Atari (with Nolan Bushnell)

We’re joined by the legendary Nolan Bushnell, founder not only of Atari, but also the only person ever to hire Steve Jobs, the recipient of Sequoia Capital’s first-ever investment, and the creator of Chuck E. Cheese, the canonical GPS navigation arrow, and a little project that would go on to become Pixar. We cover it all in this special episode! 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 Links:Spacewar!, the first video game: https://en.wikipedia.org/wiki/Spacewar! The meaning of Atari: https://en.wiktionary.org/wiki/atariNolan’s current project, St. Noire: https://www.amazon.com/St-Noire-Hosted-Cinematic-Exclusive/dp/B07P693BG1

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

• 0:00Speaker 00

  We'll talk during the paid portion of this podcast where I advertise my game.

• 0:19Ben Gilbert?

  Welcome to season five, episode five of Acquired, the podcast about great technology companies and the stories behind them. I'm Ben Gilbert and I'm the co-founder of Pioneer Square Labs, a startup studio and early-stage venture fund in Seattle.

• 0:34David Rosenthal?

  And I'm David Rosenthal and I'm a general partner at Wave Capital, an early-stage venture firm focused on marketplaces based in San Francisco.

• 0:42Ben Gilbert?

  And we are your hosts. Today, we are talking about the company that invented the home video game industry, Atari. And we have someone with us who's got some pretty good stories about it, the founder of Atari, the father of the video game industry, Nolan Bushnell. Hello, Nolan.

• 0:58Speaker 00

  Great to be here. Good fun.

• 1:01David Rosenthal?

  Thank you so much for joining us.

• 1:03Ben Gilbert?

  As some of our listeners know, Nolan has started a swath of other businesses, one of which awesomely is Chuck E. Cheese, which we will get much, much deeper into later this episode.

• 1:14David Rosenthal?

  We dug up some photos of young Ben last night.

• 1:17Ben Gilbert?

  Yeah, Nolan, I should let you know, I'm going to turn my computer around right now. Chuck E. Cheese was like by far and away my favorite place in the world growing up.

• 1:26Speaker 00

  He was designed that way, you know.

• 1:30Ben Gilbert?

  Here's some pictures of my third birthday at Chuck E. Cheese. And there's me with my favorite toy, which is a Chuck E. Doll.

• 1:36Speaker 00

  How fun.

• 1:37Ben Gilbert?

  Now, Nolan, this is fun timing for us and for our listeners, since our last episode covered the early days of Sequoia Capital and Don Valentine's career, which you had a lot to do with.

• 1:48Speaker 00

  Well, Don was really maybe the best board member I've ever had. He was also the most frustrating and infuriating. You know, he had this ability to ask me a question about my own company that I didn't know, but the minute he asked it, I knew I should have known then. So I started to cram for board meetings, saying, okay, Don's not going to catch me this time. And he always would. So I always believed that a proper insightful question can be very instructive.

• 2:23David Rosenthal?

  And that was, as we covered on our last episode, you know, Don and the Socratic method, that was really the root of, you know, what he pioneered at Sequoia.

• 2:31Speaker 00

  Yeah.

• 2:31Ben Gilbert?

  Well, listeners, our last limited partner episode was a deep dive into marketplaces from an academic perspective. On this show, we often talk about the levers at play in marketplace businesses. And as you would suspect, there are experts who have spent their careers studying and categorizing things like take rate, search and discovery problem, and when to subsidize. One such expert is Ramesh Johari, a professor at Stanford and advisor to Wave, along with Uber, Airbnb, Stitch Fix, and many other great marketplace businesses. So if you want to listen and become an acquired limited partner, you can get started with a seven day free trial and listen right here in the podcast player of your choice by clicking the link in the show notes or going to glow.fm/acquired.

• 3:14Ben 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.

• 3:33David 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.

• 3:54Ben 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.

• 4:16David 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.

• 4:35Ben 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. And now on to Atari.

• 5:05David Rosenthal?

  Yeah, let's do it. Nolan, you were born in Clearfield, Utah, right? Just is that just outside Salt Lake City?

• 5:11Speaker 00

  It's about halfway between Salt Lake and Ogden.

• 5:14David Rosenthal?

  Okay, okay. We were talking a bit before the show about you're reflecting on how you became an entrepreneur. It started pretty early, right? With with strawberries.

• 5:25Speaker 00

  Yeah.

• 5:26David Rosenthal?

  Can you tell us the story about your first business venture in Clearfield?

• 5:30Speaker 00

  Well, my mother over dinner table said, we've got too many strawberries. We always had a truck garden in the back of the house. And she said, we've got way too many strawberries. We're going to have to give them away. So happens the next day she took me to a grocery store and I noticed in the produce section, they had strawberries in these baskets for 50 cents a basket. I thought to myself, self, hey, there's a market. And I went home, I picked strawberries, filled the basket. We had a bunch of baskets sitting on the shelf in the garage, filled them up and marketed them door to door. At the end of the day, I mean, this is an hour and a half's work. And the end of the day I had five bucks. This is in a world in which my allowance was 15 cents a week.

• 6:15David Rosenthal?

  Wow.

• 6:16Speaker 00

  And so all of a sudden I said.

• 6:19David Rosenthal?

  What did your family think of this?

• 6:21Speaker 00

  Well, my mom was really. First of all, she said, well, you you took those that money from our neighbors?

• 6:29Speaker 00

  You know, I said, no, but I provided a service. They didn't have to go all the way to the store.

• 6:34Ben Gilbert?

  Yeah.

• 6:35David Rosenthal?

  You're like the Good Eggs of, I don't think Good Eggs is down in Southern California yet, but it's fresh farm to table groceries. Delivered to your door in San Francisco. It's wonderful. Jenny loves it. We use it all the time.

• 6:46Speaker 00

  Now, here's the question. I've often felt that that changed my brain to say, okay, de-link pay for hours. Into get a good project.

• 7:01David Rosenthal?

  Yeah.

• 7:01Speaker 00

  Or did I have a brain that was different to begin to see that connection between strawberries and a marketplace?

• 7:12Ben Gilbert?

  Yeah, nurture or nature.

• 7:13Speaker 00

  Nature or nurture. And and I can't answer that, but.

• 7:17David Rosenthal?

  But you but you saw this yourself. I mean, your mom didn't tell you to go.

• 7:20Speaker 00

  Oh, yeah.

• 7:20David Rosenthal?

  Uh, start selling strawberries.

• 7:22Speaker 00

  Yeah.

• 7:22David Rosenthal?

  Yeah, you must have been younger than 10 at this point, right?

• 7:25Speaker 00

  I was eight.

• 7:26David Rosenthal?

  Wow. And then when you were about 10, you started a TV repair business.

• 7:31Speaker 00

  That's correct.

• 7:32David Rosenthal?

  Right?

• 7:32Speaker 00

  Yeah.

• 7:33David Rosenthal?

  And that would come in quite useful later, I would imagine.

• 7:36Speaker 00

  Well, I'd always been kind of a techie kid. I was always curious about how things worked and that sort of thing. And I watched a TV repairman that came to our house. The TVs were big and bulky, and so it was all house calls. And.

• 7:52David Rosenthal?

  This was the 1960s?

• 7:55Speaker 00

  No, no, this was 1953.

• 7:58David Rosenthal?

  Wow.

• 7:59Speaker 00

  I mean.

• 7:59David Rosenthal?

  Real big. The TVs were like a piece of furniture.

• 8:02Speaker 00

  Yeah, and and basically cost a month's salary.

• 8:06David Rosenthal?

  Wow.

• 8:06Speaker 00

  You know, so it was a different ballgame. And and I noticed that all the guy did was change tubes. So the next time our TV failed, I said, I'm going to give this a go. And of course.

• 8:20Ben Gilbert?

  I'm sure it went great the first time.

• 8:21Speaker 00

  Well, I got a shock and, you know, there were various things. I learned how to discharge the CRT because that, you know, it's popped up to 15,000 volts. You don't want to do that.

• 8:32David Rosenthal?

  Entrepreneurship comes with risk.

• 8:34Speaker 00

  Yeah, but you know, in those days, the schematic on the back panel, one tube was the vertical oscillator, another one was the first IF. And so all of a sudden I could tell which was. So if you had a lot of roll, that was the vertical oscillator. And if it was, you know, and so just by looking at the screen, it was almost self diagnostic. And so I fixed it. And in doing so, I'd found a wholesale supplier of tubes. These are all tubes. This is for semiconductors. I'm, I'm really old.

• 9:07David Rosenthal?

  This is, this is before Fairchild.

• 9:09Speaker 00

  Yeah.

• 9:09David Rosenthal?

  Yeah.

• 9:09Speaker 00

  And so I said, hey, maybe there's a business here. And so I started marketing my skills. And at those days, a house call was, was five bucks.

• 9:22David Rosenthal?

  Wow. So you could spend all day selling strawberries or you could do one house call for the same amount.

• 9:26Speaker 00

  No, but I didn't believe that they're going to let a 10 year old kid get into the back of their thing for five bucks. So I decided to, to charge 50 cents for a house call.

• 9:37David Rosenthal?

  Oh, you undercut the market.

• 9:39Speaker 00

  I undercut the market a long way. And my theory was that I would monetize a different way through marking up the tubes.

• 9:46David Rosenthal?

  Hmm.

• 9:48Speaker 00

  And that worked swimmingly.

• 9:49David Rosenthal?

  It's almost like a cartridge to the console business.

• 9:52Speaker 00

  And then, then, you know, a couple of months in, I started getting a reputation. So I went up to a buck a house call and two. So it was, it was a thing of market entry price. You know, you give a discount and I had a, I made a lot of money just repairing TV sets around the neighborhood.

• 10:11David Rosenthal?

  So this is pretty awesome. So like you're 10 years old. You have your experience of TVs and the technology going into televisions at the time. Then your next job, I believe you get exposure to the game world. Is, was your next adventure at Laguna amusement, amusement park?

• 10:28Speaker 00

  Actually not. My TV repair business turned into a full appliance repair business. And I became part of Barnum Furniture Company. And, you know, with that, I would go out, I'd repair washers and dryers and, and that sort of thing. And basically Barlow would be able to charge a lot more and I'd get half.

• 10:52David Rosenthal?

  Hmm. Pretty good for a 10 year old.

• 10:54Speaker 00

  Yeah, well, this was 10, 11, 12, 13, 14, 15, 16. I continued that until I went to college at 18.

• 11:03David Rosenthal?

  And you started at Utah State, right?

• 11:05Speaker 00

  Correct.

• 11:06David Rosenthal?

  Got it.

• 11:07Speaker 00

  I was living at the fraternity house and I started doing gigs. Like, you know, in those days, there was this thing and I always had money because I, I saved.

• 11:19David Rosenthal?

  You've been an entrepreneur.

• 11:20Speaker 00

  I was an entrepreneur. In those days, there was what they called 25 for 20. And that means that a lot of the kids would get the check from their parents at the end of the month. And they'd be out of money by, by the 15th. And so I'd lend them 20 bucks, but they had to get, they had to give me 25. It's, it's early.

• 11:41Ben Gilbert?

  25 for 20. Now, what's the APR on 25 for 20? What, when did you need to collect it by?

• 11:47Speaker 00

  Oh, the 5th of, of the month.

• 11:50Ben Gilbert?

  They have five days then to.

• 11:52Speaker 00

  Yeah.

• 11:52Ben Gilbert?

  Yeah.

• 11:53David Rosenthal?

  Wow. That's awesome. I can see how you got into the carnival business.

• 11:57Speaker 00

  Oh, yeah. I'm a carny.

• 12:02David Rosenthal?

  So you have these quite, I mean, at the time, like quite lucrative, especially for a college student, businesses going on.

• 12:07Speaker 00

  Well, I was driving a, a MGA sports car and then later on I traded in for a Mercedes 190 SL.

• 12:17Ben Gilbert?

  So were you getting any funny looks from people that are like, how are you getting all that money to, to buy cars like that?

• 12:22Speaker 00

  And, you know, nobody really thought about it that much. They said, but then I did a really good one. And this was called the Campus Company. And the Campus Company was a student blotter that had a calendar of events in the center. And I'd sell advertising around the side and give it away free to the kids at the beginning of the quarter.

• 12:44Ben Gilbert?

  Yep.

• 12:45Speaker 00

  And I'd sell $5,000 worth of advertising and it cost me 500 bucks to print it and give them away. The part that I didn't know is that once you did that, I'd do it for every quarter. Everybody would re-up, so I only had to sell a couple who'd fall out. So it was like nothing. So I went from Utah State to the University of Utah, to BYU, to Weber State. And so all of a sudden I had, I had.

• 13:15David Rosenthal?

  You had all the colleges in the area, yeah.

