anybody that wants to come along and choke that to death and control it and prevent certain things from being viable, yeah, not a fan.

• 1:37:48Speaker 00

  Yeah.

• 1:37:49David Rosenthal?

  Well, you're right. It ends up like in a creative art form like this, it ends up killing. I mean, look at, look no further than the state of gaming in the App Store. Fortnite being a notable exception over the last 45 years.

• 1:38:02Speaker 01

  You have a success rate now, it's like 1 in 1,000

• 1:38:05David Rosenthal?

  Yep.

• 1:38:05Speaker 01

  That of apps that actually make money.

• 1:38:07David Rosenthal?

  Yep.

• 1:38:08Speaker 00

  Is your offer to all these other game publishers, joining your alliance, hey, we've effectively recreated a software development kit? Or we've created one and you can have access to this amazing documentation?

• 1:38:18Speaker 01

  Here's the funny part of the story is that we're getting closer and closer to coming to market. And we're actually out making sales calls, retailers are placing orders. And we're ready to roll. There's a CES show in Chicago that's going to be in June. And that's going to be the big unveil.

• 1:38:36Speaker 01

  And about, I don't know, 45 days before that, I thought, you know, I'm really committed to this plan. And at the same time, as a CEO of a public company and as a competent executive, maybe I ought to go talk to Sega and see if we could actually maybe partner. And I think, I don't really want to do that. And I said, well, yeah, but you really, you really ought to do that. Anyway, so I called up the chairman of Sega, who actually is the founder of Sega. Sega was started by David Rosen. He started it in Japan while he had been a American serviceman after the war. And he had noticed the soldiers after the war that were assigned to be there. They had a lot of free time with nothing to do.

• 1:39:22Speaker 01

  And there was demand for like pinball machines and stuff like that. The patinko machines, right? And so Sega was actually one of the first makers of, you know, mechanical, you know, games to go on a military basis. Oh, wow. So that's how Sega actually got started. I did not know that. I just thought it was a Japanese company. And of course, it then became a pretty big business globally. And eventually Nakayama-san, who was the leading distributor into the channels in Japan, he ended up buying out the company. Wow. And David Rosen had actually sold it to an American company before that. And so he was out of it. And Nakayama-san brought him back in as chairman. Wow. So I called up David and he's basically saying, are you crazy?

• 1:40:07Speaker 01

  Are you nuts? You're running a public company. We're going to destroy your stock price when the news hits about us suing you. And how do you know we can't just change the machine to make sure all your games don't work? I mean, he's just hitting me with every possible threat.

• 1:40:22Speaker 00

  And you're sitting there laser focused in a game of chicken being like, yeah, I just don't think you can.

• 1:40:26Speaker 01

  Pretty much. And I'm just saying, well, you know, hey, yeah, maybe we should get together and talk about it. All right. So we end up having this meeting. And it starts us down the road of this process of discussing ways that we could actually partner. And unbeknownst to me, they're all terrified because they're planning on having this third party program. In fact, they'd been socializing that with me for a year. I'd been having these rope-a-dope kind of conversations with them where they would come in and try to excel me on becoming a third-party licensee for the Sega Genesis. And I would have to pretend that I think it's kind of interesting, but they're not we're ready to do it yet. Meanwhile, I got guys in the next room, you know, reverse engineering our machine, and they don't know.

• 1:41:09Speaker 00

  And what are terms to become an official licensee?

• 1:41:11Speaker 01

  Well, there was a lot of discussion about that, as you can imagine. So my idea was to pay them very little. Their idea was to pay them a lot. I basically was willing to pay two bucks a unit, up to a million units, and then not pay them anything else.

• 1:41:30Speaker 00

  And those units are games, per disc or card sold.

• 1:41:33Speaker 01

  They actually, it turns out, were really worried that I was having... They had heard about... They're out trying to convince other people to do third-party deals. And they're all saying, "Hey, Trip just came to see me." "Trip made me a better offer, so if you really..." But they're all saying no to me. I mean, none of those people wanted to do it. They were too terrified.

• 1:41:53Speaker 00

  But they're also saying no to Sega.

