The Hot Tub Millionaire
The Pivot - Tales of Silicon Valley

Full episode transcript -


back when no one knew who he was. A teenage Steve Jobs worked at Atari. He was given an impossible task design breakout, a video game that Tardis chief wanted but couldn't get any of his workers to make. Luckily, Jobs had a secret weapon. His best friend, Steve Wozniak, who didn't even work Atari but who would often show upto hang out on the graveyard shift. I


knew that if I put him on the night shift that wasn't be there. He'd be playing games and helping, so I sort of have to Steve's with Price


of one. And that is exactly what happened. Over a few days. They created a working breakout game, which was a superhuman feat due almost entirely to Wozniak. I go into engineering one morning and jobs comes ahead. Look at this. Here's a finished video game. There wasn't even on the schedule. Now, normally, these things take three months and just have a game done without without interaction of my part whatsoever was like what? And then Job says, I designed it knots not true. It's bullshit. Jobs was paid $5000 for break out. He gave Wozniak 500


famously, Steve lied about how much money was making and gave wasjust a kind of a pittance. You know, it's not the kind of thing you do to a friend. It's the kind of thing a capitalist would do to a subcontractor. And that's essentially the first glimmer of Steve Jobs. Genius slash


problem, Theo. But the story I want to tell you today isn't about Steve Jobs or even the proto Steve Jobs. It's about the guy who first employed Steve Jobs. His name is Nolan Bushnell, and he might be the most important techie you've never heard of. Bushnell founded Atari. He created the video game industry and provided a model for jobs. Zuckerberg and the rest of the Silicon Valley dreamers who thumb their nose at convention and changed all of our lives.


Everybody else had us outgunned. They could build better. They could build efficiently. They could build cheaply. They had factories, they had processes and everything like that. But we could design new stuff.


I'm Danny Force on the West Coast correspondent for The Sunday Times, and this is taels of Silicon Valley, an eight part documentary. Siri's full of surprising stories and unsettling insights on the tech industry. Okay, My goal is that by the end of these eight episodes, you will understand this place better. Which is important. Vital, actually, because Silicon Valley is the most important place on the planet where every day new companies air cropping up that are changing the way we live. Communicate, eat, travel, work, meet, mate,

even boat. How did we get here? Why, of all the places in the world, did this stretch of 50 miles between San Francisco and San Jose become the lab for the future and what is being cooked up next? We'll cover it all. But this week we're going back to where it all started, sort of. So stay with us. This is Episode one Hot Tub Millionaire. No. Yeah, I'm checking for a ticket. Every driver's license scanning. Nolan Bushnell, the founding father of the video game industry,

lives in Los Angeles, has been there since the late 19 nineties, and at 75 he's still spry. He's tall, maybe six foot four, with a white, closely shaved beard, a black shirt baseball cap. These days he works out of a shared office inside a glass tower in Burbank, just around the corner from the Disney sound stages. Now this is not a history podcast, but it's important to go back to the beginning. Here's Adam Fisher, author of Valley of Genius and Orel. History of Silicon


Valley. They invented the video game. Atari quickly became the most important company in Silicon Valley because they're making so much money, and it was the first company to have, like a young, wild man, as a CEO, a guy named Nolan Bushnell.


Bushnell grew up in Clearfield, a rural town between the Great Salt Lake and the Wasatch Mountains in northern Utah. He was raised Mormon, but it didn't take. He was a restless soul. At age 10 he started his first company, a TV repair business.


It was a way that I was making adult kind of revenue, has a 10 year old kid. And what that did is it really insulated this idea that I was not going to work for the man I was going to? I have my own


kid. Bushnell studied electrical engineering at the University of Utah, but his summer job was where his real education took place. He was a carnival barker at the nearby lagoon, amusement Park. You know, he was one of those guys saying Step right up. Try your luck. He had a knack for convincing people the hand over their money, usually 25 cents again and again and again. They made him head of the entire games department. I said, That was my MBA. He hired 100 and 50 kids to work the different games, things like tossing ping Pong balls on the bottles and shooting water guns until balloons popped. But Bushnell did more than that. He redesigned games so that they went faster and importantly,