• 13:17Speaker 00

  All the colleges in the area, five thousand piece. And since I was doing the sales, when I'd go to a menswear place, I'd say, you know, you can pay me, you know, a hundred and fifty bucks or I'll take a suit. And I got a moped. I got, I got all kinds of great stuff.

• 13:38Ben Gilbert?

  Amazing. That's like the trade in the paperclip for the house.

• 13:41Speaker 00

  Yeah.

• 13:41David Rosenthal?

  Yeah. Wow.

• 13:42Speaker 00

  So the reason I bring up campus company, because that was actually the driver for me to get the job at the amusement park.

• 13:50David Rosenthal?

  Ah, okay. I was wondering why you needed the money to work at the amusement park.

• 13:54Speaker 00

  It was a thing where I was putting myself through college, had a relatively good lifestyle. And let's put it this way, I am an undisciplined disciplined person. That is, when it comes to short term, I'm somewhat undisciplined. That is, a summer night in Utah, going out with girls and things, you can spend a lot of money. And I decided that in order to remove harms way, I'd get a fun job at the amusement park.

• 14:29David Rosenthal?

  It'd keep you off the streets.

• 14:30Speaker 00

  Get me off the streets. And it was, and that's why I say, I'm disciplined in terms of long-term strategy, but undisciplined when it comes to short term.

• 14:40David Rosenthal?

  You'd remove temptation.

• 14:41Speaker 00

  You, exactly. It violated kind of one of my rules, which all of a sudden I was working for a paycheck for, for.

• 14:50Ben Gilbert?

  Yeah, trading time for dollars.

• 14:51Speaker 00

  Trading time for dollars. But then I discovered that.

• 14:56Speaker 00

  In the games department, they paid commission when you did above that. And so all of a sudden, I could turn this dollar twenty five cent an hour job into a two dollar and fifty cent an hour job, which was triple. Yeah, you're making money that's worth it. Yeah. And then because of the commission thing. Is this Ski Ball? Ski Ball, Guess Your Weight, Knock the Milk Bottles Down, you know? Get the ball to stay in the basket.

• 15:25Ben Gilbert?

  What'd you make the most money on? Like, what were people just like, they just couldn't keep themselves away from?

• 15:29Speaker 00

  A game called Tip 'Em Over. And it was a softball and it was a one throw. You always think that you can knock them over. Well, you kind of can, but it's really hard. Huh. But it's, it's perfect for marketing strategy. Because the way the games worked is you were supposed to give away one dollar for every three dollars that you made. So you were to run your, your booth at a thirty three and thirty percent merchandise percentage. The way the bottles worked, there were two heavies and two lights. And the two heavies were on the bottom and the two lights were on the top, unless you wanted to give an animal away. Then you'd put the heavies on the top and the lights on the bottom.

• 16:14Speaker 00

  And then a small breeze and knock them down.

• 16:19Speaker 00

  So we had a dance hall and, and a concert venue.

• 16:23Ben Gilbert?

  Yeah.

• 16:24Speaker 00

  And so people would come down with dates to go see the Beach Boys or what have you.

• 16:29Ben Gilbert?

  Uh huh.

• 16:29Speaker 00

  The high school kids, they'd come in clusters. And there'd be the captain of the football team and the head cheerleader. And then there'd be, you know, Nathan.

• 16:39Ben Gilbert?

  Someone like us in high school.

• 16:41Speaker 00

  Yeah. Nathan, the, the, the water boy. I was captain of my high school football team.

• 16:46Ben Gilbert?

  That's great. I was definitely not. I was at Chuck E. Cheese.

• 16:50Speaker 00

  So anyway, what I'd do was when it came time for Nathan, the water boy to throw, I'd set a snack and he'd win one for Marion, the librarian, his day.

• 17:02Ben Gilbert?

  We are so grateful for you.

• 17:06Speaker 00

  And it would, it would turn the worldview of the head of the football team.

• 17:11David Rosenthal?

  Yeah.

• 17:13Speaker 00

  Upside down. And so I could extract all the money he had because he wasn't going to let

• 17:18David Rosenthal?

  Oh my goodness.

• 17:20Speaker 00

  The, uh, the head cheerleader to go without a stuffed animal.

• 17:25Ben Gilbert?

  That's spectacular.

• 17:26David Rosenthal?

  That is amazing.

• 17:27Speaker 00

  It was diabolical.

• 17:30David Rosenthal?

  I'm envisioning, uh, the Pong, uh, marketing strategy in the future in, in bars here, but was it after that summer then that you transferred to the University of Utah?

• 17:40Speaker 00

  Yeah. What happened is once I got the job, there was actually a, a gap year when I went to work for Litton Industries in aerospace and in a clean room doing guidance systems and things like that.

• 17:53David Rosenthal?

  Cause you were studying engineering at Utah State.

• 17:56Speaker 00

  Correct. And then when I was in the fraternity house, I decided that engineering took too much homework. And so I transferred over to philosophy, then to economics and then mathematics. And it was just really about being able to screw around and not do so much homework. I kinda got into it. I liked the carny life. It, it does get into your bloodstream.

• 18:23Ben Gilbert?

  Yeah, I bet.

• 18:24Speaker 00

  But when they made me manager of the department, because I was good at it and one of the guys, the guys that was the manager quit and, and so I was chosen to be manager. I had a hundred and 50 kids working for me and I'm 20 years old and had to train them and manage the, the labor percentages and

• 18:46Ben Gilbert?

  Right, yeah.

• 18:46Speaker 00

  Set up things and, and I started changing the games to increase the revenue. A lot of times when the park was packed. We were undergamed. The faster you could get a cycle time, the more money you could make.

• 19:01David Rosenthal?

  Yeah, yeah.

• 19:02Speaker 00

  And so the lagoon had the highest per caps of any amusement park in the nation. So when I got ready to graduate from college, I actually had offers from all over. I had from Great American, things like that, where I could have stayed in the amusement park game business.

• 19:20David Rosenthal?

  Yeah.

• 19:20Ben Gilbert?

  Wow.

• 19:21Speaker 00

  At significantly more money than I could have gotten as an associate engineer.

• 19:27David Rosenthal?

  Wow.

• 19:27Ben Gilbert?

  Hmm.

• 19:27Speaker 00

  But I said, hey, I've got that legacy.

• 19:30David Rosenthal?

  Yeah.

• 19:30Speaker 00

  That's, that's evergreen. My engineering degree is not going to be that way. I need some experience. I need to go.

• 19:38David Rosenthal?

  So, so let's talk about that. When you get to the University of Utah, the University of Utah at this time is like an amazing place in pioneering computer science and in particular, computer graphics, right?

• 19:50Speaker 00

  Exactly. Four, four places in the world. Stanford, Stanford AI project.

• 19:56David Rosenthal?

  Yep.

• 19:56Speaker 00

  MIT. Champagne, Urbana. And the University of Utah, which doesn't belong. But it was really Dr. Evans, the guy who later founded the Evans and Sutherland.

• 20:08David Rosenthal?

  Yep. And for listeners too, I mean, some of the other people who were there around this time, Alan Kay was there. John Warnock, who founded Adobe, Jim Clark, who had co-founded Netflix with Marc Andreessen.

• 20:18Ben Gilbert?

  Netscape.

• 20:20David Rosenthal?

  Netflix, yes, Netscape. And then of course, Ed Catmull. I have to ask, was Ed there at the same time that you were?

• 20:25Speaker 00

  Wow. And I always thought that I was kind of the, the cheap and dirty guy because I was doing games.

• 20:33David Rosenthal?

  You were the entrepreneur.

• 20:33Speaker 00

  All these guys were doing great tech.

• 20:39Ben Gilbert?

  Did you know at that time, I mean, you say you were called the Utah guys. Did you have a sense at the time that this place and this group of people are sort of a, a special primordial soup of what would become the foundations of the technology industry? Or were you like, ah, these people seem smart. I feel smart, but kind of dirty and this carny like.

• 20:59Speaker 00

  Yeah, I know. I had no idea that it was going to be prescient.

• 21:05David Rosenthal?

  I mean, it's pretty amazing that you have this, you know, we spent all this time on your growing up, but it's all three of these things. It's your entrepreneurial instincts. You learn management, running the amusement park, and then this incredible engineering and graphics environment that you're in at Utah. And all of those kind of, we'll talk in a sec about what comes next, but.

• 21:25Speaker 00

  I've often said that my life has been a series of happy mistakes.

• 21:32Speaker 00

  You know, or serendipity, because to add to that, when I went to California and worked for Ampex.

• 21:38David Rosenthal?

  And Ampex made recording equipment for like Hollywood and the music industry.

• 21:43Speaker 00

  And so what I learned there was really polishing my digital skills and my video skills. So we had the big computers. I learned how to program. But the computers we were working on had a clock speed of 750 kilohertz.

• 22:01David Rosenthal?

  Oh, boy.

• 22:01Speaker 00

  And the screens that were on the computers were all vector graphic. Because raster scan wants 3.58 megahertz of data. And so if your computers are going at 750, now they had a wide address space and 64 bits. You know, so you could do some serious calculations, but they weren't fast at all.

• 22:26David Rosenthal?

  Ball on the screen or the, you know, space invaders weren't going to move very fast.

• 22:30Speaker 00

  Well, what would happen is remember that the early video games were not von Neumann architecture. They were basically complex signal generators.

• 22:41David Rosenthal?

  And you had, you played Space War back at Utah, right?

• 22:44Speaker 00

  Correct.

• 22:45David Rosenthal?

  So Space War was the first game ever built for a computer, right?

• 22:51Speaker 00

  Absolutely. I mean, I stand, I stand on the shoulders of Steve Russell, who, who did that as the MIT Hobby Railroad Division. And he did that on a PPT.

• 23:03David Rosenthal?

  How did it get traded around and end up at Utah and other places around the country? I mean, it wasn't like you could just download it off the internet, right?

• 23:12Speaker 00

  It was, it was digital equipment, basically thought it was a cool hack and just shipped it with every computer that they sold.

• 23:20David Rosenthal?

  Wow, cool. So every deck, were these mini computers?

• 23:24Speaker 00

  They were PDP. The one that we'd used was a PDP eight and a PDP ten.

• 23:29David Rosenthal?

  Okay.

• 23:30Speaker 00

  Utah didn't ever had a PDP one, which is what the original source code was.

• 23:34David Rosenthal?

  Wow. And so they shipped it. This was, it was like the Solitaire of, wow, with Spacewar. That's incredible.

• 23:43Ben Gilbert?

  And so was it the first time that you saw Spacewar that you really realized what could be possible in creating this next generation of games?

• 23:50Speaker 00

  I, managing the games department, I had a couple of arcades. So I knew intimately what a coin operated game cost and what it had to earn. And I said, if I had this screen with a coin slot, it'd earn a lot of money.

• 24:05David Rosenthal?

  Mm hmm. But those machines cost like a million dollars.

• 24:08Speaker 00

  Yeah, three, you know, 25 cents for three minutes into a half a million dollar, a million dollar computer. The math didn't work.

• 24:15Ben Gilbert?

  You're never going to recover the cost of the machine itself.

• 24:18Speaker 00

  But I went through the math and I said, maybe someday.

• 24:22David Rosenthal?

  Yeah. So when you arrive at Ampex, this was shortly after like Fairchild had gotten set up and National Semiconductor, which we talked about on the Squawk episodes, and National then pioneered outsourcing fabrication of chips to Asia. And that dropped the price of chips hugely, right?

• 24:39Speaker 00

  Yeah. One day, I can remember sitting in my office at Ampex and glue chips. There was a thing called 7400 series from TI and the 9300 series. They were basically glue parts, flip flops and gates, or gates, exclusive or all, all the Boolean constructs.

• 24:58Ben Gilbert?

  Yep.

• 24:59Speaker 00

  And they went from $2 a chip to 15 cents a chip.

• 25:02David Rosenthal?

  Wow.

• 25:04Speaker 00

  And so it was that precipitous, I mean, two orders of magnitude. And I said, maybe now it's the time.

• 25:12Ben Gilbert?

  Getting close.

• 25:13David Rosenthal?

  Yeah.

• 25:13Speaker 00

  Yeah.

• 25:14Ben Gilbert?

  Huh.

• 25:14Speaker 00

  Coincidentally.

• 25:16Speaker 00

  That Wednesday night in the Bay Area, I became a Go player.

• 25:21David Rosenthal?

  Oh, yeah.

• 25:22Speaker 00

  And there was a.

• 25:23David Rosenthal?

  I knew we were gonna get into Go in a minute.

• 25:25Speaker 00

  Well, there was a.

• 25:26David Rosenthal?

  Go being the game Go.

• 25:28Speaker 00

  Yeah, the game Go. And there was a Buddhist church in San Francisco that had a 24/7 Go parlor.

• 25:37David Rosenthal?

  Oh, wow.

• 25:37Ben Gilbert?

  Wow.

