In the beginning, Silicon Valley ran on Defense Department contracts. Yet it was a “war machine” of a totally different order that gave Silicon Valley’s entrepreneurial culture the character it has today. Spacewar, the first compelling computer game, was written for an early computer called the DEC PDP-1. One of the PDP-1’s big selling points was the screen: It had one. The PDP-1 was also “inexpensive” — which meant universities could afford to buy them.

Nolan Bushnell, an engineering student at the University of Utah in the mid-1960s, played Spacewar in his school’s computer lab, and it left a lasting impression. After graduating, he moved to Silicon Valley and in just a few short years figured out how to bring computer games to the masses with Pong. It was a massive hit, and Bushnell, still in his twenties, suddenly found himself in charge of what was arguably the most important company ever to rocket out of the Valley.

Bushnell not only single-handedly created an industry around a new American art form — video games—he also wrote what has become the quintessential Silicon Valley script. The story goes like this: Young kid with radical idea hacks together something cool, builds a wild freewheeling company around it, and becomes rich and famous in the process.

Michael Malone, the first daily tech reporter: Nolan Bushnell is hugely important. He’s the first T-shirt tycoon. He’s the first modern Silicon Valley entrepreneur. He’s not building heavy-duty hardware. He’s not doing silicon. He’s doing consumer electronics.

Nolan Bushnell, founder of Atari: To put it into context, I [had put] myself through school working at the local amusement park, Lagoon. It was a dollar-an-hour job, sucker pay. “Come throw a ball! Win a stuffed animal! Let me guess your age, weight, and occupation!” The job was really selling at a very basic level, and I found that I was pretty good at it. I could regularly bust my quota and make a lot of commission. The following year, they made me assistant manager, and then manager, and so, at 21 years old, I had 150 kids reporting to me. So I knew intimately the economics of the coin-operated game business.

Malone: Nolan was the first guy to look at Moore’s law [the theory that computing power doubles every 18 months] and say to himself, “You know what? When logic and memory chips get to be under ten bucks, I can take these big games and shove them into a pinball machine.”

Bushnell: In 1968, Silicon Valley was really just starting in a lot of ways. Everywhere there were these large tracts of prune orchards, and every month another orchard would be taken down, and they’d pile up all the cut trees next to a sign that said “free firewood,” and soon there would be a concrete tilt-up there.

Al Alcorn, Atari’s first engineer: The Valley at the time, in the ’60s and ’70s, was dominated by military stuff: Lockheed and all these big places — and semiconductor companies. Also, the Del Monte fruit factory; they were making fruit cocktail right there behind Videofile in this giant factory that smelled like a fruit cocktail in the summer.

Bushnell: I worked for a division of Ampex called Videofile in Santa Clara.

Ted Dabney, co-founder of Atari*: Videofile was a way of recording documents and video on a very large rhodium disk.

Alcorn: At Ampex in the late ’60s, you had to wear a suit and tie. You had to dress properly, neatly. You had to be there at 8 a.m. You took a one-hour lunch and left at five…I don’t recall anybody staying after work. It was pretty straitlaced. You stayed there. You retired there. You got the golden wristwatch and your pension and all that. That was the plan.

Dabney: Nolan was supposed to be an engineer. I mean, he was hired as an engineer, but I don’t think he was capable of doing any engineering work. A lot of that I found out later. I didn’t know that at the time.

Bushnell: I became infatuated with the game of Go and would drive to San Francisco every other weekend and spend basically most of Sunday morning playing Go at the old Buddhist church by Bush Street. There, I met a guy who worked at the Stanford Artificial Intelligence Lab, and one day we got to talking, and he said, “Have you ever heard of Spacewar?” I was like, “Spacewar? The first time I played Spacewar was at the University of Utah, in 1965 or 1966.” We left and drove up to the Artificial Intelligence Lab and played until all hours of the night.

Dabney: It was a neat game, but it was on this big computer — a million-megabyte kind of thing — and he said, “Hey, we should be able to do that with a smaller computer and, you know, TVs.”

Spacewar! running on the PDP-1 (Joi Ito via flickr/CC BY 2.0)

Bushnell: Coincidently, there was an ad for a Data General Nova minicomputer. It had an 800-kilohertz clock cycle, and it looked like you get a stripped-down version of it for about four thousand bucks. I thought, “A-ha! The time is right!” It was time to form a company. I asked Dabney if he wanted to be part of it, because he was really, really good at analog circuitry, and I knew I needed an analog interface for the television. He said, “Sure!” I was the digital guy — I could put integrated circuits together. This was probably October of 1969.

