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The Computer Wars

By the time he got to NeXT, Steven Jobs remembered only part of this story, Stross says. He forgot the importance of cost-cutting and remembered only the technical innovations that had gone into the Macintosh. Therefore he indulged every whim for innovating with the NeXT, while costs went through the roof. For instance: Jobs was determined, for aesthetic reasons, that the NeXT Cube should have a perfectly cubical shape, with sharp ninety degree angles at every corner. Normal computers have a slight taper, to make it easier to remove the computer housing from its mold when it is cast. (For the same reason, muffin tins and cake pans are tapered.) Jobs refused to accept this imperfection; the resulting “zero draft,” mold cost an additional $650,000.

Market pressures should presumably have stopped Jobs before his plans for the NeXT became too Neronic, but Stross says that the climate of high-tech finance in the 1980s only made things worse. In a previous business age, entrepreneurs took their companies public largely because they needed to raise capital for expansion. In the high-tech business the Initial Public Offering, or IPO, has become an end in itself, rather than a means toward future business growth. The entrepreneurs who founded the company issue themselves large amounts of stock, which suddenly become valuable when the shares are publicly sold. Although his company had virtually no assets and absolutely no income, Jobs insisted that its valuation at the IPO be set at $30 million.

Most of the usual investors were scared off by this figure. Jobs found only one taker—H. Ross Perot—a major character in Stross’s book, whose portrayal of him will not improve his reputation for level-headedness or consistency. Perot apparently listened to Jobs’s pitch and had an “It’s that simple!” reaction: he wanted to be in on this dream. In announcing that he had become NeXT’s backer, Perot gave a rhapsodic speech at the National Press Club in Washington that was inaccurate on numerous points about Jobs and NeXT. (For example, Perot lauded Jobs as “a young man…so poor he couldn’t afford to go to college.” In fact, Jobs was enrolled at Reed College, a costly private school in Oregon, before he dropped out for lack of interest. “His dad came in [to the garage] one day and said, ‘Steve, either make something you can sell or go get a job.’ Sixty days later, in a wooden box his dad made for him, the first Apple computer was created.” Steve Wozniak is generally thought to have had a larger part than Jobs in building the first Apple.)

Perot eventually lost the $20 million he put into NeXT, and Jobs was tarred with a huge failure. Stross says that during the early years at Apple, Jobs assumed that business success was a natural consequence of his talent and vision. When NeXT failed, Jobs leapt to the conclusion that the whole process of innovation in the computer industry must be at risk. In his eloquent last chapter, Stross says that nothing of the kind is true. The struggle for survival in business has always involved elements of both merit and chance, and (as he demonstrates) many theoretically deserving contenders have been killed off along the way. Jobs will probably try again, and could be luckier next time.

3.

David Sheff’s Game Over, another skillful work of business journalism, concerns a roaring business success rather than a failure. Its subject is Nintendo, a name that is of huge significance to many Americans and is unknown to many others.

Nintendo is the strongest player in the home video-game industry, which like the personal computer industry did not exist fifteen years ago. The first widely noticed video game was a primitive pastime called “Pong,” which was made by the Atari company of California. “Pong” was played on big table-sized machines that started showing up in bars and coffee shops in the mid-1970s, and players tried, by turning knobs, to “bat” an electronic blip back and forth across a “net,” as if they were playing ping-pong. In the early 1980s video-game arcades opened up, with games like “PacMan” (in which players tried to gobble up little yellow dots, before themselves being gobbled by blue ghosts) or “Donkey Kong” (in which the player tries to rescue a damsel from a big ape). Some now vanished home computers, like the Coleco Adam, ran arcade-type games, including “Donkey Kong.” By the mid-1980s home systems designed purely for playing video games were selling briskly, especially those made by the Nintendo company of Japan.

The typical Nintendo setup has two components. One is the game system itself. This is essentially a one-function computer, which the user controls with buttons or “joysticks” and which is connected to a home television screen to display the game. The other component is the game “cartridge,” which houses chips containing the game program and is snapped into the machine. The most basic Nintendo system costs about $80, with individual game cartridges costing between $35 and $70. More advanced models from competing companies called Sega and 3DO cost twice to four times as much as the basic Nintendo.