• 1:41:54Speaker 01

  They're just playing me against Sega. They're using me to try to help improve their position with Sega. And Sega's actually worried that I'm going to tank their third-party program. I did not know that. Amazing. I found that out much later. Meanwhile, I'm thinking, "I don't have to make this deal with Sega." This is the thing about any kind of negotiation. You need to have leverage. And being able to be committed to a position helps you get leverage. Because the other side thinks, "Yeah, okay, that's what they're committed to." And in this case, I was fully convinced we didn't need to have a license. So there's no way they can force me to get a license. I believe I'd be happy to go to court instead. So they're beginning to catch on to that. And we get down to the point where, okay, we're pretty much in agreement on everything else.

• 1:42:39Speaker 01

  The only things at issue is they would like to get $2 per unit forever, and I want to cap it. At a million units. And everyone on my management team is saying, Trip, you've done a fabulous job. Take the $2 per unit and forget about the cap. And I'm saying, you know, I pretty much know that they're going to sue us. And I really am convinced that what we're doing is completely legally correct. And I don't mind playing this out. And I know that they'll sue us and we'll be prepared and we'll go through document discovery and they'll see us engaged with that. And then we'll maybe be moving towards going to court. And they're going to reach a point where they realize that we're going to fight it out all the way to the end and that they can't beat us.

• 1:43:22Speaker 01

  And then they'll drop the $2 per unit thing and settle for the cap. And I'm willing to play it out that way, even if it takes six months. Did they realize the power of Madden football at this point? No, we'll come back to Madden. Anyway, I'm having this conversation with my staff and they're all rolling their eyes. And lo and behold, I get on a plane, I go to CES and David Rosen and our lawyers hunker down. And they agreed to what I was, what I wanted. So we, we never had to go to court. Wow. And again, I don't really, I didn't really understand at the time that I had so much leverage because they were afraid that CES is going to start and we're going to make this news and we're going to blow up their third party program. They're launching soon.

• 1:44:07Speaker 01

  I already knew I had no program with others. They apparently didn't know that.

• 1:44:12Speaker 00

  Oh my God, just flying right in with a bluff the whole time.

• 1:44:16Speaker 01

  I was just a little lucky there. Wow. And didn't have to go through that harangue of six months of the stock price getting trashed. But by the way, that when EA went public, the market cap was 80 million. Okay. Sorry. But then it dropped to 60 million. And, and this persisted, I think we actually hit bottom later that year. So here we are announcing we're going to do Sega, but the, the market's going, who the hell is Sega? Sega's got no position in this business. We don't know if that's going to lose them money or what.

• 1:44:47Speaker 01

  You know, nobody's talking about it. And then we just started cranking out better quarterly results, astronomically better quarterly results for the next several quarters. And it took another, I don't know, maybe a year or two. For the market to wake up. And the company was worth $2 billion. I mean, it just really transformed in the next year or two.

• 1:45:04Speaker 00

  And was that Madden for Sega that just created all that revenue?

• 1:45:08Speaker 01

  Well, we already had Madden almost finished by the time that negotiation wrapped up. And it was going to ship, I think in September of 1990. And it was, it was not too long after that show that Sega contacted us and said, you know, it turns out that our developers that are making our football game, which they had made a deal with Joe Montana to be their Right, right, right. platform spokesperson to promote their whole product line. And they thought, well, hey, part of their deal with him being their television spokesperson included putting his name on a game.

• 1:45:40Speaker 00

  Which is hard. Like you guys

• 1:45:42Speaker 01

  Oh, so he was spokesperson for the Genesis console? Yes. Wow. And their entire business. So they had, they had a studio, outside studio, a developer making that football game.

• 1:45:53Speaker 00

  Oh, man.

• 1:45:53Speaker 01

  And they found out that that game was going to miss Christmas. Oh, wow. They contacted me and said, hey, so Nakayama-san gets on the phone with me and say, and says, for the good of the platform that we all depend on here, you need to make a sacrifice for the team by taking Madden and changing it into Montana football. And we'll pay you some money for that. And then we'll all have a successful Christmas. And at least one of my high ranking executives said, yeah, that's a good idea. Let's do that. And I looked at him and I said, what?

• 1:46:29Speaker 00

  We have the goose. Like, we have the goose.

• 1:46:31Speaker 01

  We've already taken this game to our best retail customers. They've, we've already got thousands of orders for the thing. This is going to be a key franchise for us. You know, I've been waiting years for this. I'm not going to give it to them.