made more money. Bushnell graduated last in his class, a fact he retells with pride. He was too busy scheming about businesses and about how to get out a Utah that and doing one other thing playing a game called Space War, which could only be found in expensive research computers at the university. As soon as he graduated, he packed up and headed to California. The term Silicon Valley would not even be coined for a few more years. What this place was was a collection of engineers working mostly on big defense contracts. The tech companies that were here were very


gearhead to gearhead kinds of places. They were predominantly chip companies, so they sold the innards of machines to the people who would put them into machines. And the people who would put them into machines in the beginning


had all been military. They were mostly going into defense uses. That's Leslie Berlin, historian at Stanford, Silicon Valley archives and author of the book Troublemakers. We were not that far out


of World War Two. The notion that you were helping the defense of your country was absolutely inextricable from you are doing good for


the world. It was 1968. Bushnell didn't know it at the time, but he was arriving at a pivotal moment. If you had to ascribe a big bang for what we today know with Silicon Valley, the creation event it happened that year on December 9th, to be precise. At the San Francisco Civic Auditorium, a man named Doug Englebart, who was an engineer at the Stanford Research Institute, had become convinced that the computer would make the world a better place for everyone. It was a radical


idea angle, Bart said. Hey, you know, these don't have to be military war machines. These can really help people be smarter. They can augment human capacity to coordinate into thinking toe work.


Englebart needed to show the world that his idea wasn't crazy, so he took money from a Pentagon research grant and did just that. He threw together a Frankenstein's monster of disparate hardware to create what we would recognise today in function, if not form, as a personal computer. He unveiled his creation at a big annual computer conference in San Francisco in what has since come to be known as the mother of all demos


was up, down or sideways. So it is a tracking spot, and the way the tracking spot moves and conjunction with movements of that mouse. I don't know why we call it a mouse. Sometimes I apologize. It started that way. We never change


looking back on it 50 years later, it's amazing what he includes. Together, he had an early version of a word processor, a mouse. There were hyperlinks, Skype style video conferencing, and he even gave a hat tip toe are pin it, a soon to be launched Pentagon project that would become the first few nodes of the Internet. Fisher called


it the kind of ah ha moment that turned every researchers head around. It said, Oh my God, this is the way forward for computers. This is what the future is gonna


look like. The mother of all demos was pivotal for one other reason. Because in the crowd that day, as the official filmography for of the event was a radical intellectual named Stewart Brand. Brand's presence was critical. He was a former Army officer who, after graduating from Stanford, fell in with the hippie movement centered in Northern California. He quickly became one of its most important figures. He drove a tight I bus around the country, filled with hippies who called themselves The Merry Pranksters. The thing about Brand is that he was one of those people. He swam in a lot of different circles. Crucially, he bridged a schism that had been opened up by the Vietnam War. On one side, there were the engineers and their skinny ties in shirt sleeves.

On the other, the antiestablishment hippies brand, who was what one biographer called a human super connector, was the man in the middle linking those two worlds. He held hacker conferences that brought together environmentalists and writers and commune dwellers and technologists. In short, he ensured that the screw the man ethos that was rife in California was infused deeply into this new industry. Computers.


It is my belief that the reason Silicon Valley became so powerful in the center of the technological universe instead of, Ah, Route 1 28 in Boston, where M. I t. And there are a lot of the earlier computer companies were or in Texas, where Texas Instruments were and a lot of the early actually calculated companies were. The reason it happened in Silicon Valley, I believe, is because that hibi value system about thinking different and d i y and fighting the man waas in Silicon Valley. And it wasn't in in Texas and it wasn't in Massachusetts.


Bush No, the farm boy from Utah was drawn to that sense of purposeful rebellion. Underneath his unkempt hair and shaggy beard. It was incubating, but first he had to get a job. He landed a position at Ampex, a pioneer and digital audio and video recording. On one night, Fortune intervened to change the course of Bushnell's life. A PhD student invited him to campus to play a game that was on Lee available on Stanford's research computers. Space War, the game he played in Utah back when he should have been studying wish now was giddy, and not just because he could play his beloved game again. A couple things had changed one. The price of microchips had plummeted by nearly 95% and to a project it Ampex had required him to build a very basic computer using them. When he stumbled upon Space War again, a light bulb went off. It took him back to the lagoon amusement park in Clearfield.


