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Atari 800




The Atari 800

On January 5th 1985 , Jack Tramiel was having one of the most enjoyable days of his life. At Comdex in Las Vegas , he was standing in the Atari exhibit, which had been roped off and covered with cloths. The Atari exhibit was the only part of Comdex that was not yet open on the first day of the show. It was awaiting the arrival of the Governor of Nevada, who would formally open the exhibit by cutting a ribbon and allowing the show attendees to see the long awaited Atari 520ST, a new 68000-based computer with the GEM graphics user interface. It was reputed to do everything the Macintosh could do and then some, at half the price of the Mac. In fact it was referred to by the press as "The Jackintosh." The Atari 502ST included color, MIDI sound, and the GEM graphics user interface. The new computer was the rave of the show, and the Tramiel family and their loyal retainers, who had left Commodore when Jack resigned, basked in the glory.

The Atari company, founded by Nolan Bushnell, the inventor of Pong, had grown to become the largest manufacturer of video games and had been sold to Warner Communications. Sales hit 2 billion dollars in 1982, but they plunged to less than 1 billion in 1983 as the public turned to home computers instead of video games. This decline represented a 580 million dollar net loss to Warner. Steven J. Ross, Warner's Chairman and CEO, wanted to unload the business, which he now felt was a drag on Warner and not compatible with the rest of his company. However, it was not easy to find a buyer who could rescue Atari and was willing to take on the job.

Atari had gone into the home computer business producing a line of 8-bit machines based upon the 6502 CPU. The Atari Models 400 and 800, which were the company's first models, were excellent graphics computers, but had several problems in competing in the highly competitive home market. The Atari 400 had a plastic membrane keyboard and was overpriced at $600. The Model 800 was much better, but it was priced just below the Apple II, and it was perceived as more of a "home" computer while Apple was considered as a "serious" computer.

The later 1200XL systems were not much different except in physical appearance, and although they had 64K of memory instead of 48K maximum on the 800, there was not too much inducement for Atari 800 owners to upgrade their machines. Atari also produced peripherals for their computers, including the Model 1010 cassette program recorder, the Model 1025 printer, and a number of disk drives.

Part of the problem was that Atari, hoping to repeat its success in the video game business, had played its game too close to the chest. They kept important programming information "secret" and disclosed them only to programmers who agreed to market through Atari. Serious application programming companies who were producing 6502 software for Apple refused to comply with Atari's demands and turned their backs on the products. The game programmers, however, seized the opportunity to use the excellent color graphics capabilities of the Atari machines to develop intricate games. By the time Atari recognized their error, lowered the prices of the machines, and tried to woo back the business program developers, it was too late. The software companies felt the potential sales would not justify their conversion costs.

Another problem was Atari's identification with their video games. They had called their game machines "VCS" (Video Computer System,) and now potential buyers felt that their personal computers were merely advanced game machines.

 Jack Tramiel had started Commodore Business Machines, presided over its growth, and now had resigned from the company. Within a short time, many of the Commodore team responsible for the success of the company followed their leader as the culture of the company changed under the direction of the new management.

When Jack Tramiel left Commodore, Steven Ross recognized the opportunity. What better person could purchase Atari than Jack Tramiel, whose success with low-cost home computers was partly responsible for the decline in simple video games?

After leaving Commodore, Jack and his sons formed a new company, Tramiel Technology Limited (TTL,) with the stated intention of developing new electronic products. At that time, Steven Ross approached Tramiel with the idea of taking over Atari, and they entered into negotiations. By the beginning of July 1984, Tramiel Technologies and Warner Communications became shareholders in each other's companies, and TTL bought Atari.

Tramiel got most of Atari's assets for only $240 million in notes, at a reported very low rate of interest. To give Jack time to re-organize Atari, payments on the interest were not due to start until 1985. Wall Street viewed the deal as Warner selling Atari to Tramiel and loaning him the money to buy it! In addition, Jack got 5-year warrants for one million shares of Warner stock executable at $22 per share‑the market price of Warner when the deal was made. With the Atari drain removed from Warner, its stock price would rise, and Jack's profits would further sweeten the deal.

In return, Warner got warrants for 14.3 million shares of TTL stock representing over 30% of TTL. Warner also agreed to assume obligations for past Atari debts. It was a sensational deal for Tramiel and the end of a costly adventure for Warner. All that Jack Tramiel had to do was to make Atari into a profitable business once again.

He wasted no time and flew to California to take over the bloated Atari organization and re-shape it. Tramiel installed his sons at the helm and set to work to cut away the fat and deadwood.

Sam became President, Gary was put in charge of collecting $300 million worth of outstanding receivables, and Leonard was put in charge of software. In one month they reduced the staff from over 5,000 to 1,500. Atari occupied 40 buildings. Tramiel canceled leases and cut that to seven buildings and turned a profit by selling the furniture that filled those buildings. The warehouses at Atari were packed with over one hundred thousand, 8-bit computers that Atari built but couldn't sell. It was 1985, and 8-bit computers were considered very obsolete. The 16-bit IBM PC and the Apple Macintosh were the desirable computers of the time.

