From Pong To Angry Birds: How The Video Game Business Evolved

Today, sales of the highest grossing video games can top well over a billion dollars. Activision’s mega hit series Call of Duty regularly sells over $1 billion on the first day of its games’ release dates. Rovio Entertainment’s Angry Birds has had over 2 billion downloads and it regarded as one of the most successful mobile apps of all-time. In short, making video games has never been more profitable. Yet, as in most other businesses, with high returns comes significant risk.

The average game for home consoles can cost approximately $15 million to develop - that’s a far cry from the early days of Pong. But the market for video games, consoles, and mobile apps and devices is so vast that completely different games such as Call of Duty and Angry Birds can both experience overwhelming success at the same time. In just 40 years, the world of video games has changed significantly in how we play and how we pay. From graphics and game play to commercialization and monetization, the world of video gaming has undergone multiple transformations in a short period of time. Game consoles, arcades, and mobile apps have produced a history of gaming success and failures. But where and how did it all start, and who prevailed?

8-Bit Origins

When video games were first introduced in 50s, the concept was merely “neat”, and not much more than that. Over the next two decades, different iterations of the same type of game were developed, but it wasn’t until the 70s that video games became commercialized. A critical point in the development of video games caused a split in games and how they were commercialized, splitting the industry into home console and arcade games developers.

The home console would let gamers enjoy the challenge of games in the comfort of their own home, with consumers paying a one-time fee for the console and then making individual game purchases. Arcade gaming would let gamers would have a place to hang-out and pay per round of play. This split would heavily impact the next two decades of gaming for gamers and producers.

Despite the commercialization and growing popularity of video games, home consoles were still not enjoyed by a majority of America’s youth. By the late 70s, a failure to capture a wider audience led to a crash commonly referred to as the Video Game of Crash of 1977. The 1977 crash started with two critical problems, overstock and little demand for consoles. Manufacturers such as Fairchild, RCA, and other smaller companies sold their overstock at a loss, flooding the already small market. Not many companies survived the crash, with Atari and Magnavox barely staying alive.

The Rise Of Nintendo

The demise of game consoles sparked a focus on significant arcade development. The game console market steadily disappeared and arcades became cash-grabs. Local entrepreneurs seized the opportunity and opened arcades, both large and small, with headline-making games such as Space Invaders, Asteroids, Pac-Man, Centipede, and Donkey Kong. Although Pac-Man is considered by some to be the most memorable arcade game of all-time, it was actually Donkey Kong that would lead to a whole new generation of gaming. Nintendo’s Donkey Kong was the latest and greatest when it hit arcades in 1981, and even though the game was named after the ape, it was the Jumpman, later renamed Mario, who would sweep the video gaming world off its feet.

Nintendo’s success with Donkey Kong (on Atari’s system), would help fuel the company to develop their own console – known as the Nintendo Entertainment System (NES). In 1985, the purchase of a NES was accompanied by Nintendo’s flagship game titled Super Mario Bros, which would change gaming forever. Nintendo made its way into over 62 million homes. The home console market was back in play, and producers switched their focus back to developing Nintendo games for the home console instead of the arcade. Nintendo was officially in a class of its own.

The console’s retail price was approximately $200, and the cost of each game ranged from $50-$95. The company would sell millions of copies of video games. Profits soared and Nintendo quickly moved onto new development with the introduction of a more advanced system dubbed the Super Nintendo Entertainment System, or Super Nintendo for short. This time, Nintendo was not alone. SEGA introduced its SEGA Genesis, and the similar systems began a rivalry that would last nearly a decade. Local arcades felt the blow both financially and socially. The once unstoppable arcades were burdened with very expensive games (more complex games, larger units, etc…) that forced them to raise their prices in a time when the market was already in decline. Socially, arcades were perceived as “hangouts” and loitering spots for troubled kids. The demise of arcades was inevitable.

The Field Gets Crowded

With the rise of the home console and demise of the arcade, kids across the globe were at home playing famous titles like Super Mario Bros. and Sonic. In addition, the Personal Computer (PC) was also now officially a player with the commercialization of role playing titles. The demand for new video games was so high that producers of entertainment systems and games needed to move quickly in providing customers with better systems, better graphics, and more titles.


After years of various companies fighting to top the video game market, 2001 saw SEGA ousted from the ring and Sony, Nintendo and Microsoft began a battle for top of the gaming pack. Price wars were generally avoided, and the competition simply focused on winning by delivering better titles.  In a few short years, the audience was now wider than it had ever been, and with the advent of online play, it was about to get even wider.

Loyal gamers kept home console sales steady, but the demand for gaming now expanded beyond the home. Mobility was in. Sony, Microsoft, and Nintendo all experimented with mobile systems, but it was Nintendo who prevailed with their Nintendo DS. Primarily targeted for young children, the Nintendo would sell over 150 million units. But mobility was not reserved for children. The casual consumer was the new target.

Modern Gaming

Apple’s sleek line of mobile devices and an online App Store would once again change the gaming business, and mobile games were now officially the number one target for many video game developers, including a myriad of independents. Independents ranged from a teenage boy (Bubble Boy) in Utah to 17 professional developers from Finland (Angry Birds).  In addition to changes in development, came changes in monetization and how producers made money. Mobile games were primarily free or at the very most a dollar with advertising serving as the primary source of revenue. Once again, how we played and how we paid would change.

The release of the next generation of consoles in 2012 and 2013 saw yet another change-up in how video game machines are marketed. High emphasis on online functionality, as well as multimedia streaming and enhanced living room integration, became the chief strategy for Microsoft, and to a degree Sony. Nintendo, on the other hand, emphasized second-screen play and innovative game play options.

With more and more advanced technology being released, including virtual reality products that could replace televisions as the screens of choice for hardcore gamers, there is a ton of movement in the gaming space as companies rush to find the next big thing. What it will be is anybody’s guess, but what’s certain is that the industry will keep innovating and keep improving. Gaming has come a long way in the past few decades, and is undoubtedly here to stay.

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