Vending machines, The ET Game Story, and Atari

Walter wrote such a fascinating comment on the Interesting Shoes post that I thought you should all see it:

"I worked with someone who survived three layoffs at Atari. The remaining engineers figured out that they brought in smaller vending machines before the layoff. Apparently it was more important to tell the snack vendor than to tell the employees."

Atari's ups and downs were amazing.  When I returned to the San Francisco Bay Area after five years in Michigan to take my job at Stanford in the early 1980's, one of the first papers I worked on was about downsizing at Atari.  It was really a crazy place.  I have to dig-up our paper, as I have not read it in years, but — besides the fact that they did just an awful job dealing with downsizing — the stories were just wild.  It was a real sex and drugs driven kind of place. And the craziest story I remember was of the ET game.  The basic outline is that Atari paid a fortune to do a game linked to movie for the VCS 2600 (the device  they sold millions of, which played video games on  your TV), they made the game in a huge rush (the people we interviewed always alleged that Ray Kassar, then CEO, was constantly bringing the designers drugs and women to keep them motivated), then Kassar was so enthusiastic about the game that they went for a huge first run (I recall 8 million), and then the initial sales were good because of the ET film.

But when kids brought the ET game home to play, they found it sucked as a game (quality always matters), so sales stopped and returns skyrocketed. Then, as at least five interviewees  (including senior executives)told us, since no one bought them, they put hundreds of thousands in landfill, and drove bulldozers over them to smash them. But they all didn't get smashed, and local kids found them, and started bringing then into stores to exchange them for games they actually wanted. So the solution was to finally put concrete over them so the kids couldn't get to them.

This story was not only entertaining, the reason that executives thought it was so crucial was, until that moment, Atari was on a straight ride up and up, and the feeling was that they were so cool and so smart that they could no wrong.  This incident played a big role in shattering that delusion — and revealing their arrogance and excess. Then came the badly managed layoffs, which I think happened in part because executives were in such a state of shock and were actually quite embarrassed by the whole mess.

Here is the reference for the paper:

Sutton,R.I. 
Eisenhardt, K.M., & Jucker, J.V. 
(1986)  Managing organizational
decline:  Lessons from Atari.  Organizational Dynamics, 14: 17-29.

 P.S    P.S. Wikipedia reports that Kassar was not responsible foe the E.T. game, the deal was made a Warner executive. Which may be true, and I am also sure that many of the myths around it were false — it was the spreading and telling of the story that was interesting. And objectively, whatever details were true or false, all agree that this game was the turning point where the went for a company where everything they touched turn to gold, to one where everything went wrong.