• 25:38Speaker 00

  And so I could just go up there and I would generally show up.

• 25:41David Rosenthal?

  This is like 1970?

• 25:43Speaker 00

  This was 1968.

• 25:45Ben Gilbert?

  Yeah.

• 25:47Speaker 00

  And so I would go up probably eight o'clock on a Sunday morning, I'd play until three or four. And every weekend, that was kind of my go to. But I was living in Santa Clara, California at the time. And additionally, Stanford had a Go club that met every Wednesday evening. And so I'd attend that and I got playing with a couple of the Go players there. And one of the guys was named Jim Stein, who was a graduate student working at the Stanford AI lab.

• 26:24Speaker 00

  And after we played Go one time, he says, hey, do you want to play Space War? I said, holy shit, I haven't played it since I was in college.

• 26:32David Rosenthal?

  Yeah.

• 26:32Speaker 00

  Let's do that. And so we left the Stanford Go club probably 10 o'clock.

• 26:39Ben Gilbert?

  Yeah.

• 26:39Speaker 00

  And we played, we went up to the AI lab and played Space War probably until three or four.

• 26:46David Rosenthal?

  This is, I mean.

• 26:48Speaker 00

  My wife was not amused.

• 26:50David Rosenthal?

  I'm sure you've heard this many times, but like when I was in college, Ben, I'm sure when you were in college, like this is what you do, you know, like at midnight, like get back from dinner at the dining hall and be like, well, all right, we're gonna play Mario Kart till four in the morning, like.

• 27:03Speaker 00

  Yeah, exactly.

• 27:04David Rosenthal?

  Or we're gonna play Halo.

• 27:05Ben Gilbert?

  Mine was Super Smash Brothers.

• 27:06David Rosenthal?

  You were the first generation that was doing this.

• 27:09Speaker 00

  Yeah. And so that was, I said, you know, those two situations, the drop in the chip price and my reacquaintance with Space War were concomitantly the driver that said, let's do this now.

• 27:24Ben Gilbert?

  For folks that know of Atari, they're probably imagining the 2600 or they're imagining, at the very least, something they're playing at their homes. That's not how it started.

• 27:36Speaker 00

  No, it started as a coin operated game business.

• 27:39David Rosenthal?

  Well, it started as Scissor G, right?

• 27:42Speaker 00

  Correct. And.

• 27:44Ben Gilbert?

  You can't correct Nolan, David.

• 27:46Speaker 00

  No. It's correct.

• 27:48Ben Gilbert?

  He knows how it started.

• 27:49David Rosenthal?

  Well, I'm just putting it wasn't Atari yet.

• 27:52Speaker 00

  And so the original plan was that we were going to be a studio and we would design games for manufacturers and get a royalty. That was, that was the original plan. We got some things moving around on the screen. I went to the dentist and told him about my project. And he says, oh, you should call this guy, which was the head of marketing for Nutting Associates. I didn't even know they were in town.

• 28:21David Rosenthal?

  They were a game manufacturer.

• 28:23Speaker 00

  A coin-operated game manufacturer. In, in Mountain View.

• 28:25David Rosenthal?

  Huh.

• 28:26Speaker 00

  And I went up and, and showed them the game and they said, yeah, I think we'd be willing to license this. They said, but, you know, we don't have a chief engineer now.

• 28:39Speaker 00

  And I don't think they, you know, the one we had would understand this technology. Are you available? And I said, I don't know. I'm pretty expensive.

• 28:49Ben Gilbert?

  Of course you did.

• 28:52Speaker 00

  So I, I sound like such a carny, don't I?

• 28:57David Rosenthal?

  This is great. Well, also, I mean, this is like, you were, I had in my notes, we didn't cover, I mean, the people that were starting companies that we talked about on part one of the Sequoia episode at this time, like the Trader Asade and the like, these are hardcore scientist engineering types, you know.

• 29:13Speaker 00

  Usually in their 40s.

• 29:15David Rosenthal?

  Usually in their 20s. You were the first, I think, real like hacker type entrepreneur.

• 29:22Speaker 00

  I think so. Yeah. I, I've often said that I blazed the trail for both gates and jobs. You know, just proving that it could be done.

• 29:31David Rosenthal?

  Yeah. Because they didn't look like, you know, Gordon Moore and Bob Noiser.

• 29:34Ben Gilbert?

  It's kind of like the, the five minute mile problem where people say, well, it can't be done. And then someone does it. And then suddenly there's this massive wave after them of people that are awoken to the, the world is accepting of young, brilliant 20 something CEOs and boom, we have this wave of them.

• 29:49Speaker 00

  No question about it. Yeah. Oh, but I gotta, I gotta finish my.

• 29:53Ben Gilbert?

  Yeah, yeah, please.

• 29:54David Rosenthal?

  So you had set up Scissor G Engineering, right?

• 29:57Speaker 00

  Yeah. And then I went to Nutting. I said, I'm pretty expensive. And they said, well, how much? I was making $850 a month at Ampex. I said $1,600.

• 30:13Ben Gilbert?

  Yeah.

• 30:14Speaker 00

  They said yes too quickly.

• 30:15David Rosenthal?

  Whoa, oh, so you left them on the table.

• 30:17Speaker 00

  And a company car.

• 30:23David Rosenthal?

  So how did that turn into what would become Atari then?

• 30:28Speaker 00

  Silicon Valley has a couple of things going for it that are, I think, underappreciated. One is that almost everybody knows intimately somebody that went off, started something and made a gobsmack full of money. And they say, I know that guy or that girl.

• 30:52Speaker 00

  And I'm smarter than they are. And I'm sitting here doing nine to five and they're out making a lot of money.

• 30:59David Rosenthal?

  Yeah.

• 30:59Speaker 00

  I can do it.

• 31:00David Rosenthal?

  You know, it's funny, I, I, I think I might have referred to this on the show before, but I went to business school at Stanford many years after you were there. But I think that was one of the most powerful things is like, all these entrepreneurs would come, talk to us, guest teach classes, be there for cases, do lunchtime events for us. And we just, you just realize like they're just people too.

• 31:18Speaker 00

  Yeah.

• 31:18David Rosenthal?

  There's nothing special about them.

• 31:20Speaker 00

  But then I had a real advantage with nutting because nutting put the first computer space in. And all of a sudden you start noticing and saying, these guys are bozos.

• 31:38David Rosenthal?

  They're paying me $1,600 a month. I have a company car. What are they doing?

• 31:42Speaker 00

  Well, they, they, they fired the head of sales because he was making too much money on commission.

• 31:48David Rosenthal?

  Now that is a real bozo move.

• 31:50Speaker 00

  That's a really bozo move. And, and so when it came time for the next game, I said, I really don't want to hang my star with these guys. You know, because they will underproduce, they'll nickel and dime things. And my theory in life has always been go big or go home.

• 32:09David Rosenthal?

  Yeah, clearly.

• 32:10Speaker 00

  And so when it came time for that, I said, you know, I'm going to have to leave and I will design your next game, but we'll do it under a contract. Little benoms to them, I'd already gotten a contract from Midway and Valley. So I had two contracts to base on.

• 32:30David Rosenthal?

  That's great.

• 32:31Ben Gilbert?

  And so you were game designer. Were you also the sort of lead engineer on that first game with them? Okay.

• 32:37Speaker 00

  Yeah, I was lead engineer. I basically did all the digital stuff.

• 32:41David Rosenthal?

  And that was Computer Space, which was a commercialized space war.

• 32:44Speaker 00

  Precisely.

• 32:45David Rosenthal?

  Yeah.

• 32:46Speaker 00

  We come to the next chapter of Total Serendipity. My first engineer, Al Alcorn, was actually my tech. And he was in a work-study program at Berkeley. And he'd do six months on, and then six months at Berkeley, and then six months as my tech. It turns out that Steve Bristow was his alternate. And both of those guys, like when Atari came along, Bristow became head of engineering and Alcorn became head of research.

• 33:19David Rosenthal?

  They were brilliant engineers.

• 33:20Speaker 00

  They were really good, but very different. Al was much more rigorous. That was his brilliance and his downfall. He would interview 30 people and not find one that was acceptable.

• 33:33David Rosenthal?

  Although, is he the one who brought Steve Jobs to you?

• 33:37Speaker 00

  Yeah.

• 33:38David Rosenthal?

  So he found one who was pretty good.

• 33:40Speaker 00

  Yeah.

• 33:40David Rosenthal?

  Although not an engineer, but we'll get there.

• 33:43Speaker 00

  But Bristow, if you said, okay, we need another 20 projects, and we need it in the next 15 minutes, he'd go out, he'd hire a bunch of people, he'd fire some and what have you. I mean, he was, he was a scrambler.

• 33:57Ben Gilbert?

  It'd be messy, but it'd get done.

• 33:58Speaker 00

  It'd be messy, but it'd get done. Exactly. But the first day that Al came to work for us.

• 34:04Ben Gilbert?

  And us being now this new company that is working on contracts.

• 34:08Speaker 00

  Yeah. Yeah. Was the same day that I'd heard about Magnavox showing a video game at a trade show up in Berlin game.

• 34:16David Rosenthal?

  Yeah.

• 34:17Speaker 00

  And so I went up and I saw this thing, and it was an analog piece of crap. And I said, gee, you know, there's no competition here. But I looked around and they were playing this ping pong game, and it looked, and they were having fun with it. And there was so many things wrong with it. There was no score. There was no sound.

• 34:36Ben Gilbert?

  There's no score. Who's gonna play that?

• 34:38Speaker 00

  Yeah, not just that.

• 34:41Speaker 00

  After you hit the ball, you could change the dynamics of it with by twisting a knob. You don't get to change the nature. That's just wrong on so many levels.

• 34:52David Rosenthal?

  Yeah.

• 34:53Speaker 00

  So.

• 34:54David Rosenthal?

  So it was analog though, like it was running on like vacuum tubes?

• 34:58Speaker 00

  No, there's RC time constants. So basically, if you have a capacitor and a resistor, it'll change the voltage based on how vast it is and that gives you a delta V.

• 35:11Ben Gilbert?

  It's kind of incredible that the early video games were actually analog.

• 35:14Speaker 00

  Yeah. Oh, yeah. I mean, Ralph Bear with these designs were really important. The very, in fact, the very first game that predated Steve Russell's at MIT was an analog game played on a oscilloscope at the Brookhaven National Labs with a guy named Willie Higginbotham. In terms of full history.

• 35:37David Rosenthal?

  Always building on the shoulders of giants.

• 35:39Speaker 00

  Yeah.

• 35:40Ben Gilbert?

  Okay, so you saw the Magnavox, you thought, things are a piece of crap.

• 35:42Speaker 00

  Yeah, but I said, you know, using our technology, maybe this would be a fun game. But more than that, I needed a test project for Al. Cause computer space was really complex. And I thought, you know, as a, as a learning project, what you want to do is bite size things down to get people to understand the tech. And so I described the game and I said, that's your first project.

• 36:07Ben Gilbert?

  And no like design doc or spec, it was like, here's kind of how it's going to go.

• 36:10Speaker 00

  Yeah, this is a blackboard.

• 36:11Ben Gilbert?

  Yeah.

• 36:12Speaker 00

  Before whiteboards had been invented.

• 36:16Speaker 00

  And I said, you got to get it done in a few weeks because I think I can sell it to General Electric. I might've told him, I've got to deal with General Electric.

• 36:27Speaker 00

  And, and I'll be damned if in two weeks, he didn't have a working Pong machine.

• 36:32David Rosenthal?

  Hmm, wow.

• 36:33Speaker 00

  But it had some problems. For example, it had on the paddles, angle incidence, angle reflection, you know?

• 36:41Ben Gilbert?

  Yeah, I, I read something that this was sort of Al's idea after what you sort of drew and described that, that he thought, well, it would be way more fun if we cut the paddle up into eight segments and then each segment, depending on how far away from the middle it was, actually affected the sort of angle that it, that it bounced off of the paddle.

• 37:01Speaker 00

  Now, that's very interesting because the way I remember it, I came up with that idea. But I'm willing to give it to Al, I don't care.

• 37:10Ben Gilbert?

  Well, who, uh, who came up with speeding the ball up as the, as play went on?

• 37:16Speaker 00

  Again, I think I did.

• 37:19Speaker 00

  But I'm not going to opine to it.

• 37:21Ben Gilbert?

  Which is another great mechanic because it means, number one, you don't really get bored of it because you can't just keep it going forever.

• 37:27David Rosenthal?

  Constantly ramping up the difficulty.

• 37:28Ben Gilbert?

  And two, if you're collecting coin drop, then that's going to speed up those games and you're getting more people flowing through.

• 37:34Speaker 00

  Precisely.

• 37:35David Rosenthal?

  So, okay, so before we get into what happened with this prototype, the name of the company, can you tell us how it became Atari? Which of course is a term from Go.

