The Evolution of the Gaming Industry

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ROBERT KLEIN / Getty Images

The gaming industry was already doing well, generating more than $120 billion in 2019. Then came 2020: The (first) year of lockdowns, social distancing and just overall deadly pandemic vibes. A June report by Newzoo found that the global gaming market would generate $159.3 billion in revenue in 2020, representing a more than 9.3% increase over the previous year. If this upward trend continues — and gaming-related sales indicate it will — 2021 could be even more astronomically profitable for this increasingly mainstream market.

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As consoles and video games fly off shelves (as well as via apps), it’s worth taking a look back at where it all began and how it’s evolved to where it is today. Here’s a look at the gaming industry’s very own origin story, from the bell-bottomed, disco-jiving ‘70s to the smartphone-addicted 21st century, which is seeing more options and exploring new techy terrain including virtual reality.

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Last updated: Feb. 22, 2021
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The Early 1970s

In 1971, Nolan Bushnell, hailed as the “father of electronic gaming,” and Ted Dabney, a pioneering electrical engineer, created the first arcade game. Based on an earlier game called Spacewar! by Steve Russell, Bushnell and Dabney’s game was called Computer Space. The arcade game Pong was created by Nolan Bushnell (with help from Al Alcorn) a year later in 1972. Nolan Bushnell and Ted Dabney started Atari (a term from the Japanese game Go) that same year. Shortly after that, in 1972, they launched a new brand, Atari, and created the classic arcade game Pong.

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The Mid- To Late 1970s

By 1976, Atari was the biggest (and most profitable) player in the electronic game space. The company was scooped up by Warner Brothers, who paid around $28 million for the acquisition; today, that would equal north of $127 million. Bushnell stayed on with the company as chairman of the board. Around this time, Atari was making breakthroughs in a new, timeless space: pinball machines. It launched the video pinball machine game in 1977. In ‘77 Warner dumped $100 million into Atari to develop the new console, Stella Atari 2600 — but Warner would likely go on to regret the investment. Handheld electronic consoles, trailblazed by Milton Bradley, ate up Christmas sales that year, leaving Atari in debt.

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The Early 1980s

By 1980, Atari had made a ferocious comeback. It released Space Invaders for the Atari VCS, the first at-home version of an arcade game. Later that year, video game company Activision was founded by a group of former Atari employees: David Crane, Larry Kaplan, Alan Miller and Bob Whitehead. Atari was not too pleased with the new company and sued Activision under allegations that its former employees had violated their Atari nondisclosure agreements. At this time, Atari was on fire, representing one-third of Warner Communications’ annual revenue.

Separately, 1980 is also the year that Namco unleashed Pac-Man into the world and Nintendo released Donkey Kong. Huzzah!

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The Mid- To Late 1980s

1985 was a groundbreaking year in the history of gaming: It’s the year that the Nintendo Corporation released its legendary console, Nintendo Entertainment System (NES), in the U.S. Interestingly, by this time video games weren’t doing great and so Nintendo decided to redirect its marketing. Instead of focusing on the console and the games, it honed in on the accessories that had already done well in Japan: The Zapper light gun used for the game Duck Hunt, and R.O.B, the Robot Operating Buddy, which took commands from the TV and clearly did not make much of a lasting impact in terms of mainstream popularity.

In ‘86, Nintendo launched the Legend of Zelda — and what an enduring legend it has been — and in 1989 it exploded into the handheld gaming market with the Gameboy. A sealed, first edition Gameboy today goes for a cool $8,500 on eBay.

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The Early 1990s

Solitaire is a classic game that we’ve played for eons with playing cards, but in 1990, Microsoft introduced users to its computerized version. Office life was never the same after that! 1991 was also a bombshell year as Sega became a serious player in the industry, taking off with Sonic the Hedgehog. This period of time saw the rise of a few more classic video games including Mortal Kombat and Warcraft.

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The Mid- To Late 1990s

1994 was another breakthrough year for video games as this is when Sony jumped in with its first model of PlayStation in the U.S. and performed spectacularly in terms of sales. The remainder of the decade saw the trend of exciting video games soar to market including Tomb Raider by Eido in 1995 and Nintendo’s continuing the saga of Link with Legend of Zelda: Ocarina of Time in 1998.

Also busting through the roof of the video game space was IBM. The technology company’s chess-playing game Deep Blue beat world-famous chess champ Gary Kasparov, proving the unbearable truth humans have long feared: Computers can and will outsmart even the smartest of us.

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The Early Aughts

Ahead of 2000, there was great worry around Y2K and fears that necessary computer programs would crash into oblivion. Instead, 2000 saw a fresh start with a curiously compelling game called The Sims, a real-life simulation game that sold more than 6 million copies in two years. 2001 also saw groundbreaking innovations. Microsoft released Xbox and the first in its massively popular Halo series called Halo: Combat Evolved.

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The Mid Aughts

In 2005, video games got musical with Activision’s Guitar Hero, which invited users to jam out to their favorite riffs. Then things got even more immersive when Nintendo released Nintendo Wii in 2006. Wii was a smart move on Nintendo’s part because it offered something that potentially competing consoles did not: in-person interactivity and light sport. It swiftly became the console market with the most amount of users. In 2007, MTV Games jumped in with Rock Band. The following year World of Warcraft shattered records with 10 million subscribers and, just as social media and iPhones were starting to explode in 2009, Farmville and Angry Birds took off.

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The Present and the Future

The gaming industry has continued to evolve since the mid-aughts and shows no signs of slowing down. In 2017, Nintendo launched the Nintendo Switch, a modern-day version of its classic handheld console Gameboy. Thanks to both the dreary lockdowns during the pandemic and a hit game called Animal Crossing, Nintendo Switches were sold out for months. Virtual reality, long a blossoming platform but always with its complications, finally seemed to lift off the ground in 2020 thanks to the hit game Half-Life: Alyx and Facebook’s latest VR gaming console, the Oculus Quest. Chris Pruett, director of content ecosystem at Oculus, said the Quest was so in demand, Facebook was struggling to keep up supply.

Going forward, we’ll see VR gaming become more realistic and more immersive. We’ll also likely see growth in game on-demand streaming, augmented reality games and more of a merge between mobile games and PC games. It’s a lot to look forward to — and a lot to spend money on.

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Methodology: For this piece, GOBankingRates collected information pertaining to the evolution of the gaming industry — from the era of arcades through the development of home consoles,  the popularization of PC and mobile gaming and the rise of VR. All information was gathered on and up to date as of Feb. 15, 2021.

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