Jack believed that everything would sell at the right price. Atari went on an ambitious project to find the best price at which the Atari 8-bit machines would move out of the warehouse. Since Jack had only paid $80 each for them, a fraction of their original cost, he could afford to sharply cut the price. Moving them out was not difficult. The new Atari team managed to clear the decks for the next generation of computers.

Commodore, which had suffered by the loss of key people who left with Jack and by the Atari price cutting, immediately started a lawsuit charging Tramiel and his associates with taking valuable designs and information when they left Commodore. Jack Tramiel immediately retaliated with a $100 million lawsuit against Commodore. The suit charged that Atari had a previous understanding to purchase the Lorrane Amiga Company because Atari had lent it money to develop the Amiga Computer. Jack charged that Commodore snatched Amiga from Atari by offering a better deal. This suit was without much merit because it happened before Tramiel took over Atari, and Warner had never pursued their claim. Jack's counter-suit did serve to discourage Commodore from their lawsuit against him and his people.

While all these legal maneuvers were going on, the new Atari crew was working on a design that would outdo both the Amiga and the Macintosh and undersell them by 50%. The Atari 520ST was the result. This computer, without the monitor, was priced under $1,000, an incredibly low price for a 1/2 megabyte computer. This gave rise to the motto that Atari used to identify the company, "Power Without The Price."

If price and computer capability were the only criteria for computer business success, Atari would have become one of the giants of the industry. Instead they managed make management decisions that in the long run proved to be unwise. It was said that they managed "to snatch defeat from the jaws of victory."

At the time of the Tramiel takeover of Atari, there were many computer dealers who specialized in the Atari computers. There was also a sizable user community, and both the dealers and owners must be counted among the most loyal of all families of computer users. They were almost fanatical in their loyalty to Atari computers.

The Atari Forums on Compuserve, led by Ron Luks, were among the largest groups of organized computer users. All of these computer users, plus a sizable contingent of Apple II and Commodore users who had been priced out of the ability to upgrade to 16-bit graphics machines, looked forward to buying the Atari 520ST and represented a huge potential market.

Some of the best graphic software was being written for the Atari 8-bit machines, and developers also were more than anxious to write for the new Atari 520 ST. The potential market seemed almost unlimited.

In retrospect, it is hard to understand some of the counter-productive management decisions made by Atari, even though they might have seemed correct at that time.

Today, it is axiomatic that new computers must be put into the hands of software developers as soon as possible, and companies like Apple employ evangelists to encourage this. Atari, on the other hand, made it as difficult as possible for software developers to get into the 520ST software game. They initially charged them up to $5,000 for a Software Development Kit consisting of a computer and some manuals. Since in the beginning there would not be too many computer users to buy the software, the developers would be unable to recover their large investment for a long time. This discouraged many software developers from writing for the Atari ST .

Wynn Rostek, writing in Computer Shopper for October 1985, described how Atari made another bad decision. They squeezed out the loyal, existing Atari dealers for the 8-bit machines. Atari decided to distribute the new computers through manufacturer's representatives who had to qualify the existing dealers. This policy eliminated many dealers who had supported Atari in hard times in the past. As the dealers dropped away to sell other lines, Atari turned to the mass merchandisers and discount mail order houses. This further antagonized the dealers who remained, and did not work either. The Atari ST was too complicated a computer to be sold without instruction and dealer support. Atari then went back and tried to recruit a new dealer organization. They kept bouncing back and forth between mass merchants and specialty dealers until neither wanted to do business with them.

There were also severe quality control problems with the early machines. Due to poor packaging and long shipping routes, the chips in the computer tended to become loose, and the computers would not work. The failure rate in the first few shipments was almost 50%. This was not serious in the case of experienced dealers, who burned-in their computers before selling them, but with mass merchandisers who sold sealed boxes, it was a disaster. It took strict application of quality control to cure the problem.

The second computer Atari made was the Atari 1040 ST with a full megabyte of RAM and with a built-in single floppy drive. The older 520ST did not have room for internal drives, but could support two external floppies. It also had a port for an external hard drive. Provisions to support two floppies and an external hard drive were built into the TOS operating system from the beginning of the first 520ST. One problem with adding hard drives to the Atari ST machines was the non-standard interface known as the Atari Computer Systems Interface (ACSI) which was a modified SCSI-type interface. Third-party vendors enabled users to get around this when they developed boards that converted ACSI to standard SCSI and allowed any SCSI hard drive to be used with an Atari ST .

The 520ST and the 1040 ST were the two computers that comprised the ST line until 1987, when Atari came out with the Mega ST computers. These new machines had a separate keyboard and built-in hard drives.

In 1989, when other companies were improving their computers, Atari produced the Atari 520STE, 1040 STE, and Mega STE models, which were somewhat improved versions of the ST computers.