Dabney: We decided to come up with a partnership, and we each were to put in $100 to kind of get this thing started.

Bushnell: So I said that my addition will be to figure out a way to have a regular television set driven by this computer. We had to take the TV apart, cut a trace, solder a wire on it — you’d get a hell of a shock if you did it wrong. In a TV, the signal is very fast, up to 3.5 megahertz. And the chips in those days didn’t like to go more than a megahertz. I tried to solve this timing problem over the Thanksgiving holiday. I built a little circuit that would bring up the stars, I built a little circuit that would put the score up, various things to offload tasks from the computer. But soon I found myself thinking, “This just isn’t going to work, the computer just isn’t fast enough.” I abandoned the project for about two days. Then I had an epiphany: Let’s not use the computer at all—I can do it all in hardware! We never did buy that computer.

Dabney: At some point, and I don’t know when it was, he decided to contact Nutting Associates.

Alcorn: Nutting was the only coin-op manufacturer west of the Rockies — they had something called Computer Quiz, which is a filmstrip game — fairly simple, nothing big.

Bushnell: I called [Bill Nutting] up and said, “Would you guys be willing to manufacture this new game?” And I went to lunch with him and showed him the thing, and they were all jacked up and said, “Yeah, we can do this!” So we negotiated the licensing agreement, and they said, “You are going to have to come on as our chief engineer as well,” and I felt good about this, because I literally doubled my salary. Not only that, but they agreed to my salary so quickly that I said, “And a company car.” About June, I talked Nutting into hiring Ted as my assistant.

The game Dabney and Bushnell created was Computer Space, a Spacewar knockoff, but more important, the first arcade video game.

2-player Computer Space (vonguard via flickr/CC BY-SA 2.0)

Dabney: We needed to have a cabinet to display this thing in. Nolan actually did the design work.

Bushnell: It was totally rounded. It had a screen. It had a pedestal that organically grew out of the base and four buttons which were illuminated, and it looked like it was from outer space…We put it in the Dutch Goose, which was a hangout for Stanford students. It was an immediate success — just cash dropping through! Now people say that Computer Space was a failure, but it did about $3.5 million, which was a lot of money in those days. The royalties deal allowed me to start Atari, so it was a winner for me.

Alcorn: Computer Space did modestly well, so Nolan said to Nutting, “Give me some stock in the company and I’ll be the VP of engineering.”

Bushnell: I said, “I’m clearly making this company. I want 15 or 20 percent.” I think they came back with an offer of 5 percent of the company.

Alcorn: Bill Nutting basically told Nolan, “You are not a businessman. I am a businessman. You’re just a worker.” The fact is, Bill Nutting’s claim to fame was his wife, who was wealthy. He had kind of an attitude.

Bushnell: I got on a flight to Chicago and called on Bally and said, “Would you like to license my next game? A driving game? It’s going to cost you this much of money in development.” They said, “Yeah, we’d love to do it!” And so I had my cash flow in hand. I went back to Nutting and said, “I’m going to have to leave.”

Alcorn: Nolan then goes and hires me, employee number three, and we go off and start Atari.

“Atari” is a Japanese term borrowed from the game of Go. It’s the equivalent of the word “check” in chess.

Bushnell: My idea was simply to be a design shop for the big companies that had the factories and cash flow.

Alcorn: Banks wouldn’t talk to us because we were in the “coin-operated entertainment business,” which meant jukeboxes and vending machines, which meant mob-controlled, and no way were they going to give us money for that.

Bushnell: That spring, I heard that somebody else had a video game, which was, you know, scary.

The Magnavox Odyssey TV Game System was not a coin-operated arcade game, but rather a gaming console — a box that hooked up to a TV so you could play computer games at home. One of its games was like ping-pong.

Bushnell: So I find out where it is and I drive up…I look at it and I think, “Ahhh, no competition here!”

Ralph Baer, the disputed “Father of Video Games”: Nolan played the game. His opinion from the get-go is negative. That’s fine that he had that opinion. It was mostly based on not learning how to play it properly.

