Since the first issue of ANALOG Computing, we have maintained an ambivalent relationship with Atari. Thrilled with Atari's successes, dismayed by its failures, we continue to support Atari computers, but we refuse to pretend that Atari has no problems. ANALOG Computing has never been a "house organ" for Atari, and we see no conflict between reporting sometimes less-than-appealing news about the Atari world, while continuing to support the best home computers available for under $1,000. Atari's recent past has been bleak, but there are bright rays dawning on the horizon. The following article, composed by several people, is both an editorial and a cautionary tale of corporate mismanagement.
Only one word adequately describes Atari's rise and fall: phenomenal. In 1983 the Atari sun plunged from high noon to a flickering twilight. Atari went from the fastest growing American company to the second biggest corporate loser. (Chrysler was the biggest.) With lightning speed Atari blitzed over ten million American homes, becoming the second most recognized brand name in the United States. Atari... the world became synonymous with innovation, adventure, excitement and success.
And then suddenly, like a solar eclipse, the sky grew dark. In December of 1982 Atari shocked Wall Street and the world by announcing a projected loss for the fourth quarter of 1982. A day before the announcement, Atari chief executive Ray Kassar sold $250,000 worth of Warner stock. But it was only the beginning. Atari executives projected a quick turnaround by the first or second quarter of 1983. It never happened. Although the company still managed to show a profit of 323 million in 1982, it has reported staggering losses of 536 million for the first three quarters of 1983! It is expected to show a loss for the forth quarter of 1983, and current estimates (by new CEO Jim Morgan) indicate that Atari is "not budgeting for profitability" for the first half of 1984. If there is one question that keeps coming to mind, the question is, "What went wrong?"
In a very real sense, Atari has been blinded by its own brilliance. Becoming a 2-billion-dollar company almost overnight, Atari did not have a chance to understand what was happening, and its management team, secure in success, did not attempt understanding. Atari's success came about in spite of its management, not because of it.
When the video games began to take off and the money started pouring in, some of Atari's programmers approached Ray Kassar and wanted to discuss the possibility of receiving some royalties for their very successful efforts. They were told that they were no more important than "towel designers" (as reported in the San Jose Mercury), and were dismissed with a shrug of the corporate shoulder. In an attempt to show management that it was wrong, some of the programmers left Atari and formed a little upstart company by the name of Activision. Within two years, Activision had captured nearly 30% of Atari's video game market, directly contributing to the 1983 decline.
A combination of upstart video companies fueled by ex-Atarians (Activision, Imagic, etc.) and the tumbling price of home computers contributed to the significant decrease in sales of Atari's video game division and put more pressure on the computer division to "bring home the silicon." By the end of 1983, the Atari computer division saw their market share dwindle from 24% to 12%. A closer look at the division's activities may provide an understanding of how this debacle occurred.
Buried among the news of Atari's fourth quarter loss and Mr. Kassar's stock transfer, rumors of a new computer persisted. Devout 800 users puzzled over the release of a new computer, when the ads promised that the 800 would never be obsolete due to its modular ROM operating system. But in January it became official: Atari was going to release a new computer -- the 1200XL.
Advertised as having 64K RAM, the 1200 featured a sleek new designer look, a redesigned keyboard, and a retail price of $899. Atari advertising called it "the next logical step." Despite its attractive exterior and soft-touch keyboard, the computer was a disaster. Its major flaws were its pricing, new operating system (OS) and "black box" design. At $899 the 1200 was several hundred dollars more than the 800. To justify the increased price, the computer needed to offer some significant improvements over the 800. Instead of improvements, the computer was in reality a step down, a classic example of less for more. The new OS was not completely compatible with software that had been written for the 400/800. Many of the best third-party programs would not run on the 1200. The result was that many people sold their 400 or 800 and "traded up" to the 1200 only to find that some of their most valued software would not work! Even Atari's own Word Processor would not run on the 1200.
While not as versatile as the Apple II, the venerable 800 did have the ability to add extra RAM boards, 80-column cards, and other peripherals. The 1200 had no expansion slots and, thus, was a much more limited machine than the 800.
Word quickly spread that the 1200 was the computer industry's Edsel. Rumors of the discontinuance of the 400/800 series sent prospective Atari owners scurrying to the stores to purchase the "old" computers before they were gone forever. Ironically, Atari's introduction of the new 1200XL resulted in increased sales of its older models!
By spring of 1983, Atari was in deep trouble. Its announced 45-million-dollar loss, the universal lack of acceptance of the 1200XL and declining video game sales painted a gloomy picture, indeed. The spring and summer of 1983 witnessed Atari's desperate attempts to turn itself around, starting with massive employee layoffs. [Editor's note: as of this writing, 600 former Atari employees have charged that they were wrongfully laid off when Atari moved its computer manufacturing facilities to Taiwan. They have filed a class action suit against Atari (but not Warner Communications, Atari's ouner) and are demanding back pay.] Atari was trying to come to grips with the fact that the light of its earlier financial health was growing dim.
In June, at the Consumer Electronic Show, Atari had regrouped its forces and announced its plan of attack. A new series of XL computers were announced, as well as a new group of hardware peripherals. All featured the designer look of the now discontinued 1200. Unlike the 1200, however, the new computers would have an expansion slot and were much more competitively priced. The line consisted of four new XL computers: the 600, 800, 1400 and 1450.
New hardware products were also announced. A new disk drive, modem, expansion box and several printers, all in their designer boxes, comprised what appeared to be positive signs that Atari was "older and wiser" and on the road to recovery.