In the United States in the years since 1985, when the Atari ST line was introduced, the Intel-powered MS-DOS computers and the Apple Macintosh have completely dominated the industry. Commodore's Amiga ran a poor third, and the presence of Atari's ST and Mega was hardly felt except among the loyal fans.

Apple, IBM, Compaq, and the countless clone manufacturers spent millions of dollars on advertising. Commodore advertised in spurts when a new president took over, but Atari spent hardly anything on advertising. Even when they did advertise, they used Atari magazines, where they only talked to the converted. And so with few dealers and no ads in general computer magazines, they gained few new customers. Atari's answer to declining sales was always to cut the price. However, with the huge growth of the AT-clone market, they could never match the features and prices offered by the clone manufacturers.

 Since the population of Atari ST and STE and Mega ST & STE computers was small, and the operating system was unique, there was no incentive for standard software developers to offer Atari versions of popular software. Only the game software developers featured Atari versions. There were, however, some excellent Atari software systems which did offer a user some excellent programs but little choice.

The more Atari's business declined in the United States , the more Atari turned to overseas sales. In Europe , the situation was completely different from the United States . There were fewer distributors, and they tended to specialize in one type of computer and one country. The prices for machines and software were higher, and Jack Tramiel directed most of Atari's production and marketing efforts into European sales and development. The machines proved very popular and sold very well. Soon, all the Atari production and support were devoted to Europe , and the United States market declined further from lack of support in this country. To this day 85% of Atari's income is derived from outside North America . This foreign success was achieved at the expense of the North American market and caused a lot of resentment among domestic users and dealers.

Basically, Atari did very little development work on new computers and very few updates to the TOS operating system. Atari did come out with machines like the portable laptop Stacy and The 68030 TT line, but very few machines became available in this country.

In all the years from 1985 to 1989, Computer Shopper magazine, one of the few general computer magazines who even covered the Atari, had only one cover and feature story devoted to Atari and that featured the packaged Desk top Publishing System put out by the Atari Business Systems Group. This featured a Mega STE computer , a scanner, and the Atari Laser Printer. It had some fairly good DTP software, but the laser printer could only be used with an Atari Mega because the intelligence was in the computer rather than the printer. It was priced about $5,000 for the whole package, not a bad price for the time. The same package now sells for $3,000, but even at that price, it is no great bargain today.

Atari must be credited with marketing one of the first practical palmtop computers. Their Portfolio has an excellent keyboard and a good display. It comes with five built-in applications, a PC card drive for uploading and downloading files to a desk top PC and has 128K of RAM. Originally, the Portfolio sold for about $500, much less than competing palmtops, and was well received. Again, however, Atari failed to come out with new models with featuring provisions for expanded memory, or the new standard flash cards for application software. Instead of offering upgraded models with increased MS-DOS compatibility and new features, they lowered the price. As new palmtops come on to the market at any price, the sales of Portfolio will continue to decrease.

Although Atari is completely out of the large-screen video game business, the Atari Entertainment Division, with its Lynx color hand held video game, has done much better than the computer division. The Lynx sells well, and there is a fairly large assortment of software for it. The Lynx hand-held game business is only a small fraction of the multi-billion dollar video game business, which is now completely dominated by Nintendo.

Atari's most glaring failure recently took place in the courts rather than in the stores. In a 150-million-dollar lawsuit, Atari has sued Nintendo for domination of the industry, charging Nintendo with being a monopoly, operating in restraint of trade.

 Here was a setting for the biggest Atari potential victory since they introduced the 520ST. There was little doubt that Nintendo almost had a monopoly of video game machines. Their software policies were very monopolistic, and at one time Atari had a large share of the business, which they lost when Nintendo came in. In addition, here was an American company suing a Japanese one in a United States court. To make matters worse for Nintendo, there was a strong feeling against Japanese business practices. It looked like Atari could not lose, and 150 million dollars would revive the faltering company.

The trial was a long one. Nintendo admitted they dominated the market and were a monopoly! However, their defense was that they had not acted in restraint of trade. They just provided a better product that people wanted to buy. In addition, they claimed that the many negative business decisions Atari had made cost them their position in the industry. Nintendo was not to blame for Atari's problems_Atari was.

 To make matters worse, Nintendo was able to prove their claims, and Atari lost the case. Not only did Atari not get an award of 150 million dollars, but they have to pay Nintendo's costs to defend the case. This could amount to an additional million dollars, in addition to their own legal costs.

Things look very bleak for Atari. The loss of the Nintendo lawsuit and decrease of business in Europe has hurt them. The large PC manufacturers are building clones in Europe , and prices are falling. However, Atari has not given up yet. They may have just one more chance. Atari introduced the Falcon 030 at the Fall, 1992 Comdex in Las Vegas . This new machine features a 68030 CPU, more memory, and standard SCSI interfaces. This computer will compete with the lower-priced Macintosh computers and should attract a lot of attention. A second machine, now in development, will also be a fast 68040 machine with a large compliment of memory and standard SCSI interfaces. With these new computers selling at traditionally low Atari prices, the wounded company could get back into the business. It seems like the last hurrah for Atari.

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