Will Microsoft Suffer Atari's Fate?

Is Microsoft (MSFT) imploding the way Atari destroyed itself during the video game crash of 1983? Before you answer, compare the performance of Windows 8 with Office (Word, Excel, PowerPoint) to the Atari 2600 with Space Invaders, Asteroids and Pac Man. Here are the potentially tragic parallels.

Let's look at each chapter of the story…

1. In the Beginning

Atari rose to fame with a single offering — Pong. But the real hit came when Atari built a hardware (Atari 2600) and software ecosystem with third-party ISVs like Activision and iMagic. Atari's own titles (some licensed) included the widely popular Space Invaders, Asteroids and Pac Man. 

Similarly, Microsoft rose to fame with a single offering — MS-DOS. But the real hit came when Microsoft built a Windows software ecosystem with third-party ISVs like Borland, WordPerfect and Lotus.

2. Establishing a Monopoly

Gradually, the Atari 2600 became a near monopoly in the video game market. Not because of great technology. Instead, the real secret to success involved the biggest catalog of games. Similarly, Windows 95 gained a near monopoly not cause of its superior technology. Rather it was all about ISV support and its own applications. 

4. Bad Products

But success led to arrogance and bad products. For Atari, the big misstep was E.T. — a lame video game based on the hit movie. Millions of unsold E.T. cartridges allegedly wound up in landfills. 

Microsoft's big misstep? Windows Vista, which lacked backwards compatibility with a range of applications and devices.

4. New, Disruptive Rivals

By the early 1980s, Atari faced hot alternatives like ColecoVision and Intellivision. ColecoVision offered arcade-quality graphics and hot titles like Donkey Kong. Intellivision specialized in lifelike (for the time) sports titles, with official licenses from the NBA, NFL and Major League Baseball ("Yer Out!).

Similarly, Microsoft eventually faced new, disruptive rivals like smartphones (Apple iPhone, Android) and tablets (iOS, Android).

5. Weak Responses

How did Atari and Microsoft each respond to their respective rivals?

Atari developed the Atari 5200 game system — a promising hardware platform. The problem: The new system lacked hot new games, and instead depended heavily on "updated" versions of aging classics like Pac Man. 

Somewhat similarly, Microsoft developed Surface tablets — a promising hardware family. The problem: The new tablets lacked hot new applications, and instead depended heavily on "updated" versions of aging classics like Microsoft Office.

6. Falling Empires?

Atari ultimately imploded around 1983. The company has been purchased and sold multiple times over the past 30 years, and is now an empty shell of its former self.

Will Microsoft suffer the same bleak fate? Actually, The VAR Guy doubts it. Unlike Atari, Microsoft has a diverse revenue stream. Server software and cloud services like Windows Server, Hyper-V, SQL Server, Exchange Server, SharePoint and Lync remain popular. Office 365 and Azure are coming on strong.

For Microsoft it's not game over. At least not yet…