• 37:46Speaker 00

  In those days, everything was snail mail. And so if you wanted to incorporate, the standard way to do it was to put five company names. In case the first one wasn't, wasn't available. Atari was actually number three.

• 38:04David Rosenthal?

  Oh, wow. So was one Cisergy?

• 38:06Speaker 00

  One was Cisergy, which was owned by a candle company in Mendocino.

• 38:14Ben Gilbert?

  And so this is with like the state of California?

• 38:16Speaker 00

  Yeah. And I, to this day, I don't remember what number two was.

• 38:22Speaker 00

  But then number three came back Atari.

• 38:25David Rosenthal?

  And what an amazing name, by the way. It starts with A, which is great.

• 38:29Speaker 00

  You know, it's funny, when we, when we first got it back, we weren't sure we liked it.

• 38:35David Rosenthal?

  And Atari is like the equivalent of check in, or checkmate in Go.

• 38:38Speaker 00

  Correct. Yeah, check is probably a good thing.

• 38:42David Rosenthal?

  Close enough.

• 38:42Ben Gilbert?

  So you didn't like it at first or you weren't sure?

• 38:44Speaker 00

  Weren't sure.

• 38:45Ben Gilbert?

  Yeah.

• 38:46Speaker 00

  Which is really funny because, you know, I really believe

• 38:49Ben Gilbert?

  Yeah.

• 38:50Speaker 00

  That like Shakespeare says, you know, a rose by any other than other name.

• 38:55Ben Gilbert?

  Yeah.

• 38:56Speaker 00

  Over and over again, I've named a company that has not sounded right. Two weeks in, it's the best name in the world.

• 39:05Ben Gilbert?

  Yep. It's like, uh, how Phil Knight hated both calling the Nike swoosh, the swoosh and the swoosh itself. And now it's the, you know, one of the top five most valuable brands in the world.

• 39:16Speaker 00

  Yeah, exactly.

• 39:17David Rosenthal?

  Well, and this comes together with Pong, right? Because the amazing Atari logo, which we'll link to in the show notes, if you don't, you know, have it etched into your memory as a, as a child, uh, is, is wonderful. And, you know,

• 39:29Speaker 00

  It's a great.

• 39:30David Rosenthal?

  A and the, and the Pong paddles and the.

• 39:32Ben Gilbert?

  Yeah. How did, how did you come up with the logo? How'd that come to be?

• 39:35Speaker 00

  That was done by George Opperman, who was a brilliant, brilliant graphic designer. And I said, we need a good bug for the company. He came up with 10 and I said, that one.

• 39:49Ben Gilbert?

  Wow. I mean, truly today, one of the most iconic brands ever created.

• 39:53Speaker 00

  Really?

• 39:54Ben Gilbert?

  T-shirts everywhere and hats.

• 39:56Speaker 00

  Yeah.

• 39:56Ben Gilbert?

  You can't go a week without seeing the Atari somewhere in your life.

• 39:59Speaker 00

  It's pretty and it's optimistic. It's kind of, you know, upward, upward driving this.

• 40:06David Rosenthal?

  And it was the paddles from Pong that inspired it, right?

• 40:10Speaker 00

  No.

• 40:10David Rosenthal?

  Oh, no. Revisionist history. Okay, there we have it, from the man himself.

• 40:17Ben 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.

• 40:31David 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.

• 40:45Ben Gilbert?

  Exactly, and the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 40:55David 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.

• 41:12Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 41:29David 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.

• 41:45Ben 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?

• 41:54David 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. So, okay, so you had this prototype of Al Alcorn's demo, you know, prove himself project. And it turns out it's pretty fun, right?

• 42:15Speaker 00

  So I thought to myself, you know, my carniness.

• 42:21David Rosenthal?

  Your carny instincts kicked in.

• 42:23Speaker 00

  Maybe I.

• 42:23Ben Gilbert?

  Let's, let's rebrand carny as incredibly entrepreneurial. Like, we can keep saying carny on the show, but like, we shouldn't deprecate this. This is like a core, you know, personality trait of wildly driven, scrappy entrepreneurs.

• 42:36Speaker 00

  Yeah. Well, I thought to myself, so maybe I can get Bally to take this game and complete our contract six months in advance.

• 42:48David Rosenthal?

  Cause you weren't planning on this being the next game. This was just a test.

• 42:52Ben Gilbert?

  Yeah. But if they're impressed and say, well, here's the game, maybe let's see what they think.

• 42:57Speaker 00

  So we built up two, and these were in wire wraps. They were going to put one on location and I got on the airplane with the other one under my arm with a modulator so I could hook it up to a local TV. And I went to Bally in Midway and they were not impressed. And because in the coin op business, there had not been a single successful two-player only game.

• 43:22David Rosenthal?

  Yeah. There was no AI driving the other paddle at this point.

• 43:25Ben Gilbert?

  So if there was just one person who wanted to play the game at the bar, like it was going to be a nonstarter.

• 43:29Speaker 00

  Which in 2020 hindsight turned out to be brilliant because it gave a woman an ability to choose who she played with.

• 43:42David Rosenthal?

  The equivalent of, I assume at that time, women weren't like buying drinks per man, but, but a woman could be like, buy a game of Pong.

• 43:50Speaker 00

  Yeah. I'm, you know, I want to play Pong, but I need a partner. So she pulled somebody off a bar stool.

• 43:56Ben Gilbert?

  Wow. So, I mean, it introduced a completely new environment variable into the bar.

• 44:01Speaker 00

  And, and it was also co-cobinent with the hippie, female empowerment, you know, women are as good as men, da, da, da.

• 44:10David Rosenthal?

  This is 1972, right?

• 44:12Speaker 00

  This was 1972.

• 44:13David Rosenthal?

  Yeah. Wow. So when. Bally Midway rejected this.

• 44:17Speaker 00

  Correct.

• 44:17David Rosenthal?

  But you see the potential.

• 44:20Ben Gilbert?

  Would you call it a wire rig?

• 44:21Speaker 00

  Wire wrap.

• 44:22Ben Gilbert?

  Wire wrap. And so I'd imagine that's no cabinet. It's just the electronics, the, you know, however many boards are in there.

• 44:29Speaker 00

  Correct.

• 44:29Ben Gilbert?

  Wires, and then you hook it up to whatever TV you can.

• 44:31Speaker 00

  Correct. Well, in the early days, when you were prototyping, there was a technology called wire wrap, which you'd had these pins sticking up and you had this machine that would really wrap a wire, copper wire around it very tightly. So it was a very good prototyping system. I don't think they use it anymore. I'm not sure.

• 44:51Ben Gilbert?

  So basically, you wouldn't have to solder, but you could ensure that the wires were going to be where you thought they were going to be on the chips.

• 44:56Speaker 00

  Precisely.

• 44:57Ben Gilbert?

  Got it.

• 44:58Speaker 00

  But, but when you looked at it, it's like a rastness. And what happened is that when I presented to Bally, they were tepid. They said, let me think about it. And when I called back to the plan, they told me about the earnings that it was making at the local bar.

• 45:21David Rosenthal?

  So you had put a prototype in.

• 45:23Speaker 00

  Yeah. When I heard how much it was, I called up Bally and I said, Midway doesn't want it. And, and.

• 45:30Ben Gilbert?

  You mean how much money it was making at that bar?

• 45:32David Rosenthal?

  At any caps.

• 45:33Ben Gilbert?

  Yeah.

• 45:33David Rosenthal?

  Wow.

• 45:35Speaker 00

  Put it in context. The game was making over $300 a week and.

• 45:40Ben Gilbert?

  That's like 3X what a normal game would make, right?

• 45:42Speaker 00

  Oh, yeah. And the bill of materials on the machine was 325 bucks.

• 45:48David Rosenthal?

  Wow.

• 45:50Speaker 00

  So I said to myself, there's a business here.

• 45:53Ben Gilbert?

  There's a six day payback on this, assuming you get to keep on, is it 50/50 with the bar? How does the revenue split work?

• 45:59Speaker 00

  It's 50/50 in those days.

• 46:00David Rosenthal?

  Okay. Two weeks, you're making your money back.

• 46:02Speaker 00

  You're making your money back. So.

• 46:04David Rosenthal?

  Now, did you charge the bars upfront? Did they have to pay for part of the machine upfront? Or was it just a revenue split? You got to put it there.

• 46:10Speaker 00

  Got to put it there. And I said to myself, hey, if I can't sell these things, I can operate them and be okay.

• 46:15Ben Gilbert?

  Yeah.

• 46:16Speaker 00

  So I took all the money that we had in the bank. And it was enough to build like a dozen of them. And then from there, we got the money and we sold some because people started hearing that this game was doing well. And so we went up to the San Francisco distributor and he ordered 10 and the guy from Los Angeles ordered 10.

• 46:38Ben Gilbert?

  I'm curious, what would the the Bally and Midway deals have given you? It was, I mean, obviously they take care of manufacturing because they would make the actual cabinets and hook it all up. Do they also take care of distribution?

• 46:51Speaker 00

  Absolutely. They do everything.

• 46:53Ben Gilbert?

  So you're then saying, you know what, we're so confident in this thing, we're going to tell these guys that in a nice way and in a clever way that we're going to do this ourselves and that we don't, you know?

• 47:02Speaker 00

  No, I didn't say that we're going to do it ourselves. I said, we'll go ahead and finish the project, the driving game that you wanted.

• 47:08Ben Gilbert?

  Oh, I see.

• 47:11Speaker 00

  Which, there's another chapter to this. Four months in, Bally came back to us and said, we'd like to do Palm.

• 47:18David Rosenthal?

  Huh. And you already knew what a golden goose you had at that point.

• 47:21Speaker 00

  And so I said, oh, of course. At this time, there were 20 companies that were copying us because, you know, we had a garage shop.

• 47:30David Rosenthal?

  The more things change.

• 47:32Speaker 00

  Anybody that had a garage shop could knock these puppies out. We hadn't, you know, in those days, it took four years to get a patent. We'd applied for it, but we didn't have it. And so, you know, it was, it was the Wild West. And so Bally was really noble by saying, hey, instead of just knocking us off, they took a license and paid us 5% royalty.

• 47:53Ben Gilbert?

  Wow. Standup business practice right there.

• 47:57Speaker 00

  Standup business and completed our, our, our contract.

• 48:02David Rosenthal?

  Wow. Was it around this time that you started your experimental distribution channel of your own of Pizza Time Theater within the company?

• 48:14Speaker 00

  No, that, you're talking about key games, not Chuck E. Cheese.

• 48:18David Rosenthal?

  Well, either.

• 48:20Speaker 00

  Well, there was kind of the ball and paddle phase. Then we go, went into what I call the game innovation phase of the company. I realized that in those days, the CoinOp distribution network, there tended to be two, sometimes three, in every major city. And it was normal to have an exclusive relationship. So I could pick all the best distributors. The ones that didn't have an Atari deal, they were looking for anybody that they could put into business to compete with us. And I thought, that's perilous. So I decided to create my own competition. So I took the number two guy, marketing guy, and the number two engineering guy,

• 49:06Speaker 00

  and the number two manufacturing guys, and I had them leave en masse, set up a company across the street, or down, it was actually another place. And it was just before a trade show, and they had a game, which was the next in the line that we were going to produce. We let them put their name on it. We went to the trade show, and they assigned their distribution contract with all the guys that we didn't have.

• 49:31Ben Gilbert?

  That's great.

• 49:32Speaker 00

  We had the world nailed.

• 49:34Ben Gilbert?

  Wow, and that was Key Games?

• 49:36Speaker 00

  That was Key Games. And in those days, you know, there wasn't the internet and all that, but we knew that you couldn't keep it secret forever. So we floated the rumor that these guys had stolen trade secrets and that we were suing them. And then, a couple of months later, we floated the idea that we'd settled and that now we owned a piece of Key Games.

• 50:01Ben Gilbert?

  And did you own the entire thing from the get-go?

• 50:04Speaker 00

  The entire thing.

• 50:07David Rosenthal?

  Oh, that's great.

• 50:09Speaker 00

  And then we decided that we were going to merge the companies together.

• 50:13Ben Gilbert?

  Take a nice photo, shake hands, welcome the...

• 50:16Speaker 00

  Yeah. And then there was a question. Distributors, what do you want? Should we take the thing away, or should we give you both lines? And at that time...

• 50:25David Rosenthal?

  So you changed the business practices in the industry? Because they didn't want to give this up, right?

• 50:29Speaker 00

  Yeah, so now, we gave both lines to both distributors.

• 50:32Ben Gilbert?

  Wow, so you didn't have to have exclusivity with a distributor anymore?

• 50:36Speaker 00

  Bingo.

• 50:37Ben Gilbert?

  Amazing.

• 50:38David Rosenthal?

  That's so great.

• 50:39Speaker 00

  You know, it's one of those things that, in the CoinOp business, in 1975, we had an 80% market share.