As manager of the games department, I knew that if I put a coin slot on the screen of Space War that it would make money. Big money.


Bushnell and Ted Dabney, his Ampex office mate, soon left the company their plan to be videogame deciders.


We each put in $250. The 500 big ones total 500 big ones. We capitalize. The company will and, uh, two weeks later, we had a rocket ship line on a screen.


Al Alcorn, a 23 year old engineered Ampex, would recently graduated from Berkeley, looked on with interest, and those are the last of the days where you worked for the big corporation. You had a career, you retired there, got a gold watch, a hearty handshake and a pension. That was the plan. But Nolan had this fire in the belly to go be an entrepreneur. It was an interesting idea, except for the fact that video games didn't exist. Pinball machines were King Bushnell and Danny quickly struck their first deal with a consultancy called Nutting Associates. It was the only coin operated game maker west of the Mississippi. Nutting agreed to license their version of space war, which they called computer space. It was one of the first ever arcade games. The


company was called Lenny Socials, and after working for them for a year, I realized that they were a bunch of bozos, that they could screw up anything and that I didn't want to really hang my hat with them, which is actually one of them drivers of Silicon Valley. Almost everybody has work next to somebody who was a bozo who has made a lot of money.


The engineered an exit and agreed to develop another arcade game for netting. But they were now free to design games for other people. That was when Bushnell heard about Odyssey, a new game developed by Magna Box


Magnum Box Presents Odyssey. The Elektronik Game of the Future.


They'd put one in the lobby of a Marriott hotel in Burlingame, a bedroom community just south of San Francisco.


I want to see it, and


I thought, Oh, shit. Thing was Bush now was not the best engineer, Nor was Dabney, but they knew someone who was Al Alcorn. In 1972 they took Alcorn out to lunch and pitched him on their new company, says EGY, which they would soon rename Atari. And no one offered me $1000 a month salary, which was I was making 1200 a month and impacts. But what the hell and 10% of the stock, which I thought worthless cuss stock. What's that? So I started it. Sister Ji and Sister Ji was me, Ted Nolan and then Ted's brother and ah Cynthia,

no one's baby sitter that acted as our part time receptionist. Alcorn joined in June 1972. His job was to make sausages first game. It was astoundingly simple on either side of the screen was a little white strip a paddle, maybe an inch long, which he could move up and down, hitting a ball back and forth. Video Ping pong. Hence the name poem. It was Odyssey, but better. Alcorn added a scoreboard and remove the ability to change the ball's flight after you hit it. He even added sounds. Ted said, I want to hear boos and hisses. Well,

I did not know how to create either one of those effects with digital circuits, so I said, I'll tell you, go right back. And I just poked around in the circuit Sync generator for tones that were already there and pulled out the sounds. And I said, There it is serious your sounds. It took out corn about three months to build the first prototype. Over the weekend, Dabney knocked together a crude cabinet, and the three of them took it over to a local bar. Andy Caps Tavern in Sunnyvale. They poured themselves a couple of drinks and watched. Did you walk out of there feeling like we're onto something? No, no,

no. My walked out of there saying, I wonder how long this is gonna work before it breaks it turns out, not very long. Within a couple weeks, the owner of Andy Caps called The machine was broken, so I went out there after work to go fix it, but had a laundromat coin box on the side. So I opened that up with what you would do is open up the coin box and flick the micro switch and give yourself a free game to see why it, you know, see what was going on. And the thing worked. Fine. The problem was open the coin box up in all these coins fell out because it was completely overloaded with coins. So I did. The split,

took our share back to work the next day and dropped about. Nolan's desk is So here's the problem. The goddamn things. Making too much money. No one goes really Pong was a hit, and it was the start of something big. Atari in some ways was the company that taught people how to interact with their screens. Before Atari screens were a one way transmission, people would sit in their houses, they watch the TV. There was nothing they could do to change the TV except turned the dial literally to change the channel. Bushnell decided that rather than license this out to somebody else, they would do it themselves. Mind you, they had zero manufacturing experience. Alcorn and Dabney objected, but Bushnell overruled them.