• 1:46:44Speaker 00

  Right.

• 1:46:45Speaker 01

  And then, and then I thought about it and go, oh, wait a minute. We can do both. So I go back to Sega and I say, okay, here's the deal. In six weeks, we're going to hand you the game. That's going to be Joe Montana football. You're going to give us $2 million in cash. I got my $2 million back.

• 1:47:03Speaker 01

  And we literally cranked out this different game in six weeks by taking Madden and basically dumbing it down. So, look, I had put the playbook together. So, the Sega version had, I think, 135 plays. The Montana had 13. So, I took out 90% of the plays. Yep. And then, instead of the sort of half 3D camera view. Top-down, yeah, yeah. Like Jim Simmons, the engineer that built this Genesis version, he basically invented this idea of the fake 3D angle. Yeah, the 16-bit 3D. With scaling of the sprites. Yeah. So that it looked like the players were a little more like 3D objects. So he could just remove that scaling factor.

• 1:47:48Speaker 01

  The safety's back at the... Well, in Japan, by the way, the sports games were known as big head games. Yeah. Where it was a little cartoony with a baseball player with a really big head. So, okay, we're gonna give them that. Because I knew that didn't sell in America. And that we're gonna give them a really plain 2D, top-down camera view. Wow. And then we took out some other stuff. And it felt, okay, now it's not threatening. It's not gonna interfere. It's not really gonna, it's gonna be an arcade thing. And of course, what we did with Madden was a great market compromise, is we had a meeting of the minds in the developers' community around Madden, where we said, okay, we wanted to have the

• 1:48:28Speaker 01

  simulation accuracy, but it's gotta be more of an arcade game. And this is an audience. The players are gonna be younger. They're gonna be more interested in the action side of it. So the design had to take that into account. It was really a great design. And again, I think what Jim Simmons did in building that first version was among the most amazing work I've seen done in my career. And that engine that he built was so good that we immediately turned it into the hockey game. And that was the debut of our first hockey game. Huh. Remember that hockey game?

• 1:49:03David Rosenthal?

  Wow.

• 1:49:03Speaker 00

  Huh.

• 1:49:04David Rosenthal?

  Did Madden and Montana ship at the same time?

• 1:49:07Speaker 01

  Yeah, so they both came out for Christmas and they were two of the five best selling games at Christmas.

• 1:49:12David Rosenthal?

  Wow.

• 1:49:12Speaker 01

  And nobody knew that under the hood.

• 1:49:15David Rosenthal?

  Montana was mad.

• 1:49:16Speaker 01

  Ninety-eight percent of the same code base.

• 1:49:19David Rosenthal?

  Wow. That's incredible. And that really built EA into into everything that it is today, right? Uh, the console game, you know, Madden just grows year after year after year. And has the beauty of the sports season that you can release a new version every year and make it better every year.

• 1:49:39Speaker 01

  Yeah, that was one thing that I had grown up playing that game, Stratocatic, where every year you got new cards. Because the players have changed teams and they had performed differently and their stats are different. And you want the the real thing, you know, therefore you want you want the the current players at their current levels of ability. And so that was just a given. So after.

• 1:50:01David Rosenthal?

  The new hot rookies that have just got drafted out of college.

• 1:50:04Speaker 01

  Ever since the first version of Madden had come out, we had started doing a player, a player disc every year. And it was a little awkward with consoles because there was no way to do an add-on later. Everything had to be on the cartridge. So the first version, you know, it had neither an NFL license nor a player's license. And we were kind of faking our way through this for a while, like that very first version of Madden.

• 1:50:28Speaker 00

  Which now is a very expensive license.

• 1:50:31Speaker 01

  Uh, indeed, although it's it's a it's a actually a fair deal because.

• 1:50:35David Rosenthal?

  Yeah.

• 1:50:35Speaker 01

  What what EA was able to do is build a brand and build a market position so that they had some leverage in that negotiation.

• 1:50:42Speaker 00

  Just an unbelievable, several times here at Acquired, as David says, turns on a knife point, or as I'll say.

• 1:50:49David Rosenthal?

  Turns on a knife point.

• 1:50:50Speaker 00

  Pull the e-brake, cut the wheel to the left. I mean, you guys just came out with flying colors. The building blows up behind you, you know, you you run out. It's like the end of an action movie.