• 50:49Ben Gilbert?

  Wow, amazing.

• 50:51David Rosenthal?

  Wow.

• 50:52Speaker 00

  And so it and then. Going from nowhere, you know, we were undercapitalized and all that.

• 50:58Ben Gilbert?

  Give it, give us a sense of how many cabinets you then manufactured from what's 71 to 75?

• 51:07Speaker 00

  Probably 300 thou.

• 51:10Ben Gilbert?

  Wow.

• 51:11David Rosenthal?

  And each of those earning roughly a couple hundred bucks a week.

• 51:15Speaker 00

  Correct.

• 51:16Ben Gilbert?

  How'd you capitalize that? Or did you manage to get pre-orders and have sort of a nice working capital cycle?

• 51:22Speaker 00

  Actually, the business model I'm more proud of than the technology because I built this company on each. My partner and I put in $250 each. That's the only capital that went into the company until dawn Valentine in 1975.

• 51:40Ben Gilbert?

  Yeah.

• 51:41Speaker 00

  And so what we did, I figured out just in time inventory. So all the cost was in the cabinet, the TV set, the coin mech and the power transformer. The glue parts for the computer and all that, it was a lot of numbers, but not a lot of actual value.

• 52:01Ben Gilbert?

  Chip, yeah.

• 52:02Speaker 00

  So we could actually, from the time a cabinet came on the floor, we'd have the TV set and all the other pieces come in all at the same time. And so we were turning inventory 28 times a year.

• 52:19David Rosenthal?

  Oh, wow. That's like Amazon levels.

• 52:21Speaker 00

  Exactly. So we were able to essentially sell a product and have 60 days to pay for the merchandise.

• 52:33Ben Gilbert?

  Terms from your suppliers.

• 52:34Speaker 00

  So the company operated in positive cash flow.

• 52:37Ben Gilbert?

  Wow. And what were the payment terms when you would deliver one of the units to?

• 52:42Speaker 00

  30 days.

• 52:43Ben Gilbert?

  Okay.

• 52:44Speaker 00

  But we'd give a 10% discount for five days.

• 52:50Speaker 00

  But then we found this factoring company that would buy our receivables. And so I'd get immediate cash.

• 52:57David Rosenthal?

  Wow. So you grew to millions of dollars a year on no capital?

• 53:05Speaker 00

  No capital.

• 53:05David Rosenthal?

  Wow.

• 53:06Ben Gilbert?

  Had you spoken with Don Valentine or any other investors? And to foreshadow-

• 53:12Speaker 00

  Venture capital hadn't really been invented yet.

• 53:14David Rosenthal?

  Well, Don invented it in a lot of ways.

• 53:17Ben Gilbert?

  And from what I read, the sentiment around the time sort of associated CoinDrop with mafia activity.

• 53:25Speaker 00

  Yeah.

• 53:26Ben Gilbert?

  And gambling. People didn't want to be involved in investing in this sort of mob controlled or mob perception in industry.

• 53:33Speaker 00

  Yeah. Well, it was true. During the prohibition, the mob provided illegal booze, illegal gambling, loan charking, and prostitution. When prohibition was repealed, they still had their troquia. And then the games modified. You know, in the speakeys, they had roulette and slot machines and the whole nine yards. But when all of a sudden, the speakeys emerged from underground, they could easily identify the slot machines. And so they started disguising them as pinball machines, but they were payout machines. They were gray area.

• 54:15David Rosenthal?

  So that's why pinball had such a negative stigma. Not because of pinball, but because a lot of them were actually slot machines.

• 54:22Speaker 00

  They were disguised slot machines.

• 54:23David Rosenthal?

  Fascinating. Wow. The proto venture capital industry that we talked to, you know, Dartha Rocks and the, you know, the folks that were the Tommy Davises, like, they weren't gonna... I'm sure, did you even talk to them?

• 54:36Speaker 00

  I didn't know. I hadn't heard of venture capital. I, you know, it was just...

• 54:42David Rosenthal?

  Wow. So how did you-

• 54:43Speaker 00

  I was just young and dumb.

• 54:44David Rosenthal?

  How did you and Don intersect then?

• 54:48Speaker 00

  He came to visit me. He found me. I didn't find him. And at that point in time, we were in six buildings and we were up about 30 million in sales and-

• 54:59Ben Gilbert?

  This is like 74, early 75, somewhere in there?

• 55:02Speaker 00

  And so we were kind of getting to be big shits in the valley.

• 55:06David Rosenthal?

  Wow.

• 55:07Speaker 00

  And-

• 55:08David Rosenthal?

  And he had just set up Sequoia Capital, taking it independent from Capital Group.

• 55:12Speaker 00

  Now, you get this. He says, can I see your business plan?

• 55:17Ben Gilbert?

  Oh, listeners, I wish you could see the face Nolan just made.

• 55:21David Rosenthal?

  Business plan.

• 55:23Speaker 00

  We had no business plan. I'd been running this thing by the seat of my pants. He says, well, I'll set you up with a guy that can write your business plan for you because I need it for an investment because I like your business. So I spent a few hours a day for several days with this guy named Don Yost, who wrote the business plan for Atari, the very first one we ever had.

• 55:45David Rosenthal?

  Wow.

• 55:46Speaker 00

  And

• 55:46David Rosenthal?

  When you're already doing 30 million in sales.

• 55:48Speaker 00

  Yeah, I know.

• 55:50Ben Gilbert?

  Wild.

• 55:51Speaker 00

  Different world.

• 55:52David Rosenthal?

  And when Don first approached you, was it called Sequoia Capital at that point yet?

• 55:56Speaker 00

  Yes.

• 55:56David Rosenthal?

  Okay, so he had he had fully spun out from Capital Group.

• 55:59Speaker 00

  Correct.

• 55:59David Rosenthal?

  And how did a deal get done? What did what did he offer? Did you? How did how did you broach the conversation between the two of you of accepting capital to a business that had never had capital before?

• 56:12Speaker 00

  Well, to get the right patina on this, we had the summer of discontent. And I told you how we operated in positive cash flow. That's all fine and good until you fill up your production line with products that you can't sell because there's a part that's missing.

• 56:33Ben Gilbert?

  What happened there?

• 56:35Speaker 00

  We almost went out of business.

• 56:38Speaker 00

  Because

• 56:39David Rosenthal?

  Don may or may not have withheld the part, no.

• 56:42Speaker 00

  There was a chip that we needed to get and it was on backlog for three months. And so one month in, we were way behind on our payments. We got sued and three months in, all of a sudden, we didn't defend ourselves because we owed the money. And so we had these judgments against us. And so there were sheriffs on the front door, you know, coming to

• 57:08Ben Gilbert?

  Collect, yeah.

• 57:09Speaker 00

  Collect assets. What they really want to do is collect from your bank account.

• 57:13Ben Gilbert?

  Right.

• 57:13Speaker 00

  They didn't want your chairs and tables and stuff. And so what we did is we opened up bank accounts all over the nation. And so we would just go every week, we'd use a different checking account to pay our people.

• 57:27Ben Gilbert?

  Wow.

• 57:27David Rosenthal?

  Wow. Oh, my goodness. Wow.

• 57:30Ben Gilbert?

  Cause you're trying to keep the doors open. You're trying to stay in business. You think this will get resolved and you want to keep your great people around and pay them.

• 57:36David Rosenthal?

  Yeah.

• 57:37Ben Gilbert?

  So was it in this really tumultuous time when you did the deal with Don then?

• 57:41Speaker 00

  Really, yeah. We were damaged and I did a reorganization with all my creditors. And basically I gave them, I said, if you want 100 cents on the dollar, you've got to give me six months.

• 57:56Ben Gilbert?

  Hmm.

• 57:56Speaker 00

  If you want 50 cents on the dollar, I'll pay you in two months. If you want cash right now, I'll give you 10 cents on the dollar.

• 58:06Ben Gilbert?

  Mm hmm.

• 58:07Speaker 00

  And then I said, and if you sue me.

• 58:10David Rosenthal?

  Get another video game.

• 58:11Speaker 00

  You'll never get an order from me again.

• 58:14Ben Gilbert?

  Wow.

• 58:14Speaker 00

  In our life. And then to get the line going again, I went to Jerry Sanders from AMD. And I said, we've just been cut off because of credit hold. I said, but I laid out what the option to him was. And I said, I need a $50,000 credit line for your parts. And if you give that to me, you'll be my preferred vendor from now on.

• 58:41Ben Gilbert?

  Wow.

• 58:41David Rosenthal?

  Who were using Fairchild before? Were you using?

• 58:43Speaker 00

  Fairchild.

• 58:43David Rosenthal?

  Fairchild. Okay.

• 58:44Speaker 00

  And TI. And they were just jerks. And Jerry said, okay.

• 58:53Ben Gilbert?

  Wow.

• 58:54Speaker 00

  It probably was worth $50 million to AMD to be the prime supplier for Atari.

• 59:00David Rosenthal?

  Yeah.

• 59:01Ben Gilbert?

  Pretty good. Okay.

• 59:02Speaker 00

  Very good. Okay.

• 59:03Ben Gilbert?

  So then.

• 59:04Speaker 00

  We've been good friends since. We've got.

• 59:06Ben Gilbert?

  Oh, that's great. So my understanding from doing a little bit of research before was that you effectively came to terms on what the investment would be from Sequoia during the time of tumult and before.

• 59:19Speaker 00

  Correct.

• 59:19Ben Gilbert?

  The AMD agreement.

• 59:20Speaker 00

  Yeah.

• 59:21Ben Gilbert?

  But of course you hadn't closed yet. And you know, you're, you're, you're maybe a month or a few more months goes by and you're getting ready to close the deal.

• 59:30Speaker 00

  And we'd gotten much healthier. We, you know, all the things that we'd done, we fixed up things that we were shipping and all of a sudden we weren't under stress again. And so it became time to close. And that night I said to Joe, my, the president, I said, I can't do this. This isn't, this is not the right deal. Don had champagne iced up in his trunk and he came out and I said, sorry, the price isn't right. And I said, this is the condition when I agreed to this, this is the condition now. The price is double.

• 1:00:08Ben Gilbert?

  Double?

• 1:00:09Speaker 00

  Double.

• 1:00:09David Rosenthal?

  Wow. How did he react?

• 1:00:11Speaker 00

  Oh, he was pissed. But I was willing to walk away.

• 1:00:15David Rosenthal?

  Wait, because you didn't need the capital anymore?

• 1:00:17Speaker 00

  I didn't need the capital anymore. Two days later, he came back and he said, okay.

• 1:00:22David Rosenthal?

  Wow. Wow. What a story for the first investment.

• 1:00:26Speaker 00

  Well, it was, my relationship with Don was always a little bit love hate. You know?

• 1:00:32Ben Gilbert?

  I could see that.

• 1:00:33Speaker 00

  You know, and because you, you don't, you don't dick with Don Valentine that way.

• 1:00:42Ben Gilbert?

  Well, I, I've heard then that, uh, board meetings could take place in hot tubs, you know, that, can you describe the Atari culture at this point? We talked about you as the first hacker archetype as a CEO, um, or I don't know if you called yourself a CEO, president, founder.

• 1:00:58Speaker 00

  I was CEO.

• 1:00:59Ben Gilbert?

  Okay. What was the company like and how is it different than other companies?

• 1:01:04Speaker 00

  I think to understand that clearly, you need to understand what was going on at the time. And we all had our hippie costumes that we'd dress up in our bell bottoms and our tie dye shirts and go up to San Francisco and, and be posers.

• 1:01:22David Rosenthal?

  Because you guys were engineers.

• 1:01:23Speaker 00

  And we were engineers, but you know, sometimes it was kind of fun.

• 1:01:26Ben Gilbert?

  Totally.

• 1:01:27Speaker 00

  And to go up there. And so there was this. Ethic, the, the summer of love and all that, that, and you know, don't trust anyone over thirty and you know, smash the state and, and all that. But what really was, it was a, an idea that you treat everyone fairly, not based on history, not based on legacy, not based on, you know, who you were and, and what, what you came, but, but what your soul was, what your capabilities were. And so we actually created this company manifesto or constitution. And so we encapsulated equal pay for equal work, very first one in Silicon Valley.

• 1:02:12Speaker 00

  So we, we felt, and we had some amazing women that worked for us that were, just loved the whole idea that we had this manifesto.

• 1:02:24David Rosenthal?

  Speaking of the culture and the time, I mean, this must've been right around the time when this guy shows up at your office, right?

• 1:02:32Speaker 00

  Yeah, Jobs.

• 1:02:33David Rosenthal?

  Yeah.

• 1:02:34Speaker 00

  Uncam, dirty.

• 1:02:36David Rosenthal?

  He just walked in one day.

• 1:02:37Speaker 00

  And said he's not gonna leave until he got a job.