The trouble was that it was too little and too late. The new computers still used a 1200-style operating system that was incompatible with a significant amount of software. Although the pricing was better ($299) for the 800XL, the XL computer line was really old wine in new wineskins. Nothing exciting or innovative from Atari stimulated the imagination of potential buyers. The new disk drive was an improvement,but was still $200 more than Commodore's, no faster than the old 810, and "featured" a nonstandard "enhanced density" format. Incredible as it may be, the 1030 modem was Atari's third generation of telecommunication packages and it still did not allow uploading or downloading to a disk drive. Although the 1025 printer was devoid of features (no underlining, superscript, subscript, graphics and very, very slow), it did not require the use of an additional interface. Priced at $250 instead of $550 it would have provided consumers with a functional low-cost printer. Unfortunately, the printer was advertised as being "fast and versatile" and "ideal for word processing."
There were some bright spots in the gathering gloom. The Atari Touch Tablet, the CP/M Module (cancelled, but now reportedly revived, along with the 1450, which should be out by Christmas) and the 1027 Letter Quality Printer were products that were genuinely exciting and competitively priced, but they in themselves did not have the power to disperse the oncoming darkness. Soon after the June CES losses of over $300 million dollars were announced for the second quarter. Ray Kassar's resignation was accepted. James Morgan, a Phillip Morris Marketing whiz, was hired as the new CEO. From June on, Atari was in chaos. The huge losses, corporate instability and the bloody Commodore/Texas Instruments price war all contributed to a company that had lost its direction and momentum.
Unable to hold back the approaching eclipse with its latest hardware offerings, Atari began to look to software for a way out. During mid-1983, Atarisoft was announced. The purpose of Atarisoft was to convert Atari software (games) to other computers, such as IBM, Apple and Commodore.
The creation of Atarisoft set serious Atari watchers thinking. Rumors began to circulate that Atari's market share was so low that it needed to sell software for other computers in order to survive as a company. Others predicted that Atari would become a software-only company. Sideliners speculated that a software-only company could be the end of Atari, because computer software has never been Atari's strong point. 1983 saw little in the way of interesting software from Atari. The two best Atari releases, Atari Logo and AtariWriter, were jointly developed by third-party developers (LCSI and Datasoft, respectively). Nonetheless the question was posed: could Atari survive its present crisis by switching from razors to razor blades? Unfortunately, the solution to Atari's problems will not arise from dropping its hardware products, nor by having Pac-Man and Pole Position on the Apple and IBM. The problem cuts deeper than "razors or razor blades."
Stephen Ross, Warner's CEO, is reported to have said that Atari's problem is one of marketing. But Atari had no trouble marketing its VCS 2600 system. It had no trouble making Pac-Man a household word. Atari's problem is management. A recent article in West magazine, reprinted in InfoWorld, chronicles the imperial dynasty of the Kassar years. It appears that all of Atari's top managers were kept quite busy playing courtly politics. In a corporate structure where one was never sure of one's status or future, gaining and keeping the emperor's favor took precedence over developing and delivering quality products.
But Atari's managment methods, as bad as they may have been, cannot take all the blame. Atari's problem is that it never understood the computer. The computer is fundamentally different from any kind of product that preceded it. It is a multipurpose device that requires the successful integration of hardware, software, documentation, marketing and sales. Atari has not fully grasped this and perhaps, never will. Almost all of the top management were computer illiterates. They routinely made major software and hardware decisions about a product which they did not understand and could not use. To Atari, the home computer was a glorified typewriter or souped-up game machine. It was marketed like a washing machine or stereo.
One of the first rules of successful sales is "Know Your Product." At Apple Computer, there is an Apple on every desk. You would be hard pressed to find a typewriter at Apple. If the corporate execs at Atari took a computer out of the box and tried to do something with it, they might realize that you need more than a glossy four-color brochure with stunning pictures of how to plug in the machine. The documentation of the XL series has been among the worst in the industry. Who else but Atari would start building BASIC into their computers (three years after everyone else) and then include absolutely no documentation whatsoever on how to use the language! Computer illiteracy. How else can one explain the marketing of a printer (the 1025) which was unable to perform any of the functions of the word processor that it was designed to be used with?
Fortunately, there are some pockets of computer literacy in the company. Many middle management personnel use the computer for word processing and financial modeling, as well as recreational programming. Atari Customer Relations boasts of an extremely knowlegeable cadre of technical support people who work feverishly to clean up the messes that their computer illiterate management has made. They provide a toll-free help line as well as a wide variety of supplementary documentation. Without these internal pockets of knowledgeable users, I don't think that Atari could have made it this far.
Will the present eclipse be partial or full? Will Atari survive? In some form of a corporate entity; yes. As a major manufacturer of home computers? Some analysts believe that too much has been wrong at Atari for too long for a new fire to be rekindled in its home computer hearth. However, the April 1984 issue of Computers & Electronics predicts that sales of home computers will hit $3.6 billion for 1984, with Atari capturing 20% of the market, second only to Commodore. CEO Jim Morgan has given a hint of what might lie ahead when he says that no company has given the consumer a real reason to buy a home computer. Morgan's view of Atari's future is that of a consumer electronics company that makes products people want.
Morgan has indicated that he is interested in producing innovative semi-dedicated microprocessor products that enhance the quality of people's lives. These products are not necessarily keyboard driven or general purpose machines like the current generation of home computers. Morgan seems to have the potential to restore decency and intelligence to Atari's management, and therein lies its hope for sunnier days. Atari seems to have lost the home computer battle but may still win the computer electronics war. Time will tell if Atari can regain the brilliance, innovation, creativity and energy of former years. The current situation makes it almost certain that, if Atari does survive this dark night of its corporate soul, its slogan will be "Electronics for People," not "Computers for People."
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