• 1:50:59Speaker 01

  And well, you know, it's it's true. It really was that kind of pivot, but before we even did any of that. The company had been profitable with revenue growth for the prior five years and.

• 1:51:11Speaker 00

  Yeah, so you guys have been profitable like since. You started, right?

• 1:51:14Speaker 01

  Well, no, no, the first couple of years, you got to invest and spend money and, you know, build, build distribution. And we got, you know, we got fairly close in 1984 to running out of money. And it was right around that time that it kind of tilted enough. And it was profitable in the fourth quarter of, of 1984 and then profitable after that.

• 1:51:35Speaker 00

  Got it.

• 1:51:36Speaker 01

  So it was already a successful business, but yeah, in terms of unlocking an order of magnitude jump in the value, yeah.

• 1:51:44Speaker 00

  Yeah. Well, this is the part of our show where we ask, what would have happened otherwise? So can you talk a little bit about the calculus on why you decided to go public? And did you consider not going public? Cause many a gaming company, you know, you, you could have been private for a long time, especially if you're making money and you don't need to take any further investment.

• 1:52:02Speaker 01

  I've always believed in being kind of egalitarian about my companies. So basically everybody's going to get stock options, no matter what they do. And we're going to try to figure out how to be a shared owners of the business and have everybody feel like, yeah, there's something in it for me to have a long-term view here and to stick around and to go through the tough times and get that reward in addition to the other rewards. And you can't really do that and stay private because there's just not going to be a sufficiently liquid marketplace for the shares unless you either sell the company or you go public.

• 1:52:38Speaker 00

  Yeah.

• 1:52:39Speaker 01

  I have been there for three IPOs, two of which I led. So it's not, it's not foreign territory for me to think, to think this way, but not everybody in Silicon Valley wants to give shares to everybody. In fact, there's a lot of big tech companies like Oracle, I think maybe 20% of employees have stock options. You know, big companies maybe have a ESOP, you know, employee stock ownership plan, but you're not going to get very much. I've just always believed in everybody sharing in that. And, and then you've got to have some long-term plan for how you're going to get to liquidity.

• 1:53:10Speaker 00

  Were you facing pressure from shareholders saying, hey, we really should, you know, it's been however many years.

• 1:53:16Speaker 01

  Seven years.

• 1:53:16Speaker 00

  Seven years, we really should think about returning capital to.

• 1:53:19Speaker 01

  Yeah, well, these three IPOs that I was around, Apple went at a time when it was perfectly appropriate for Apple to do it.

• 1:53:26Speaker 00

  Yep.

• 1:53:27Speaker 01

  And it was a mixed blessing because it clearly changed the culture of the company in a negative way, but it really did help put the company on the map and give it plenty of resources. I think Electronic Arts, it took too long.

• 1:53:41Speaker 00

  Hmm.

• 1:53:41Speaker 01

  And yeah, it was, it was seven years and it was painful for some employees. And there was a lot of frustration and disappointment.

• 1:53:50Speaker 00

  Right.

• 1:53:50Speaker 01

  A lot of it had to do with the economy not being in the right place in the mid to late eighties. And then, of course, 3DO later went probably way too early. But it was almost like the company had no shot at even remotely trying to do what it was going to do if it didn't go out ahead of things.

• 1:54:06Speaker 00

  And this is your gaming hardware business later that, that you started after EA?

• 1:54:10Speaker 01

  Yeah, it actually was started at EA. I mean, it was kind of a skunk works inside EA.

• 1:54:14Speaker 00

  That's right.

• 1:54:15Speaker 01

  And then it ended up spinning out as a separate company. And it's a very sad sordid story because it was a very ambitious idea. And I had been on such a run of success that, again, that's where your greatest strength turns out to be your greatest weakness because you think you're infallible or invincible at that point. And you don't realize that you're finally pushing over that edge.

• 1:54:41Speaker 00

  Hmm.

• 1:54:42Speaker 01

  And, you know, I, when I think about that concept, it reminds me of these great drivers like Niki Lauda and Eder Tonsena.

• 1:54:50Speaker 00

  Yeah.

• 1:54:50Speaker 01

  Where they really know how to push a car to that very edge where just a little bit more and you're going to turn it into an airplane and it's going to fly off the course. And that's what both of those guys did. And they did it on, on wet tracks when they, in theory, could have known better.