Bushnell: The game was fuzzy. It wasn’t that fun. It had no screen, no scoring, no sound.

Baer: Maybe it wasn’t as fancy, it didn’t keep score…but people have played table tennis for 250 years. How do they score? They call out the scores. No big deal. I really resent that Nolan treats me like an engineer that didn’t know what the hell he was doing, like it was a piece of junk and he’s the great hero. Bullshit! All you have to do is look at the record: 350,000 Odysseys sold in the first year. I didn’t go before the president of the United States to have the National Medal of Technology hung around my neck because I am just an engineer. I invented video games!

Bushnell: It was Al’s first or second day, and I needed a training project. Computer Space was a pretty complex project, and Bally’s driving game was going to be a hard project, and I thought, “Okay, I’m going to pitch him this learning project, this ping-pong game.”

Baer: My ping-pong game. Pong, they called it.

Alcorn: Nolan described Pong as one moving spot, a score, a net, and a ball. It couldn’t be any simpler. He told me he had this deal with General Electric.

Bushnell: I told him that I had a contract with General Electric because I find that people don’t like training projects or dead-end projects. It was a little fabrication.

Alcorn: It never occurred to me that this could be bullshit.

Bushnell: Al basically had the thing going in a week—it might have been a week and a half — and it was fun! I thought, “Maybe Bally would like Pong instead of the driving game?” I took it to Chicago and presented it to Bally. They were troubled by the fact that it was a two-player game, and at that time you needed to have a one-player game…so they thought. That was the entrenched wisdom at the time.

Alcorn: So Nolan said, “Put it out on location.” We put it next to a Computer Space at Andy Capp’s Tavern. Nolan and I popped it in one day after work and went and bought a beer and watched until somebody played it. I never thought anybody would play it! Think about it. There’s no instructions. It just says “Pong,” which meant nothing. There’s two knobs and a coin box. What’s the motivation here?

Not long afterward, Alcorn received a phone call from Andy Capp’s Tavern.

Alcorn: The machine stopped working. It didn’t surprise me. It was just thrown together quick and dirty. So I went there after work to see what’s wrong. I open up the coin box — it was a Laundromat bolt-on coin box — to give myself a free game to see what was going on, and when I opened that coin box up it was just jammed full of quarters.

Bushnell: Pong was earning $300 a week—a huge amount of money! And so my greedy little mind thought, “Wow, this thing’s a gold mine!”

Alcorn: We were sitting, I’m pretty sure, at Andy Capp’s after work having our beers, and Nolan said, “We want to build this. We want to be in the manufacturing business.”

Bushnell: I figured out that I could build ’em for about 350 bucks. I priced them at $910. And I figured out this financing model where the manufacturing would self-fund. I negotiated 30 to 60 days from our vendors, and if we could build the machines and ship them in less than a week, the company would operate in positive cash flow.

Dabney: We started out in 1,700 square feet, but when we started building Pong, we needed more room, and it turned out that the guy next door to us had moved out. So I cut a hole in the wall and moved into his area and took over that 1,700 square feet, too. The manager came around and said, “You can’t do that!” And Nolan said, “We did it! You just figure out how much it’s going to cost us.” But even that wasn’t big enough. But then this roller rink down the block became available: 10,000 square feet! I mean, we were just jam-packed, and we had people on roller skates actually running around on the roller-skate rink building Pongs.

Bushnell: People talk about the party atmosphere, but what they don’t realize is that it was all based on hitting quotas. We had an extremely young workforce.

Chris Caen, early Atari employee: I started at 15 as a summer intern. By the time I was 18, I was a product manager. I had a hard-walled office, was making good money, and thinking to myself, “Why do I need to go to college?”

Bushnell: The girls that were stuffing the computer boards and doing the testing were in their early twenties or 18 or 19. The guys who were muscling the big boxes around, packing and shipping them, were all in their early twenties.

Caen: People had dropped out of high school and dropped out of college to work at Atari. They met their spouses there.

Bushnell: What everybody wanted was a party and some beer and some pizza, and they ended up going home with each other.

Alcorn: Atari at the time had all these people and the smell of dope burning in the back and whatnot.

Bushnell: We were working hard and playing hard, and everybody was happy.

Alcorn: I remember when we started, nobody would talk to us. Then, all of a sudden, we became big.

