Tesla (Competition) Deathwatch: Gottlieb
Credit to Author: Frugal Moogal| Date: Thu, 21 Nov 2019 05:22:38 +0000
Published on November 21st, 2019 | by Frugal Moogal
November 21st, 2019 by Frugal Moogal
As I noted in my prior article, when I wrote the first article in this series, I intended to take a quick historical look at one industry and then move on to diving into some of today’s automakers to see what risk the EV revolution had to their business. I still do intend to do that, but the comments in the first article pointing out flaws with the Kodak comparison made me want to do some further dives into historical industry disruptions.
To be clear, none of these are perfect comparisons because none of them show the auto industry transitioning from one major technology to another, as the industry really hasn’t had any giant shifts like that.
Today, I’m going to look more at the argument that many commenters pointed out — that transitioning from internal combustion engines (ICE) to electric motors is really not that big a deal the same thing, and therefore shouldn’t cause a threat.
That’s exactly what Gottlieb pinball believed in the late ’70s. Before I explain what happened there, a bit of pinball history is necessary here…
Gottlieb was founded in 1927 to produce pinball machines, having its first major hit in 1931 with Baffle Ball. Early pinball machines didn’t resemble today’s pinball machines at all, as they did not have flippers and were about plunging the ball and trying to land the ball in particular areas of the game, and you would count your score at the end to know how well you did. As the games progressed, both Gottlieb and other manufacturers advanced by doing things like counting your score for you using lights, and including mechanical devices that with a well plunged ball would interact with the ball.
In 1947, Gottlieb changed the pinball world with the introduction of its game Humpty Dumpty which introduced the flipper. For the first time, players could directly control the interaction of a mechanical device and the ball. The flippers on Humpty Dumpty were unlike modern pinball’s flippers, pivoting upward using the inner side, but it was a phenomenon.
Between its start and 1977, Gottlieb produced 525 (or more, as the early machines between 1927 and 1947 have extremely spotty records) different pinball machines, and was the unquestioned leader of the industry. If you ran an arcade, Gottlieb was the pinball manufacturer you wanted machines from.
That all changed rather suddenly in the late ’70s due to a shift within the industry that seemed minor. The industry had discovered solid state (SS) electronics, and certain manufacturers had started to incorporate those instead of the traditional electro-mechanical (EM) way of doing things, where the game would be filled with relays and switches to keep score.
The easiest way to tell the difference is an EM game has score reels or individual lights in the backbox, whereas early SS games look like they have calculator displays.
On the right is an example of one of Gottlieb’s EM offerings, 1971’s 4 Square. You can see an example of the score reels on the game beside it. By contrast, this is what displays on a SS machine look like (if you know your pinball industry, this machine isn’t technically a pinball machine, but it uses SS pinball parts):
At this point, you may be asking, okay, what’s the big deal? Gottlieb quickly developed SS parts and stuck them in machines, and all was well, right?
In 1975, the year the first SS pinball machine was released in an extremely limited way, Gottlieb sold 46,139 pinball machines, all EM. By contrast, one of its largest competitors, Bally, sold 26,560, also all EM. Gottlieb outsold them by over 73%. It wasn’t even close.
But Bally started looking at incorporating the new SS technology, while Gottlieb figured it could wait and incorporate it after it was proven. The next year, Bally had a surprise hit with Captain Fantastic and the Brown Dirt Cowboy, which sold 16,155 coin operated machines and boosted its entire output to 50,011 total machines. Gottlieb still outsold them, selling 55,635 machines.
If Captain Fantastic hadn’t been such a big hit and instead sold an average number of games (Bally’s other 9 releases sold an average of 3,762 machines), Bally would have sold 37,618 machines and Gottlieb still would have outsold them by nearly 50%. The market was expanding thanks to an explosion in arcades thanks to the coin operated video game revolution, and both companies were investing in production to meet that demand.
But Bally was investing in bringing its SS games to fruition, and Bally’s numbers above include its first SS machine, selling 1,500 copies of the game Freedom.
These sales didn’t worry Gottlieb, which had dominated the EM world and figured it would continue to do so, since the change from EM to SS was as simple as dropping in a few electronic board sets while the machines were basically identical.
In 1977, Gottlieb sold 53,288 machines. Bally? 43,330. Just from the numbers, it seems that Gottlieb made the right choice, as it maintained its lead, but there was trouble brewing. Gottlieb’s numbers were spread out over 20 different machines that averaged sales of just 2,664 per machine. Only one of their machines was a SS game, Cleopatra, which sold 7,300 copies, its second best seller of the year.
Bally managed to sell its 43,330 machines over just 7 machines, averaging 6,190 sales of each machine. Four of those machines were EM games that totaled only 2,100 sales. Just three machines made up the other 41,230 machines sold, all SS machines. Bally averaged production runs of 13,743 for each SS machine it made. Gottlieb had never made 13,743 of any machine in its entire history.
1978, Gottlieb sells 52,444 total machines over 18 designs, Bally sells 86,613 machines over 7 designs. The average Gottlieb SS design sold 9,074 machines. Bally sold an average of 12,373. All of Bally’s machines were SS. Only five of Gottlieb’s were.