Will we? It found a Cabinet maker that would do our cabinets. He was doing kitchen cabinets and pawn machines, and so he shipped down the cabinets. We'd put a TV set. We bought TV's wholesale from a distributor in San Francisco, take the back off, modify them, hooked him up, and then we created circuit board, had people stuff them and then test, um, put him in together and ship him out. We sold upon games for 910 bucks for a big standup machine for big standard machine. And in their lifetime, in coin drop, they make 22 50,000 bucks. What? Yeah,


Atari was off to the races. The 1000 square foot headquarters they had rented quickly became too small. They moved into an abandoned roller rink where managers would skate around to check up on progress. They were turning out 100 pong machines a day, and it still wasn't enough. And what's more, they were doing it with a ragtag workforce that no one else would dream of hiring. We had a lot of, Ah, colorful people, shall we say, Theo idea that video games could be the start of something was gaining traction. Which brings us back to the human super connector Stewart Brand. In December 1972 just a month after people began pumping quarters into the first Pong machine, Brand wrote a story for Rolling Stone magazine. The title Space War Theo Piece lifted the lid on a raggedy bunch of programmers and hackers. He called them Computer Bones,

who spent their days scheming about how to change the world with computers and spent their nights blowing each other to smithereens. In Space War. It's a fascinating time capsule. The captures the earliest days of the industry. Here's how it opens. Ready or not, computers are coming to the people. That's good news. Maybe the best since psychedelics At Atari computer bones were just beginning to stretch their wings. There's a wild place. Bush now had cores on tap in his office and held meetings in his hot tub.


There was a policy that he could smoke as much pot as you want in the factory. But you just had to meet your quota and then there'll be big parties. It was wild and free wheeling. And he really, really tried Thio, you know, be the UN Corporation and succeeded for a while.


And then there was Dr Wolfgang Tittle boob. The craziest thing was a little short story in the Atari Company newsletter. The protagonist of this story was


the famed Swedish breast ologists. Dr Wolfgang Tittle boob and Dr Wolfgang Tittle Boob had built a machine that grew women's breasts to the sizes of various fruits, according to the author of this short story. And the women would stay with this machine until it sucked


him into it and killed them for better. Where's Bushnell's lays? A fair approach became a model that Silicon Valley adopted, and for a time it seemed to be working. Yeah, there were parties and people had fun. But I point out that we did do some cutting edge engineering and we made some pretty impressive products. We could have been partying all the time. We could have been two drug addled, you know, behind the curtain. However, Atari was an utter chaos. It was a couple of years into the Pong Revolution, and the game was running out of steam. They had already made tongue doubles Super Pong, Quadra Pong,

the ball and paddle genre was also drowning and copycats. For every pong that Atari sold, another five knockoffs were shifted. It was very easy to reverse. Engineer Video games are also a hits business. In Atari's case, the pressure was always on to come up with the next game that would keep people dropping quarters into their machines. It turns out this was really, really hard in Bushnell's management style. Wasn't helping. Nolan has the attention span of a golden retriever. God bless him. You know, he's got a great new idea in three or four shitty ones, you know, every week or so and so he would go into the engineering.

This is back in 73. He going to the engineering lab and see a project going to be a team of two engine one or two engineers and attack. And he would get bored with that old stop that do this. My secretary, I got a pager, and the minute no one walked into the engineering lab, I get page so I go into the engineering behind him, and I'd undo whatever Nolan did. Bushnell admits. He didn't know what he was doing. It was feast or famine.


The paychecks would be cut on a Friday and people would run to the bank because they just wanted to make sure they would actually go ahead and be ableto a deposit them. And Atari's business was just very up and


down, up and down, up and down. By late 1974 just two years after starting the company, Atari was in deep trouble. Bush now had fired Dabney, and Alcorn had taken a leave of absence to take care of his mother, who was very ill. He brought in a new team of execs who he hoped would professionalize the company. Nolan hired players at my opinion, be team players out of Hewlett Packard manufacturing guy marketing guy, and he got an engineer out of AMP Acts. The short of it was they just ran that cut me to the ground. They screwed up in every aspect. The banks stop loaning us money. I remember Nolan at one point was in tears. We d still the company was gonna fail.