David Kushner, gaming writer: In terms of the American landscape, Atari was almost like punk rock or something like that. Pong was just so minimalist and so compelling, and it managed to hook an entire generation.

Clive Thompson, tech journalist: Pong was so bare to the metal that you really felt like you were interacting with the substance of computation—this thing hits that thing and we calculate a new trajectory.

Kushner: Just like the Ramones could take a few chords and just grab you by the throat, Pong had a joystick, a button, and a bunch of blocks on the screen — and you would spend the entire day there, playing it…If you were a geeky teenage guy in that period of time, you were blowing your lawn-mowing money on Atari. But Pong also became a status symbol: It was such a phenomenon that Hugh Hefner had to have one in his bachelor pad in Chicago!

Alcorn: Then Atari was a big thing, and everyone wanted to talk to us, and they believed what we said! The more staid the company, the more outrageous Nolan would behave.

Malone: It’s hard to capture just how crazy Nolan was in those early days. He lived high. He had the Rolls-Royce. The code name for each new product was named after some hot girl on the assembly line. There was coke with the assembly line girls in the hot tub.

Alcorn: It was fun.

Baer: They made a couple hundred Pong games during 1972 toward the end of the year. And it was 13,000 Pong games the next year. The competition made more than that; everybody was making knockoffs.

Bushnell: Our copiers were essentially fast followers. They’d buy one of our games, they’d Xerox the printed circuit board, they’d ramp up manufacturing, and go for it. They were jackals. It pissed us off.

Alcorn: The guy who was making our boards for us, I will not mention his name, was also making extra copies and selling them to the competitors.

Bushnell: We started countermeasures. We were getting to be a big semiconductor customer, so we asked them to privately mark some parts that we were using, and we designed some games so if the copiers just read the parts and ordered the parts and plugged them in, they wouldn’t work. Because they were the wrong parts! That put one of our competitors out of business. I can remember us having a little champagne party on their front lawn when they declared bankruptcy. By 1974, we had gotten rid of most of the jackals, if not all of them. We had a huge market share at that point, we were dominant, but that summer was very dark.

Alcorn: Nolan’s first attempts at selling games overseas were an utter disaster beyond recognition.

Bushnell: We didn’t realize that Japan was a closed market, and so we were in violation of all kinds of rules and regulations of the Japanese, and they were starting to give us a real bad time.

Alcorn: And Ron Gordon came in as a consultant and fixed all that for us for a huge commission.

Bushnell: I was 28 years old and really trying to operate on a global stage with really no clue about what it was all about.

Alcorn: Nolan had read this book about a company’s growth, and he learned from this book that the team that gets you to $1 million in sales can’t get you any further. You’ve got to get pros to get any further.

Dabney: He hired this president of the company that was a real yahoo. I mean a real yahoo, okay? He also hired a vice president of engineering that could not — would not — make a decision! And then he hired this salesman as vice president of marketing who didn’t even know how to spell marketing.

Alcorn: They basically ruined the company. Then engineering made a key mistake.

Bushnell: A part in our driving game had failed. And remember, we were operating on positive cash flow.

Alcorn: The games we did ship, we had to take back. It was so bad!

Bushnell: So all of a sudden we had a floor full of machines that couldn’t be sold, which stopped our cash flow.

Alcorn: Nolan was in tears. You could see Nolan was thinking, “This is over.”

Bushnell: We got sued for nonpayment of our bills. The sheriff had come to attach our assets — our bank accounts — so we had to switch bank accounts every week!

Alcorn: Ron Gordon saw that his goose laying the golden eggs was dying.

Bushnell: We were just coughing blood.

Dabney: Atari was going down.

Alcorn: And Ron came back and fired all those guys, talked to the banks to get our bank line going, and revived the company. And boom! He got us going again.

Ted Dabney’s quotes are taken from from the RetroGaming Roundup podcast #24, October 2010, conducted by Mike Kennedy, Mike James, and Scott Schreiber, as well the Computer History Museum’s 2012 oral history of Ted Dabney.

From the book VALLEY OF GENIUS: The Uncensored History of Silicon Valley (As Told by the Hackers, Founders, and Freaks Who Made It Boom) by Adam Fisher. Copyright © 2018 by Adam Fisher. To be published on July 12, 2018, by Twelve Books, and imprint of Grand Central Publishing.