• 1:55:06Speaker 00

  Yeah.

• 1:55:07Speaker 01

  But they, but they knew how good they were and they knew that they were really good at managing that edge until you, until you don't.

• 1:55:12Speaker 00

  Mm hmm.

• 1:55:13Speaker 01

  And, you know, so 3DO was that kind of an experience for me. And I really had a genuine interest in. Getting a platform out there that had, that could solve all of these issues that we're creating these bottlenecks on the hardware side and holding developers back and holding the public interest back.

• 1:55:32David Rosenthal?

  Mm hmm.

• 1:55:33Speaker 01

  Of course, all that stuff ended up getting sorted out, you know, on its own.

• 1:55:37David Rosenthal?

  Yeah.

• 1:55:37Speaker 01

  Somewhat longer timeframe. But probably the most classic mistake I've made the most in my career is being too early. Just a lot of, a lot of us entrepreneurs, we see something, envision that product, and we don't appreciate the fact that it's going to take a while to educate the audience and have them be willing to pay for it.

• 1:55:56Speaker 00

  Well, don't be too hard on yourself. I mean, we wouldn't be sitting here today if you didn't have the discipline to go and take a job at Apple for years before 1982.

• 1:56:03Speaker 01

  Yeah, it's just, it's an interesting issue for entrepreneurs.

• 1:56:08David Rosenthal?

  Yeah.

• 1:56:08Speaker 01

  To figure out what is the right timing of your ideas.

• 1:56:10Speaker 00

  Mm hmm. Last question on the EA IPO and sort of thinking about that versus other options. Was it beneficial for the company? And what did it enable the company to do that, that you guys couldn't have otherwise done if you had remained private, other than achieve liquidity for all the shareholders?

• 1:56:26Speaker 01

  If you knew in hindsight that you were going to make a deal with Sega.

• 1:56:30David Rosenthal?

  Yeah.

• 1:56:31Speaker 01

  The company wouldn't have needed to go public.

• 1:56:33Speaker 00

  Right.

• 1:56:33David Rosenthal?

  You could have gone public a year later at a 10x, 20x valuation.

• 1:56:38Speaker 01

  Yeah, perhaps. I think in the end, it's still, you know, it's a happy outcome for everybody. I'm sure a whole lot of long-term employees were delighted that we went public. And none of us was delighted with the stock. Been flat as a pancake and even trailing down after the first.

• 1:56:53Speaker 00

  Hey, look, we saw it with Facebook. We're potentially seeing it right now with Uber. Sometimes it doesn't.

• 1:56:57David Rosenthal?

  I think this is something that has been, I understand it as a entrepreneur, a startup employee as venture capitalist, like you, you can come to look at the IPO as like the end game, right?

• 1:57:11Speaker 01

  It's really not.

• 1:57:11David Rosenthal?

  It's not.

• 1:57:12Speaker 01

  It's the end of the beginning.

• 1:57:13David Rosenthal?

  Right. And so the valuation that you achieve and that you pump up to for that IPO, you just keep thinking higher and higher and higher and higher. But as we've seen with Facebook and as the story is still to be written on Uber and Lyft, what happens after the IPO matters just as much, if not more, for your ultimate valuation and liquidity, where you decide to cash out.

• 1:57:35Speaker 01

  Yeah, and again, in hindsight, I can clearly see that 3DO, it wasn't a solid enough business proposition to really deserve to be started in the first place. And it definitely was.

• 1:57:50Speaker 01

  Not a good idea to take it public. Yeah. And I think if you're going to take something public, you've got to have a really concrete idea of what operating business model you have that you're going to be able to continue to systematically move forward and fairly steadily improve upon. Otherwise, you just, you just, you shouldn't just voice that off in the public. And we saw this a couple of years ago with all the crypto stuff. Oh, yeah. Where, really, come on. I mean, there were so many schemes and I thought it was kind of sad because, because they were able to skirt a lot of the securities laws by offering to do it, you know, in exchange for the cryptocurrency. And yeah, a lot of those chickens have come home to roost. Yeah.

• 1:58:32Speaker 00

  Should we bring it home to grading?

• 1:58:33Speaker 01

  I think we should.