It was dying. It was going to die because these guys had ruined our accounts. They had made a machine we couldn't sell. We were out of production. Alcorn came back from sabbatical and help to right the ship. The executives that Bushnell parachuted in were ejected. And it wasn't long before Bushnell had his next big idea home pong, a game in council that you could plug into your TV. Alcorn, the man charged with turning that dream into reality, thought it was impossible. Basically, he'd have to miniaturize the standup arcade game into a shoe box. He worked on it for months, tinkering with the design of a powerful new chip to make it work. And I remember when that ship came back and we put it in the prototype circuit to see if it was gonna work and it pretty much worked.

It was like that was a weird feeling. It was felt like a dog chasing a car. What do you do when you catch it? We had no plan beyond that. The struck a deal with Sears, America's biggest department store, and made it into their 1975 Christmas catalog, which was a very big deal Home Pong sold like hotcakes, but they had been down this road before. The need for a new hit was already beckoning, and every new game meant that they had to custom build a new chip. It was an arduous, months long, risky process, which paved the way for an even bigger idea. Bushnell wanted to put an entire arcade in your living room,

a new consul called the Atari 2600 or the Atari VCs would take cartridges so that instead of one game you could play as many as you wanted. It sounds basic today, but back then it was a bold idea. Instead of creating a new chip for every new game, the guts of the machine stayed the same.


You just went and bought cartridges every time you wanted a new game, and that was the first software industry in Silicon Valley surrounded by giant scorpions. Man eating crocodile that cold was Lily Bed, the new fraud or home video game. Bring it back to your bad.


Having created one industry and video games, Atari was about to do it again, and software this is going to be very expensive. Atari would need help and Bushnell was burning out, his marriage fell apart. He was exhausted. He went in search of investors and was introduced Toe Warner, the New York media conglomerate. Discussions of a cash injection quickly turned into takeover talks that culminated in 1976. Warner sent out the corporate jet to California to pick up Bush.


No, they knew howto work with consumers. They knew how to get into people's minds and into their homes. And that's just not something that Atari ever could have done on their


own. We had a staff meeting in the middle of the day called really quickly at the hot tub. Okay, I'm happy I'll go along with that. And Nolan and Joe had just come back from Warner and they announced the Warner was gonna buy us for $28 million or so and all of a sudden I'm going because I'm I'm waiting for the company to fail. Every year we're rolling the whole company, and it's going to blow at some point, and all of a sudden there's actual value in this thing, and I'm starting to do the little math. How much stock do I have? And like, oh my God, I would be a capitalist. Alcorn stood to cash in almost $2 million. Bushnell was in line for much, much more.


I was a farmer way Utah, and all of a sudden I was gonna have more money than I ever dreamed of. How much money we're gonna have? 26 million, Which sounds like nothing now. I mean, it's kind of it sounds like nothing about still in those days, 26 million is probably equivalent to a couple 100 million today. Yeah. Wow. And you're what, 30 32? What's not to like? What's not exactly


Bushnell indulged in the good life. He bought a Lear jet, a condo in Aspen, 41 foot sailboat Alcorn, but a ranch style home in Portola Valley with views all the way to the bay where he still lives. Today he bought a Cessna Anna ventured Shelby Cobra sports car. The Warner executives were bemused by this band of shaggy Californians, but they couldn't argue with their creation. It worked its marketing magic, and the 2600 went on to become a raging success. We had one in my house. I spent hours playing Donkey Kong with my brothers and begged my parents for the newest games. As they came out,


Atari was making Maur money than all of Hollywood combined. It was huge.


While the 2600 was an unquestioned success, Bushnell, Alcorn and the rest of the Italians chafed under their new owners. Rivals caught up coming up their own consuls. Atari, meanwhile, branched into computers, attempting to sell its own PC, which included software for games and even tax preparation. The Atari Magic was dying in 1978 Bush now classed with Warner's board. They forced him out, replacing him with Ray. Cas are a textile executive with a pension for tailored suits and tight financial controls. And he had a Rolls Royce chauffeur driven rolls with his own parking spot.