• 1:02:40David Rosenthal?

  And what, was it this like, I mean, you guys have become pretty big in the valley. You were well-known at this point. Was it like, this is Steve Jobs, of course. Did he wanna work at Atari because he'd heard about Atari and heard about the culture?

• 1:02:52Speaker 00

  Yeah, absolutely. And, and you know, he, he liked the idea that we were doing something that wasn't bombs, wasn't, you know, military. And by being in the game business, we actually had a real advantage because a lot of the businesses had some military outlook. And so if you were a foreign national, a lot of times you couldn't work for those companies. So we had our pick of the crop in terms of, you know, the, the Brits at the time had just wonderful engineers and Germans and, and what have you from all over the world.

• 1:03:32David Rosenthal?

  Wow.

• 1:03:32Ben Gilbert?

  Yeah, and you had that unique recruiting advantage.

• 1:03:35David Rosenthal?

  Well, not to mention, you're in the Bay Area. Vietnam had probably just ended at this point. Yeah, pretty much. I'm sure there are a lot of people in the Bay Area at this moment in history who were none too keen to be working for companies that were selling to militaries. Yeah.

• 1:03:51Ben 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.

• 1:04:04David 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?

• 1:04:21Ben 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.

• 1:04:36David 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. Logora'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.

• 1:05:00Ben Gilbert?

  And they recently launched Logora 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.

• 1:05:19David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora 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.

• 1:05:49Ben 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 lagora.com/acquired and just tell them that Ben and David sent you. I'm sure you've spoken many times about your experience with Steve Jobs and Steve Wozniak. You are one of the very few people in the world that were ever either of their boss.

• 1:06:26Speaker 00

  Right.

• 1:06:27Ben Gilbert?

  How did that go? How were they as sort of young budding talent? And what are some of the things that they did together at Atari?

• 1:06:34Speaker 00

  So I want to clear up this.

• 1:06:36Ben Gilbert?

  Yeah.

• 1:06:36Speaker 00

  Wozniak never worked for me. He was always working at HP.

• 1:06:40Ben Gilbert?

  Uh huh.

• 1:06:41Speaker 00

  And I put Steve Jobs on the night shift because I knew Woz would hang out with him.

• 1:06:48Speaker 00

  Ever the entrepreneurial instinct. Well, I called it getting two Steves for the price of one.

• 1:06:55Speaker 00

  And You got an advisor. Woz was an advisor. And Woz is and was a true savant. I think actually Woz doesn't get enough credit for the success of Apple. Because he could design discrete logic chips. I mean, he did the Apple II. As a design construct was brilliant. It was the most efficient articulation that you could probably... Woz did an all-nighter, two nights in a row, developed the drivers and the hardware to interface this floppy disk drive to the Apple II. Took Atari seven months. Wow.

• 1:07:40Speaker 00

  And we had some smart people.

• 1:07:42Ben Gilbert?

  Wow.

• 1:07:42Speaker 00

  Wow. So those sorts of things, for me, just gives me tremendous respect for the man's capability. We had a deal where the engineers at Atari could bid on the projects. We'd give them a game list, and since we'd give a little bit of royalty to the engineers, they only wanted to work on ones that they liked. And I came up with this game called Breakout. And nobody wanted it.

• 1:08:09Ben Gilbert?

  Quiet success out in the world breakout.

• 1:08:11Speaker 00

  Well, the perception was that ball and paddle games were over.

• 1:08:15Ben Gilbert?

  Ah.

• 1:08:16Speaker 00

  And this was a ball and paddle game, but with a twist.

• 1:08:18Ben Gilbert?

  What year was that?

• 1:08:20Speaker 00

  Seventy four.

• 1:08:22Ben Gilbert?

  Okay, so we're, we're two, three years after the amazing success of Pong.

• 1:08:27Speaker 00

  Right.

• 1:08:27Ben Gilbert?

  Got it.

• 1:08:28Speaker 00

  Might have been seventy five. I'm not sure.

• 1:08:31David Rosenthal?

  But there'd never been a single player Pong.

• 1:08:33Speaker 00

  No. And it turns out that Breakout was actually the game that, that launched the Japanese market.

• 1:08:41Ben Gilbert?

  For video games at all?

• 1:08:42Speaker 00

  Yeah.

• 1:08:43Ben Gilbert?

  And so at this point in seventy four, seventy five, Atari had just started shipping home consoles. You had.

• 1:08:50Speaker 00

  Seventy five.

• 1:08:52Ben Gilbert?

  Seventy five, seventy, got it.

• 1:08:53David Rosenthal?

  The, the VCS that became the twenty six hundred, right?

• 1:08:56Speaker 00

  Yes.

• 1:08:56David Rosenthal?

  So many of us had.

• 1:08:59Ben Gilbert?

  My understanding was you were the, the sort of game designer and, and kind of visionary behind Breakout. This was a game that you'd sort of really come up with a concept for. And so you put it on this list for, for different people to bid on. How does it go from there?

• 1:09:14Speaker 00

  They didn't want to do it. And so I put Steve on the night shift and assigned it to him.

• 1:09:19Ben Gilbert?

  This is Jobs, because he's the only one that works for you.

• 1:09:21Speaker 00

  And I knew that he wouldn't do it, but Woz would.

• 1:09:26David Rosenthal?

  Oh, amazing. Woz is not an employee of Atari. He's just hanging out with Jobs at night.

• 1:09:33Ben Gilbert?

  How's the IP work on that?

• 1:09:35David Rosenthal?

  It was a different era.

• 1:09:36Speaker 00

  They were employees. Who knew?

• 1:09:38Ben Gilbert?

  Yeah. Crazy.

• 1:09:40David Rosenthal?

  Wow. And so Woz does all the technical design of Breakout.

• 1:09:44Speaker 00

  Yeah. Now, I did a deal where they got a bonus based on how few chips they could use.

• 1:09:54Ben Gilbert?

  Yeah. So I read something about this, that the cabinets typically had seventy five plus boards in them. But it would save Atari like a hundred thousand dollars if you could remove each chip.

• 1:10:05Speaker 00

  Yeah. And that's absolutely true. And so the Woz's design was like forty chips. I mean, it was unheard of. But it had sort of feedback systems that made it really hard to test. And so, once the game was done and everybody could see that it was fun, they did a re-hack. But I paid the, the bonus based on the number of chips that came back.

• 1:10:36Ben Gilbert?

  Hmm.

• 1:10:36Speaker 00

  Which was $5,000. And that was a lot of money in those days.

• 1:10:40Ben Gilbert?

  Yeah.

• 1:10:41Speaker 00

  Subsequently, Woz was over to the house and we were talking about breakout and what have you. And I said, what did you do with your half of the money? He says, oh, I went out to dinner. And, and I said.

• 1:10:53David Rosenthal?

  That's some dinner.

• 1:10:54Speaker 00

  That's some dinner. And he said, what do you mean? And I said, well, you know, I figured you probably ended up with 2,500 bucks. He shook his head and says, Jobs did it to me again.

• 1:11:07Ben Gilbert?

  Ah.

• 1:11:07Speaker 00

  Jobs told me it was $500 and he got 250.

• 1:11:11Ben Gilbert?

  Wow. And this is before they started Apple together?

• 1:11:15Speaker 00

  Oh, no, no, this is after, this is a long time after.

• 1:11:17Ben Gilbert?

  Ah.

• 1:11:18Speaker 00

  And, and you know, Woz said, you know, I really don't care. He said, because of Jobs, I've made a lot of money, much more than I ever thought I would at that. And I said, and he must have had a better need for it than I did.

• 1:11:37Ben Gilbert?

  Wow.

• 1:11:39David Rosenthal?

  Wow.

• 1:11:39Ben Gilbert?

  What a feeling guy.

• 1:11:40Speaker 00

  Yeah.

• 1:11:41David Rosenthal?

  Did Jobs come and tell you that he was gonna leave Atari and go start Apple? Like, how, how did that happen?

• 1:11:49Speaker 00

  Well, he asked me to be his first investor, $50,000 for a third of Apple. And I just said, no, which I've kind of regretted. And, uh, but.

• 1:12:00David Rosenthal?

  That's okay. Don made a mistake with Apple too, so.

• 1:12:03Speaker 00

  Well, it was really a, a thing where I actually think if I'd said yes, the world would maybe have been a slightly different place. Because Mike Markle, who did the first investment, was also a very hands-on mentor.

• 1:12:17David Rosenthal?

  Mm-hmm.

• 1:12:17Speaker 00

  And he basically turned Jobs into an actually acceptable CEO that I probably wouldn't have done.

• 1:12:24Ben Gilbert?

  Yeah, I think I've heard you refer to him as a ho-chi-men looking guy.

• 1:12:28Speaker 00

  Yeah.

• 1:12:28Ben Gilbert?

  Yeah.

• 1:12:30Speaker 00

  And remember, Markela was the first president of

• 1:12:33Ben Gilbert?

  Of Apple.

• 1:12:34David Rosenthal?

  Yeah, Markela had worked for Don Valentine, right?

• 1:12:36Speaker 00

  Correct.

• 1:12:37David Rosenthal?

  Yep. And, and the story is that Don sent Markela over to talk to Steve.

• 1:12:42Speaker 00

  I sent Steve to John. Don sent Steve to Markela.

• 1:12:47Ben Gilbert?

  Pinball game here.

• 1:12:48David Rosenthal?

  Wow.

• 1:12:49Ben Gilbert?

  David, can you just catch us up on the timeline, moving through the mid 70s, sort of what happens in 75, 76?

• 1:12:55David Rosenthal?

  Yeah.

• 1:12:55Ben Gilbert?

  And let's get to what the next financing would look like for, for Atari as a company.

• 1:13:01David Rosenthal?

  So Sequoia and Don invested in 75.

• 1:13:05Speaker 00

  Right.

• 1:13:05David Rosenthal?

  Then in 76, you end up selling the company. How, how did that happen?

• 1:13:10Speaker 00

  We were far down the design path of the 2600. We knew that we had to, one, build a new factory. Two, that it was going to be a highly driven by fourth quarter sales. And we just knew that we didn't have enough capital. And so we started down the path of taking Atari public.

• 1:13:34Speaker 00

  And we had an S1 drafted up and everything that, and then the market kind of did a hiccup. And we said, maybe not. So we went down. So we said, okay, we'll see if we can get a corporate partner. When we started down that path, Don says, hey, why don't you go talk to Warner people? And the Warner people came out and said, that's kind of interesting and what have you. And maybe, maybe what we can do is we can do a structure where we buy it. And you guys make all the money and do all the stuff, you know, and, you know, it was, you know, we were young and dumb. I had a lot of hay coming out of my shirt, what have you.

• 1:14:12Speaker 00

  And, and so they sent the Warner corporate jet to pick us up at the San Jose Airport. And we climb onboard and of course, just to really do starstruck. They stopped in, in Sun Valley and picked up Clint Eastwood and Sandra Locke.

• 1:14:31Ben Gilbert?

  What? On the jet?

• 1:14:33Speaker 00

  On the jet.

• 1:14:34David Rosenthal?

  Wow.

• 1:14:35Speaker 00

  And so we're, we're flying to New York on the Warner jet with Clint and his girlfriend.

• 1:14:41David Rosenthal?

  Wow.

• 1:14:43Ben Gilbert?

  That didn't come up in any of the research.

• 1:14:45Speaker 00

  Oh, really?

• 1:14:45Ben Gilbert?

  No.

• 1:14:46Speaker 00

  No, yeah, well, and then we get picked up at the airport and a limo drops us off at the Waldorf Astoria Side entrance. That's where the-

• 1:14:58David Rosenthal?

  The VIPs go.

• 1:15:00Speaker 00

  The VIPs go. We go up and we're in a suite of rooms that has a library and a pool room and a kitchen. And I mean, it's basically a 5,000 square foot apartment that we're in, you know, and, you know.

• 1:15:17David Rosenthal?

  And it's the Warner corporate apartment.

• 1:15:18Speaker 00

  Yeah, and there are three of us, Joe, Gene Lipkin and myself, and we're there. And you realize you're being played a little bit, but you don't mind it because it's kind of cool.

• 1:15:28Ben Gilbert?

  It's, there is something very nice about getting sold to by someone who is an excellent salesperson.

• 1:15:35Speaker 00

  Exactly. So, next morning, we meet for breakfast and go into Warner's conference room and we start talking about deals and deal structures and what have you.

• 1:15:47Ben Gilbert?

  And, and can you give us a sense for the size of Atari's business at this point? Revenue or profit or any, anything you can call?

• 1:15:54Speaker 00

  Probably close to 40 million, 45.

• 1:15:58Ben Gilbert?

  Mm-hmm. In revenue?

• 1:15:59Speaker 00

  Revenue.

• 1:15:59David Rosenthal?