• 1:58:35Speaker 00

  Trip, the way this all started was in an acquisition we grade. With all these years of hindsight, was it a good idea for the big company to buy the little company? Was that a good use of capital? The way that we have adapted that for IPOs is, was the transaction a good idea for the company to do? Did they do something interesting with the capital? Did they need the capital for something? Was a change in shareholders beneficial to the business in some particular way? And frankly, the grading is a little bit more arbitrary in the, in these IPOs. But the discussion is, I think, the more important part. And the thing that I index on, when I lean really positive on, on grading the, the transaction, and, and we don't care as much about sort of like how it went mechanically, like, yeah,

• 1:59:17Speaker 00

  the stock dipped afterwards, but like, that's not what we're here to litigate. The really interesting thing to me is what an incredible negotiating position it gave you with Sega. And if you sort of didn't have, just raised that cash, have been a more sort of legitimate public company, you may not have been able to have the leverage that you needed in those negotiations to ultimately get your 1 million unit cap.

• 1:59:43Speaker 01

  Yeah, that's, that's true. I would also add that we already had a pretty good history as a private company making acquisitions. And there again, you're going to end up with shareholders that are going to want some liquidity. But as everybody knows, after Electronic Arts went public, it made it even easier to make acquisitions. And the company made a ton of acquisitions in the 1990s. A ton. And the really big- Too many to even enumerate. If you think about the really big strategic lever that ultimately enabled EA Sports to be a big deal, it's the distribution channel. It's having a big pipeline so that the NFL wants to do business with you. And others want to do business with you. And that's how you get FIFA and Harry Potter and everything else that's happened. Yeah.

• 2:00:26Speaker 01

  And being public and being able to acquire things and to be able to flow more goods through that channel as you're really building the power of that channel.

• 2:00:33Speaker 00

  Yep. It's funny, we hadn't really talked about that as a benefit of going public yet on this show is when you're buying companies with all stock and you're private, it's harder to do those transactions. When you're public, you know, whether you're paying with cash or whether you're paying with stock, it's roughly equivalent to the, yeah, since it's liquid, you can do a lot more of it.

• 2:00:52Speaker 01

  One of the ways it's different is that in a private scenario, the acquisitions you're more likely to be able to make are going to be smaller and they're likely to be struggling in some way, which is why they're willing to sell it. Whereas after you're public and you've got the currency, now you can buy a really healthy operating business. You can pay a fair price for it, but it doesn't cost, necessarily have to cost you a lot of cash. And then you just bolt that on to your operating results.

• 2:01:18Speaker 00

  Building EA to what it is today.

• 2:01:19Speaker 01

  Yeah.

• 2:01:21Speaker 00

  David, how do you think about it? And how would you throw a grade on that?

• 2:01:23David Rosenthal?

  Well, I think, I mean, it was obviously the right thing to do. Yeah, I mean, it's, it's an A for sure. The grading I think is most interesting on this show for IPOs that just happened. Like we just did Lyft, we did Pinterest, we did Uber. And there we paint the scenario of what's going to make this an A in five or 10 years and what's going to make this a D in five or 10 years. This is exactly what you would have painted the scenario as an A. It would give you leverage to massively expand the business into a new market, make acquisitions, which became a huge part of the strategy over the next 20 years. Obviously an A.

• 2:01:56Speaker 00

  Yep.

• 2:01:57Speaker 01

  Right on.

• 2:01:59Speaker 00

  All right, I think that is all we've got.

• 2:02:02David Rosenthal?

  That is all we've got. Thank you, Trip.

• 2:02:05Speaker 00

  Thank you so much for joining us.

• 2:02:07Speaker 01

  My pleasure. It's been fun.

• 2:02:10David Rosenthal?

  All right, listeners, now is a great time to talk about one of our favorite companies, Statsig.

• 2:02:16Ben Gilbert?

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• 2:02:27David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 2:02:47Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 2:02:59David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 2:03:10Speaker 00

  Well, listeners, if you aren't subscribed and you like what you hear, you totally should. We'll be gloriously covering all of the remaining big upcoming IPOs and doing more of our classic bread and butter episodes on acquisitions as well. If you want to go deeper on what it's like to build a startup, get interviews with expert operators and VCs and explore some of David and my personal theses, you should become an Acquired Limited Partner at glow.fm/acquired. And we will see you next time.

• 2:03:37David Rosenthal?

  See you next time.