Video games and the internet bubble. Is it time for dot com…the sequel?

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UPDATE 12/19/04:
Slashdot | Game Industry Bigger Than Hollywood
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My 10 year old son (an accomplished gamer) and I finally watched a program I’d TiVo’ed on PBS back in September called “The Video Game Revolution”.

About halfway through, I was dumbstruck over how clearly I saw the parallels between the irrational exuberance of the first video game ‘bubble’ and the same kind of giddy exuberance during the internet bubble. What most people don’t stop to consider is that we’re living in “Video Games: The Sequel” and the business has been growing steadily and globally for the last two decades.

Have you also stopped to consider that the same thing is happening right now to the internet?

LIVING THE VIDEO GAME REVOLUTION
Right out of college I went to work for a manufacturer’s rep firm that had, as one if its primary lines, a video game system from a company called Atari. The business was huge and Atari was really hot. Retailers couldn’t get enough of ’em to sell and consumers couldn’t buy them fast enough.

I was out at the consumer electronics show (CES) in Las Vegas in 1978 when the Atari 400 and 800 computers were introduced and the 2600 game console was being sold. This was my first CES and I thought, “Wow…this business is great!” since Atari spent money like a drunken sailor on shore leave and the parties, booths and marketing hooplah was incredible.

In 1983 (and I believe due to every retailer loading up on the horrible game E.T. based on Steven Spielberg’s movie), the business came down like a house-‘o-cards.

Everyone I know walked away. Retailers got out of the business. Manufacturer’s rep’s found other lines. Atari ended up a non-issue and this continued for several years.

THE VIDEO GAME REVOLUTION: THE SEQUEL
From 1983 through the early 90’s, The Nintendo system (dominant in the mid 80’s) faced competition from Sega and ultimately Sony introduced the critically acclaimed (and best selling) Playstation game console. The business continued to accelerate to today’s levels which are pretty impressive…especially when you realize that video games are poised to be bigger than the music business by 2006!

According to a Global Entertainment and Media Outlook: 2004-2008 study by PriceWaterhouseCoopers (PwC), the worldwide video-game business will surpass the music industry by 2006.

Last year, consumers worldwide spent $30.5 billion on music, while video-gamers spent $22 billion. PwC is projecting that video gaming is poised for explosive growth. The study projects that the video game business will have a 20.1 percent compound annual growth rate, or CAGR, through 2008, as compared with music’s 2 percent CAGR. That projection will leave music with global revenue of $33.7 billion at the end of 2008, compared with $55.6 billion for video games. According to the study’s projections, in 2006 the video-game business will reach $36 billion surpassing music sales that are projected to contract to $30.2 billion that year.

If you’re interested in more about video gaming history, this is a good site.

DOT COM: THE SEQUEL
Been thinking a lot lately about the internet euphoria I shared with everyone else during the late Nineties through 2000. During much of the bubble I worked for the coolest dot com tools provider, Vignette, that offered anyone itching to get their business or new model on the ‘net quickly that opportunity. We sold the software like mad. The internet and its promise of accelerating returns, disruptive business models and riches for anyone that could tell you what the acronym “HTML” meant, caused most of us to dive in without knowing if the water was an inch or ten feet deep. We discovered it was six inches deep. Still hurting from the dive and some of us even crippled from it, people have turned away from any internet-centric business models in droves (though many profitable models like ebay, salesforce, and other services have flourished). In the meantime, several things have happened:

• Broadband adoption and internet use has continued to rise (NOTE: link is to PDF) and — according to Pew Internet — 55% of U.S. adults (68M people) have high speed ‘net access either at work or home though this adoption may peak
• Innovation is growing with new categories like blogging, social networking (SocialText, Friendster, LinkedIn) and even fairly pedestrian items that are nonetheless cool such as digital photo site Flickr
• Rich internet application paradigms like Flex, Laszlo and OpenLaszlo are gaining traction
• ‘Net-based companies are making money (ebay, Google, etc.)
• …and more excitement seems to be in the air.

Of course, there’s a lot more going on than what I’ve described above. If you take the time to observe and put the puzzle pieces together, you’ll also see that internet-based businesses, software and models — ones that are profitable — will continue to rise.