  But this is all in the, in the arcade business, right? And you're about to enter-

• 1:16:03Speaker 00

  No, we, we were doing Home Pong.

• 1:16:06David Rosenthal?

  Oh, okay. You're doing Home Pong, but not the 2600 yet. Got it. I didn't realize actually that you had marketed home single game-

• 1:16:14Ben Gilbert?

  Oh, yeah. There were two big dials, right? That you could sort of grab and each, each player would twist them to move the paddle.

• 1:16:21Speaker 00

  Yeah. So, anyway, we'd gotten to a few sticking points, what have you, hadn't quite shaken hands. We were invited over to Steve Ross's for dinner. He has a Fifth Avenue apartment on the top floor, top three floors. And of course, there was a screening of Outlaw Josie Wales.

• 1:16:44David Rosenthal?

  Oh, yeah.

• 1:16:44Speaker 00

  For Clint and Sandra and us.

• 1:16:47Ben Gilbert?

  Amazing.

• 1:16:48David Rosenthal?

  Wow. Talk about being sold to.

• 1:16:51Speaker 00

  Yeah, exactly. Kind of like this life. So, at the end of, of the day, we kind of shook hands on a, on a proposed deal.

• 1:17:01Ben Gilbert?

  Wow. And so that, if I read correctly, was a $28 million all cash offer to the shareholders of Atari and

• 1:17:10Speaker 00

  Wasn't all cash. There were some debentures involved. And that was done as much for tax reasons as anything, because you know, you wouldn't have to pay tax on it all at once.

• 1:17:20Ben Gilbert?

  Got it. Right.

• 1:17:21Speaker 00

  Cheaper. But in addition to that, there was a huge payout. Like, there was 10% bonus pool. So, we, personally, we'd get a big taste of the success of Atari.

• 1:17:35Ben Gilbert?

  Oh, like a, like an earn out, essentially?

• 1:17:38Speaker 00

  Correct.

• 1:17:39Ben Gilbert?

  Oh, wow.

• 1:17:40Speaker 00

  Yeah.

• 1:17:41Ben Gilbert?

  Huh.

• 1:17:41David Rosenthal?

  Which, which This was before startups learned that, uh, big companies always structured the earn outs, uh, in their favor.

• 1:17:48Speaker 00

  Oh, do they ever?

• 1:17:49David Rosenthal?

  Oh, you wrote the playbook in so many ways.

• 1:17:52Ben Gilbert?

  Which of those ended up being more meaningful for you? The bonus pools or the actual one-time transaction?

• 1:17:59Speaker 00

  That's actually hard to say, because what I ended up doing is I hypothecated the bonus pool to get additional capital for Chuck E. Cheese.

• 1:18:10Ben Gilbert?

  Ah. So, this is an excellent lead in to, okay, a few of us who had, like, looked into this before, knew that you are also the founder of Chuck E. Cheese, which, when you, the first time you learned that, you know, your, your mind's blown and you got Tweety Birds spinning around your head. The thing that I didn't know until really diving in is, you started Chuck E. Cheese as a part of Atari, and then bought it from Warner's to spin it back out.

• 1:18:37Speaker 00

  Correct.

• 1:18:38Ben Gilbert?

  Take us through that.

• 1:18:41Speaker 00

  Okay. The idea, before Warner was there, is I felt, we were selling these coin-operated games for 2,000 bucks, and in their life, they'd do 30,000 to 50,000 in coin drop. It didn't take rocket science, Sam, on the wrong side of this transaction. But I didn't want to compete with the operators that were putting them in bars and restaurants. And I didn't want to compete for locations, for arcades in malls and what have you. So, I said, I'm gonna have to create my own location.

• 1:19:13Ben Gilbert?

  Mm-hmm.

• 1:19:14Speaker 00

  And so, I said, okay, if I'm going to be building a big arcade, what's my best draw? And I said, well, we've got to have food. And what the food needs to be is pizza, because there's a wait time, ideal time for that. Then the most successful-

• 1:19:32David Rosenthal?

  Ideal time to go play the games while you're waiting for the pizza.

• 1:19:35Speaker 00

  Yeah. The most successful pizza parlor in the Bay Area was a thing called Pizza and Pipes, where they had a deconstructed World's or Theater organ all over the place.

• 1:19:45David Rosenthal?

  Hmm.

• 1:19:46Speaker 00

  And so there'd be an organist and you'd see the drums going and they put lights on the various things so that it was kind of a show.

• 1:19:53David Rosenthal?

  Yeah.

• 1:19:55Speaker 00

  And I thought to myself, okay.

• 1:19:56David Rosenthal?

  I've seen this before.

• 1:19:58Speaker 00

  I can, I can do something like this. It turns out that I was going to take my daughters to Disneyland. I was trying to get some ideas about what I could do that wasn't a World's or Theater organ, but had the same marketing. And we went to the tiki room and I said, oh, my engineers can do this and we can replicate it till the cows come home.

• 1:20:22David Rosenthal?

  Yeah.

• 1:20:23Speaker 00

  And so that became the working prototype for Chuck E. Cheese and, you know, in terms of concept. And we literally opened the first one three weeks after we closed the Warner deal.

• 1:20:37David Rosenthal?

  Wow. Was it in San Jose?

• 1:20:40Speaker 00

  It was in San Jose. It was in an old brokerage house. It was 5,000 square feet and the day we opened, we knew it was too small. You know, the typical pizza parlor was a 500 square feet, maybe a thousand, you know? And this was 5,000 and yet it was way too small.

• 1:20:59David Rosenthal?

  Wow. And did, did the first one have, I mean, my memories of Chuck E. Cheese are the whole elaborate system with the tickets and the prizes and-

• 1:21:09Ben Gilbert?

  All the animatronics, the show every half hour.

• 1:21:11David Rosenthal?

  Was that all there in the beginning?

• 1:21:13Speaker 00

  Most of it. Most of it. I always felt that the right way to market it was we would survey the cost of a large pizza. We'd then up that by 15% and then give tokens that if valued at 25 cents would look like we were 15 to 20% cheaper.

• 1:21:37David Rosenthal?

  Ah.

• 1:21:38Ben Gilbert?

  So you would just bundle in effectively some, some starter gameplay with the pizza?

• 1:21:43Speaker 00

  Exactly.

• 1:21:44David Rosenthal?

  Oh, man.

• 1:21:45Ben Gilbert?

  Was Atari creating the games that were in Chuck E. Cheese then?

• 1:21:50Speaker 00

  Partially. We would, we would buy from anybody.

• 1:21:52Ben Gilbert?

  Yeah.

• 1:21:53Speaker 00

  Like we bought Ski Balls and things like that from others.

• 1:21:57Ben Gilbert?

  Huh.

• 1:21:58Speaker 00

  But it was off to the races.

• 1:22:00Ben Gilbert?

  Okay.

• 1:22:01Speaker 00

  Well, you want me to tell you the deal I got from Warner?

• 1:22:04Ben Gilbert?

  Desperately, yeah.

• 1:22:05Speaker 00

  They, they said, you know, I, we're, I was talking about expanding it at a budget meeting. And they said, I don't think we want that. And I said, really? It's really good business. I said, I'll buy it. They said, how much, how much you want to pay? I said, I don't, I don't know. I said, I'm going to really have to work at this and I ended up.

• 1:22:27Ben Gilbert?

  The carny wheels are turning.

• 1:22:29Speaker 00

  So I got it for half a million bucks.

• 1:22:34Ben Gilbert?

  How many locations?

• 1:22:35Speaker 00

  Hundred thousand dollars a year for five years.

• 1:22:38Ben Gilbert?

  Oh, they let you pay it over five years? No interest?

• 1:22:41Speaker 00

  No interest.

• 1:22:42David Rosenthal?

  Wow. And how many locations did you have at that point?

• 1:22:44Speaker 00

  Just the one.

• 1:22:45David Rosenthal?

  Oh, just the one. Okay.

• 1:22:46Speaker 00

  But that one threw off $700,000 of cash flow annually.

• 1:22:55David Rosenthal?

  You're assuming the corporate finance department at Warner didn't give this a once over?

• 1:22:59Ben Gilbert?

  They clearly just didn't, didn't believe in it. I mean.

• 1:23:01Speaker 00

  Yeah, they didn't believe in it.

• 1:23:02Ben Gilbert?

  Also, you were just the king of payback periods and cash flows.

• 1:23:06Speaker 00

  Exactly. Well, that's when you don't have cash, you got to think that way.

• 1:23:10Ben Gilbert?

  Yeah. What year is this that you, you, you buy it for 500K?

• 1:23:15Speaker 00

  Uh, 77.

• 1:23:16Ben Gilbert?

  77 or at least it's the, the year that you start five payments of, of 100K. So that's in 77. Over the next, I don't know, decade, decade and a half, Chuck E. Cheese has close to 300 locations that you've opened?

• 1:23:31Speaker 00

  250.

• 1:23:32Ben Gilbert?

  250.

• 1:23:33Speaker 00

  125 company stores, 125 franchises, and I sold it to Brock Hotel.

• 1:23:40Ben Gilbert?

  To, to who?

• 1:23:40Speaker 00

  Brock Hotel.

• 1:23:41Ben Gilbert?

  Brock Hotel. What did that transaction look like?

• 1:23:44Speaker 00

  It was a bad deal for me. I'd taken the company public. I made more money on Chuck E. Cheese than I did on, on Atari. But I did it through selling of stock going on, but the company, the 1983 was when the

• 1:24:02Ben Gilbert?

  Video game

• 1:24:02Speaker 00

  Video games kinda did. And Chuck E. Cheese was, was hit by that a little bit.

• 1:24:10Ben Gilbert?

  Huh.

• 1:24:10Speaker 00

  And so I had hired a new president of Chuck E. Cheese and started really seriously campaigning a sailboat, i.e. screwing off.

• 1:24:27Speaker 00

  And, and I might add, in 1977, I got married again. And, you know, once I had sold the company to Atari, it took a little bit of the fire out of my belly, so.

• 1:24:39Ben Gilbert?

  Sold Atari to Warner.

• 1:24:40Speaker 00

  Yeah.

• 1:24:41Ben Gilbert?

  Yeah.

• 1:24:41Speaker 00

  And so I got married, I was spending a lot of time wooing and wedding my, my bride, and then we'd hang out and, you know, it was, you know, got the big house and did a remodel and, you know, all, all this stuff you do when you have a lot of cash. When I was campaigning sailboat, I won the Transpact Newport to Hawaii, um, in 1983.

• 1:25:04Ben Gilbert?

  That's a, it's a big sailboat race. You're, you're talking to someone who doesn't, I, I'm not a big, uh,

• 1:25:08Speaker 00

  No.

• 1:25:08Ben Gilbert?

  Yes, this is like a very well-known sailboat race?

• 1:25:12Speaker 00

  It's, it's basically longer running the America's Cup.

• 1:25:15Ben Gilbert?

  Huh.

• 1:25:15Speaker 00

  Wow. But it's considered to be not quite America's Cup because it's mostly downhill.

• 1:25:23Ben Gilbert?

  Was it, what is it, the wind is always at your back or something?

• 1:25:25Speaker 00

  Yeah, exactly.

• 1:25:25Ben Gilbert?

  Okay, yeah.

• 1:25:26Speaker 00

  So, so you want a boat that is very flat-bottomed, that can get up and surf, you, you fly spinnakers all, all day long, but it doesn't point up wind at all. You know, and the America's Cup, you have to be an all-around boat.

• 1:25:45Ben Gilbert?

  I see.

• 1:25:46Speaker 00

  And instead of what they call, Transpact competitors are called sleds.

• 1:25:53David Rosenthal?

  That's great.

• 1:25:54Speaker 00

  But anyway, I won it in 1983.

• 1:25:56David Rosenthal?

  Congratulations.

• 1:25:57Speaker 00

  And the minute I hit land, I get this call, we're going to miss our projections and lose money in the third quarter.

• 1:26:06David Rosenthal?

  And you're a public company at this point?

• 1:26:08Speaker 00

  We're a public company. You know, what happens is, you know, when you lose money, I had a couple of, you know, lines of credit out there and that violates covenants and it just starts to create a shitstorm. So get out of that, I ended up selling.

• 1:26:24David Rosenthal?

  Hmm. Wow.

• 1:26:27Speaker 00

  Not for a lot of money, but it's okay.

• 1:26:29David Rosenthal?

  There was another company, I mean, you've started so many companies in the years since and continue to, but there was one more company we want to talk about before we move on to acquisition category here that came out of Chuck E. Cheese that you ended up selling to George Lucas. Can you tell us a little bit about that?

• 1:26:50Speaker 00

  Yeah, I had a project called Cadaver Scope. And what I wanted to do is to create computer aided animation. And I felt that doing tweens and things like that, that the technology was good enough. And we created some pretty good software, but the, the computers were so crappy in those days. I mean, it was taking 48 hours to render a complete frame. I mean, you know, and half the time the computer had bombed before it finished. So, you know, if you got one frame a week, you were really rocking. And this was with a VAX 780, which was the Go Fast Scientific Computer at the time.