Hundreds of games are available for home video systems, but three types account for nearly all of them. In “action” or combat games, the kind most hated by anti-violence advocates, the player tries to kick, punch, stab, or shoot an enemy figure. In dexterity games, the player tries to keep a car or motorcycle on a high-speed course, or shoot down incoming missiles before they hit the ground. This category also includes the famous game “Tetris,” designed by Russian mathematicians, in which the player tries to fit geometric forms into a grid as they descend. In fantasy or adventure games, the player seeks some prize or avoids some danger, meanwhile constantly passing through magic doors and entering hidden realms. Nintendo’s most popular game, “Super Mario Brothers,” is of this sort. It features two characters who look like moustachioed janitors. They fly into the heavens (sprouting raccoon tails with which to propel themselves) and dive into the sea, all the while moving from left to right along a constantly scrolling screen.

Few adults can stand to play “action” games, which are repetitive and mindless in addition to whatever coarsening effect they have on players who behead and disembowel their on-screen foes. Although adults are worse than children at dexterity games, many become engrossed by “Tetris” in particular. (I had to remove it from my computer, because it was so hard to avoid playing.) Some of the fantasy games are charming and to a degree valuable for children. In “Super Mario Brothers,” for instance, there is always the possibility that one of the janitors will find a new trap door, which will lead to new scenery with new perils and new rewards. In addition, many of the fantasy games are designed with the same pop-culture genius that went into Disney or Warner Brothers cartoon characters. The music that accompanies the “Super Mario Brothers” game has been performed by a symphony in Tokyo. A Sega game character called Sonic the Hedgehog is probably as well-known to today’s American grade-school children as is Mickey Mouse, and much better known than Popeye.

This is the industry that Nintendo has made, and that has made Nintendo. Early in this century Nintendo was a small, family-owned company, based in Kyoto, that sold packs of playing cards. Twenty-five years ago, Nintendo moved into the toy business, and about fifteen years ago it began producing simple electronic games, for example a shooting-gallery game in which a light beam mounted on a toy rifle would strike a target and set off a buzzer.

By the end of the 1980s, Nintendo was by many measures the most successful Japanese company of all. With its 850 employees, Nintendo earned more than $1 billion in profit per year—as much as the electronics giant Fujitsu, with 50,000 employees. The worldwide market for video games was by the early 1990s slightly larger than the worldwide market for movies, and Nintendo’s share of the worldwide video-game market was 85 to 90 percent. Nintendo earned more profit per year than America’s five largest movie studios combined. By the early 1990s, Nintendo had sold 50 million to 60 million of its machines worldwide. While only half as many American households had Nintendo machines as had VCRs, Sheff points out that the VCRs came from several competing manufacturers, whereas all the Nintendo machines came from one firm.

Sheff combines two main themes in telling the story of Nintendo’s rise. One involves the varied cast of Japanese characters who guided the company to success. Westerners often assume (and sometimes accurately) that faceless committees make Japan go. Sheff, by contrast, devotes much attention to the high executives at Nintendo, their feuds and capacity for teamwork. Three people dominate his story.

Hiroshi Yamauchi, now in his late sixties, is the elder statesman of Nintendo, having inherited control of the company as a young man soon after World War II. He has no interest in technology himself: he has never played a video game, but he became convinced by the 1970s that electronics would create a vast new market for games. Minoru Arakawa, in his late forties, is the business leader of today. The youngest son of an aristocratic Kyoto family, he came to MIT in the early 1970s and became, by Japanese standards, Americanized. He then married Hiroshi Yamauchi’s daughter and led Nintendo’s expansion into the United States. Sigeru Miyamoto,2 now just over forty, is the artistic genius behind Nintendo’s success—a term that does not seem inappropriate considering Nintendo’s worldwide appeal. Sheff says that Miyamoto “had the same talent for video games as the Beatles had for popular music. It is impossible to calculate Miyamoto’s value to Nintendo, and it is not unreasonable to question whether Nintendo would have succeeded without him.”

The other theme Sheff stresses is the interplay among business systems, in particular the steps that were possible for Nintendo to take within the Japanese business system that would have been difficult anywhere else. Many traits are familiar and admirable-sounding—for instance, the Japanese financial system that does not impose pressure for short-term profitability—but the one Sheff emphasizes most is the Japanese system’s tolerance for monopoly.

Nintendo has been so profitable for so long because it has avoided price competition. The programmed cartridges containing games like “Super Mario Brothers” or “Donkey Kong” cost a dollar or two to manufacture but have been sold for years, without discounting, for their $40-and-up list prices. Nintendo was able to maintain these margins, Sheff says, mainly by stifling competition of any sort. The first one third of the book explains how Nintendo’s executives created their games and built their business; the rest of the book describes the means, most of which would be illegal in the United States, by which they kept competitors from rising up.

  1. 2

    The spelling “Sigeru” is impossible in Japanese orthography, which does not permit the “si” sequence, but it is presented this way consistently in the book. The normal Japanese spelling would be “Shigeru.”

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