Atari Case Study

Atari enjoyed early success but the growth of the home video game industry came to an abrupt halt in 1983. The underlying cause was an inability on the part of Atari to control the very market it created. Atari’s flagship console, the VCS 2600, lacked any sort of security mechanism to lock out unwanted developers, which also hindered the company’s ability to collect royalties on these titles. More importantly, the market was flooded by over “1,000 games of highly variable quality.” Unable to gain any traction, these independent distributors quickly began to fall while consequentially reducing prices to all-time lows. This had the effect of reducing prices across the industry as a whole as well as the demand for consoles in general, resulting in an operating loss of $539 million for Atari in 1983. Nintendo emerged as a key player with the launch of the NES in the American market in 1985. Learning from the mistakes of Atari, NES cartridges were equipped with an authentication chip which allowed Nintendo to effectively control the quality of games released for its platform and ensure the collection of royalties. Additionally, Nintendo took a different approach to game …show more content…
Microsoft, a market leader in the computing world, was concerned of the potential for video games to outperform their computer game counterparts as well as the PlayStation 2’s (Sony’s follow-up to the original PlayStation) internet and multimedia capabilities. With rival consoles now offering a more complete home entertainment experience, Microsoft launched the Xbox in an attempt to win the “fight for the living room.” In a sense, Microsoft entreated the market not to grow or boost revenue per say, but rather to protect its hold on the home electronics market with an eye towards the long-term trajectory of the