• 1:27:30David Rosenthal?

  And these frames are 640 by 480 or less?

• 1:27:33Speaker 00

  No, they were, they were, no, they were, they were 640 by 480.

• 1:27:37David Rosenthal?

  Hmm.

• 1:27:38Speaker 00

  Yeah.

• 1:27:39David Rosenthal?

  One a week.

• 1:27:39Speaker 00

  One a week. And there's not a business there.

• 1:27:42David Rosenthal?

  Imagine Toy Story in one frame a week. Well, I'll imagine it in like 2065. Yeah.

• 1:27:47Speaker 00

  So I ended up selling my software to George Lucas when, when Chuck E. got into trouble. I was scrambling for cash. And so in some ways I like to joke and say, I founded Pixar, technically, but George Lucas took it and did it. And while I, while at Cadaver Scope.

• 1:28:10David Rosenthal?

  Which was the name of the technology that you had.

• 1:28:12Speaker 00

  Yeah. I showed. Steve Jobs, he came over and he was very fascinated with it.

• 1:28:17Ben Gilbert?

  Wow.

• 1:28:18Speaker 00

  And I told him about some of the problems we were having, da, da, da, da, da. And so he came to me when he was offered Pixar. And I said.

• 1:28:28Ben Gilbert?

  From George Lucas?

• 1:28:29Speaker 00

  Yeah. And I said, the big key is render time. If you can solve the render time problem, it's a good deal. And what I hadn't realized is he'd figured out how to do a render farm. So where you, where you basically atomize the problem and, and get a whole bunch of different computers to work on it. That was the first render farm that ever existed.

• 1:28:52Ben Gilbert?

  Wow.

• 1:28:53Speaker 00

  Wow. Anyway.

• 1:28:54Ben Gilbert?

  That's so cool. There's fun acquired history too, because Pixar was our first, our first episode. I think we dove into the research and, you know, we were excited to find out that Steve Jobs Pixar came from George Lucas at, at Lucasfilm. And what a cool story that was. And here we are 100 episodes later. It actually goes even deeper. Getting the, you know, even deeper origin story. It's just really cool. Yeah. Wow. Super cool. All right. Let's go into our section after history and facts. And this is an illustrious, amazing history and facts. What we tend to talk about now is what would have happened otherwise? And, and the way that I want to frame this on this episode is what if Atari was never started?

• 1:29:37Ben Gilbert?

  How do you think this crazy enormous video game industry that we have today? I'm sure you've thought about this before. Like, there's one view of it that's, it wouldn't exist at all. And that, you know, probably, probably not true. There's another view that is, it would be no different than it is today, which is also probably not true. So what, what do you think is the, the middle there?

• 1:29:59Speaker 00

  I think that there's a 90% probability that there would have been a video game post the 6502 microprocessor. I think that the technology had progressed point where it was pretty simple. The secret sauce that I provided is to figure out how to do it with, with state machine technology, which wasn't an obvious thing to most engineers. You know, and I think that was, that was my unique contribution that.

• 1:30:33Speaker 00

  Is far enough out of the mainstream that it may never have happened. Or it may have. You just never know.

• 1:30:39Ben Gilbert?

  Yeah.

• 1:30:40Speaker 00

  There's a lot of, I always say that we're running down the hallway of a, of a, of a hotel and you're checking all the doors. And sometimes, you know, there's a broom closet and some, most of the time it's a regular room, but every once in a while there's, there's a ballroom. And, and you're not there alone. There are many people running down those same streets.

• 1:31:02Ben Gilbert?

  Yeah.

• 1:31:03Speaker 00

  And I think it's extremely arrogant to think that you were definitive in something.

• 1:31:11David Rosenthal?

  I read somewhere, I don't know if it's true, I think this was after you left Atari after the acquisition, that there was potentially a deal on the table for Atari to be the US manufacturer and distributor for the Nintendo Entertainment System, for the famicom. Could you, can you say, or do you know anything about how that?

• 1:31:30Speaker 00

  I just know that that was an opportunity and it was turned down.

• 1:31:35David Rosenthal?

  Wow. That would have been a very different.

• 1:31:38Speaker 00

  Very different scenario.

• 1:31:40Ben Gilbert?

  So.

• 1:31:40Speaker 00

  I want to add one thing that, about the transpec. Cause another important thing happened. Over the chart table, four in the morning, we did the rough for E-TAC, which was the foundation for navigation systems, you know.

• 1:31:57David Rosenthal?

  Yeah.

• 1:31:58Speaker 00

  If you have a mapping system in your car or on your iPhone, it's all based on the technology we created.

• 1:32:03Ben Gilbert?

  Wow.

• 1:32:04David Rosenthal?

  And I think I remember reading in the research that at E-TAC, which is one of the companies you created that did navigation technologies, you had a, an arrow based on the Space Invaders.

• 1:32:16Speaker 00

  That's correct. Yeah.

• 1:32:17David Rosenthal?

  For the car. And still to this day, any navigation, you know, Google Maps, whatever, like, you're an arrow if you're the car and it's because of that, right?

• 1:32:24Speaker 00

  Yeah. It's kind of fun.

• 1:32:26Ben Gilbert?

  That's awesome.

• 1:32:28David Rosenthal?

  Pretty cool.

• 1:32:29Ben Gilbert?

  What happened to E-TAC?

• 1:32:30Speaker 00

  Sold it to News Corp, who sold it to Sony, who sold it to.

• 1:32:37David Rosenthal?

  Tele, Alice or Naptime? Tele, Alice. Yeah. Wow.

• 1:32:41Ben Gilbert?

  Oh, how these things find their way throughout history.

• 1:32:44David Rosenthal?

  Earlier, earlier this season, so it all comes back around.

• 1:32:48Ben Gilbert?

  One other question before moving on is Atari pioneered video games in so many senses, but is not relevant today. How could Atari have traversed the waves that came over the next few decades and been what Nintendo became, especially in the United States?

• 1:33:12Speaker 00

  It all comes down to management. The company never had a strong sense of self. In fact, I think Atari is maybe the only company in the world in which the market leader abandoned its market. Can you imagine that? But it did. And the sale to Jack Tramell, you know, it was just a total cluster.

• 1:33:38Ben Gilbert?

  This is Warner sold it off?

• 1:33:40Speaker 00

  Yeah.

• 1:33:41Ben Gilbert?

  Huh.

• 1:33:42Speaker 00

  They just didn't have a feeling for it. I mean, the executives they put into Atari were all record guys. They didn't realize they were record player guys as well. And so they were.

• 1:33:54David Rosenthal?

  Well, they were an East Coast company. I mean, like we covered on our last episode, it's just like Fairchild, like an East Coast corporation running a West Coast technology firm in that day and age, it just didn't work. It just didn't work.

• 1:34:07Speaker 00

  And they, and Rekarsar totally screwed up the corporate culture.

• 1:34:12Ben Gilbert?

  Hmm.

• 1:34:12Speaker 00

  Like, we went from not allowing executives to have reserved parking spots.

• 1:34:18Ben Gilbert?

  Mm hmm.

• 1:34:19Speaker 00

  Because I felt that, hey, having the workers pass an empty slot with, you know, vice president was just an us versus them trope.

• 1:34:30Ben Gilbert?

  Totally.

• 1:34:31Speaker 00

  And, and I said, I want this, I want us to be as egalitarian as possible. And yeah, I'm going to make a little bit more money, but you know, I've got more responsibility and, you know, da, da, da, da. But we all are in the same cafeteria. We're all hanging out together, you know, when we have a beer bust on the back dock, we're all there, you know. And we went from that to a private dining, executive dining room by a four star chef. To, you know, limos and reserved parking spots and all kinds of us versus them tropes that was just not Atari. Hmm.

• 1:35:10David Rosenthal?

  The irony is now in Silicon Valley, there's a private dining room with four-star Michelin chefs for everybody. And everybody takes Uber blacks to work and like, the company pays for all of it.

• 1:35:20Speaker 00

  That's as it should be.

• 1:35:22David Rosenthal?

  Yeah.

• 1:35:23Ben Gilbert?

  Well, our next segment that we typically do is acquisition category. So we decide, you know, and there's, there's very clear cut in easy episodes where, you know, the company bought it, either it was a people acquisition, technology, product, business line, it was for an asset. In this case, I think what's coming out is Warner didn't really know why they bought it. And then that led to some of the kind of falling apart later. How would you characterize why they bought the company and what it was for?

• 1:35:53Speaker 00

  I've often thought that Steve Ross, who was suffering from prostate cancer, very limited one, had a very clear idea of what Atari was. When he got sick, I think the record guys didn't, you know, in a very significant way. And that's where it kind of came off the rails.

• 1:36:14Ben Gilbert?

  Hmm. All right. Well, normally here after category, we would go into grading. Nolan, we will take your color on everything so far, both on Warner buying Atari and you buying Chuck E. Cheese back from Atari and growing that into what it was. We will take your color there as, as our grades and finish up here. Nolan, thank you so much.

• 1:36:36Speaker 00

  You know, before we close up, I got to tell you what I'm doing now.

• 1:36:39Ben Gilbert?

  Please.

• 1:36:40David Rosenthal?

  Please.

• 1:36:41Speaker 00

  AI-driven board games. I did a deep dive on the Amazon Echo and the Google Home system and the AI under it and the speech recognition and everything and became mesmerized. And I thought to myself, this is a game platform that nobody knows about. And so. Let me do some board games that you can talk to. And that will answer. And so now we have Saint Noir, which you can go into at Amazon right now. Buy the board game, then download the Saint Noir app from your Amazon Echo. We're not on Google Home. We will be after the first of the year.

• 1:37:25Ben Gilbert?

  Yeah.

• 1:37:25Speaker 00

  And you can play a murder mystery in which you're in the creepy town of Saint Noir. And there are 12 creepy people, one of which is a murderer.

• 1:37:36Ben Gilbert?

  Oh, that's fun.

• 1:37:38Speaker 00

  And the townspeople have to tell the truth.

• 1:37:42Ben Gilbert?

  Oh, it's like mafia or werewolf.

• 1:37:44Speaker 00

  Kinda.

• 1:37:45Ben Gilbert?

  Yeah.

• 1:37:45Speaker 00

  And but but the perpetrator lies.

• 1:37:49Ben Gilbert?

  Oh.

• 1:37:50Speaker 00

  And so the game is interviewing everybody and finding out where they were on the night of the murder, who they saw, and what they did, and various things, and find out who's.

• 1:38:00David Rosenthal?

  Is it multiplayer or single player or both?

• 1:38:03Speaker 00

  I always play with three or four people and we decide and talk about things. But there's the board game and it's gorgeous. And I suggest that everybody that's listening to this should buy six or seven, particularly for Christmas.

• 1:38:17David Rosenthal?

  Absolutely.

• 1:38:20David Rosenthal?

  If only you could figure out how to put a quarter slot on the Echo, then that would be perfect.

• 1:38:25Speaker 00

  Well, you know, when you sell a bunch of paper for 40 bucks, that's almost as good.

• 1:38:32David Rosenthal?

  Maybe even better.

• 1:38:34Ben Gilbert?

  Well, there's one other trend here that you're on that I think is brilliant. I mean, of course, AI driven is interesting. Next generation gaming is interesting, but the most popular emerging podcast category is true crime. And this notion that sort of like you could have interactive gamified true crime is really cool.

• 1:38:55Speaker 00

  We're actually working on one of those.

• 1:38:58Ben Gilbert?

  Oh, awesome.

• 1:38:58David Rosenthal?

  Cool. Not to mention board games.

• 1:39:00Ben Gilbert?

  Yeah.

• 1:39:01Speaker 00

  I'll accept. When you say true crime, I'm not sure that it's going to be true.

• 1:39:08Speaker 00

  Yeah.

• 1:39:08Ben Gilbert?

  Nolan, thank you so much.

• 1:39:09Speaker 00

  My pleasure. It was fun.

• 1:39:11David Rosenthal?

  This has been a true honor. We're so glad you joined us. And what a great moment in acquired history too, to bring it full circle with Pixar, our very first episode, to be talking about the origins of Silicon Valley. And, you know, you guys played such an incredible part in that. So thank you so much for sharing the stories with us.

• 1:39:29Speaker 00

  Well, I appreciate it.

• 1:39:31David Rosenthal?

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

• 1:39:37Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:39:48David 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.

• 1:40:09Ben 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.

• 1:40:21David 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.

• 1:40:32Ben Gilbert?

  Listeners, if you aren't subscribed and you like what you hear, you totally should. And listeners, we will see you next time.

• 1:40:39David Rosenthal?

  We'll see you next time.