If you


don't have private parking spots in Silicon Valley, you know, Alcorn lasted a few years before he, too, left. The culture clash was immense in a later episode will cover another story where Warner got the worst end of such a deal. And no, it's not a well. Bushnell was quickly on to his next company, Chuck E. Cheese. My mom and it was basically an indoor amusement park it had ball games like the ones Bushnell used to tinker with. But it also had arcade games, lots of them. For Bushnell, the founding father of the video game, the idea was very simple. Making games was hard, collecting the cash that they generate. That was easy.


I actually made more money personally in Chuck E. Cheese. Really? Yeah, really. I was smarter and they sold $15 million worth of my personal stock.


You might be wondering what happened to Steve Jobs in the story. Now, Long after he started at Atari, Jobs disappeared to India. He told Alcorn he was off to meet his guru. Atari helped him on his way. They paid for a one way ticket to Germany in exchange for jobs handling an issue with one of their suppliers. From there was a shorter trip to the subcontinent. When Jobs came back, he was ready to change the world. How about three months later, Ron Wing comes in. This is Hey, Stevie's back and I go, Steve, who do jobs? Oh,

yeah. I remember him. Yeah, bring him in. And, Steve, I wish I had a camera. I was an amateur photographer, but I never thought any of this stuff would be of any interest. He comes in wearing your saffron robe, shaved head barefoot like a hurry, Cristian and gives me a Baba Ram Dass book. Be here now and says, Can I have my job back? I go, Sure, Yeah, and that's when he and Woz had this stupid idea for a home computer. He and Wozniak had been inspired by their little success with Breakout, but they wanted to take it a step further.


Waas wanted a personal computer because he wanted to do break out again, but he didn't want to make breakout in hardware. He wanted to make it in Software III. He wanted a general purpose machine where he could write a program that simulated break out instead of a single purpose arcade game.


That's right. The kernel of what would eventually become Apple started with that few marathon days at Atari. So it's only fitting that the first people Jobs and Woz went to looking for cash for their little startup were Bushnell and Alcorn.


In fact, I had the opportunity of being the first investor in Apple, and I turned down that third of Apple Computer for $50,000. I regret it. Yeah. You remember why? I didn't think the steam was, uh, good chief executive at that time, and I think that he wasn't


Thank you. I mean, you're a proven right in that sense. Yeah. Alcorn past two. I regret I didn't buy this founder stock and Apple Steve Jobs offered me. I said I gotten of wallpaper, but I'll take a free computer. So I still have the computer if you'd like to see it. But I could have bought a lot more stuff with a mansion, you know, founder stock in Apple. In the Valley, virtually everyone has a story like this, how they passed up an opportunity to invest in the next Google or Facebook or Microsoft. But neither Bush, now nor Alcorn are wants to rue missed opportunities.

Bush now has, by his own estimation, of the fabulous life. He has eight kids made and lost millions, and he's never stop tinkering. He invented a personal robot called Bob Short for brains on board. He and Alcorn invented a driver navigation system called E Tak in 1985 years before GPS. But none of these have made a dent like Atari did.


The video game will be remembered long after the personal computer is for gotten and may in long after. Even the what we know is the cell phone is for gotten. And it was really the first cultural product that came out of Silicon Valley. And it was the first company to have, like a young wild man, as a CEO


before jobs before Zuckerberg. It was Bush now the carnival barker from Utah who turned war machines into games and change Silicon Valley forever. Next week on Tales of Silicon Valley will travel up the road to San Francisco to tell a different story. It's a tale of a couple who, like Bushnell and Alcorn, came along with an idea at the right place at the right time. The cut lightning in a bottle failed but still walked away with the GDP of a small nation. We had a call from my space. Remember this weird conversation with Tom Tom from MySpace? But they made a decent over. Then they offered half a 1,000,000 in my space stock on half a 1,000,000 in cash back then, when two people working in 100 and 20 square foot office. It felt decent. Tales of Silicon Valley was written and narrated by me. Danny Fortune, with production by Chica, airs at Rethink Audio.

Matt Hall is the executive producer for wireless studios. It was a wildest studios production for Times newspapers. And one more thing. If you enjoy the Siri's head over to my other podcast, Danny in the Valley, where you can hear interviews with everyone from Bill Gates and Mark, and reason to the anonymous startup founder working on what they hope will be the next big thing. That's Danny in the valley wherever you get your podcasts.

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