1979, Gottlieb sells 46,550, Bally sells 81,967. Four years after Gottlieb had dominated Bally sales, Bally dominated Gottlieb sales by over 76%, a wider margin than that year. And why?
It wasn’t because the product changed much. Gottlieb felt it just needed to stick a slightly different tech under the hood of its machines. After all, it had always had the most desirable titles, with the best designers and gameplay. Many of the people who operated pinball machines originally told Gottlieb they didn’t want to buy the new machines because they didn’t know how to maintain them. Bally told them they would make more money while being easier to maintain. In fact, it’s fascinating to draw some parallels between today’s EV shift and this flyer for Bally’s Evel Knieval game. A couple of highlights:
“At the factory replacement of complex cables, numerous soldered connections and dozes of relays with simple, compact, positive-action SS components-by world famous electronics manufacturers — assures dependable quality beyond the range of electro-mechanics. And positive inspection methods, adaptable only to electronics, insures delivery of pinball games as perfect as the human mind can produce.
The operator quickly sees an electronic EVEL KNIEVAL the greater reliability of performance which is characteristic of electronic pinball by Bally. He sees the amazing simplicity of routine maintenance and play adjustment. He sees the uncanny, speedy and positive ability of push-button self-test methods built into Bally electronic pinball. He sees the computer accuracy of total coin-chutes accountability and other new accounting advantages that are only possible with electronics. He sees the convenience of replaceable modules when prolonged and profitable play requires replacement. He sees increased earnings through nearly zero down time for maintenance.”
No one figured the change would happen that quickly. The parts were the same other than the boards. They used the same flippers, mechanical assemblies, featured the same buttons, plungers, and coin slots as the EM games did. In fact, Gottlieb often made EM versions of the same games they released as SS titles, expecting the sales for EM to recover.
Here’s an example of 1978’s Close Encounters of the Third Kind as an EM game, and here’s the same game as a SS game. The SS game outsold the EM version by a rate more than twenty to one, but in an attempt to not hurt their EM sales, they didn’t really push the benefits of the SS electronics as they could have, barely mentioning the difference between the two games on the third page of the flyer.
This may be the best comparison to what I think will happen in the auto world.
Operators buy pinball machines to earn money for multiple years. It’s not rare to find pinball machines from more than 20 years ago today still earning money. It’s extremely rare to find any EM games outside of individual collections, and that trend started very quickly after the introduction of SS machines.
Pinball machines to operators are an asset that lasts a long time. In the above photo, which I (poorly) took at an arcade I found earlier this year, the Addam’s Family pinball machine on the left is 27 years old, and the Attack from Mars in the middle is 24 years old. Even the Spider-Man is 12 years old. This is not an asset that operators use for a year and flip.
Gottlieb mistimed the market shift to SS by one year. This resulted in the company losing market dominance it had enjoyed for decades within three years. Gottlieb also invested tons of resources in many different designs, including continuing to design EM games instead of just focusing on the new SS games.
Gottlieb stuck what was essentially a new drivetrain into its old pinball designs figuring that wouldn’t impact its dominance.
By 1978, Bally completely halted EM pinball machine production. Gottlieb churned out 13 different EM designs. Production averaged 544, for a total of 7,076 EM machines sold by Gottlieb. Bally’s worst selling game for the year was Black Jack, which sold “only” 4,883. Every other Bally game outsold all of Gottlieb’s EM games combined.
Imagine the time and resources that Gottlieb invested in its EM designs. Now imagine that the EM machines you are making are doing terribly, which leads to needing to make major discounts just to sell them. Operators stopped purchasing EMs, choosing instead to keep their older games limping along until they could afford to replace them with SS games.
This is one of many examples of sudden shifts like this, yet we act like the auto industry is somehow special, and the EV market will just slowly expand. I’ll have a whole article about this at some point, but I strongly believe EVs will never take 50% of the market. They will accelerate far beyond that much quicker.
In 1975, 0% of the pinball machines Bally and Gottlieb made were SS. In 1978, of the 139,057 machines sold, 5% were SS.
Even crazier? In 1978, solid state took 95% of the market with 12 machines. To hold onto 5% of the market took 13 electro-mechanical models.
Cars are different than pinball machines. Pinball machines have one purpose, which is to earn quarters by entertaining people. Vehicles have many purposes, and so a Model 3 won’t work as a delivery van, for instance. But, the Model 3 took over 1% of the US auto market as a vehicle that has had no advertising. It’s believed that the Model Y could pretty easily sell double that.
Imagine if there were 12 new, compelling electric vehicles released in 2020. If they are in different segments and have competitive pricing and promotion, I see no reason that 25% of the market wouldn’t be captured by electric cars. And once that starts, gas car depreciation goes nuts, and those spending an extra year before they transition could be in real trouble. (You may now go to the comments to explain that the lack of chargers won’t allow this to happen. I’ll address that soon, but in short, that’s a problem that is way overblown.)
If you only came for the Tesla, you can stop here, but if you are curious about what happened next, the story is interesting enough that I’m going to spend the time to finish it.
1980 starts a downturn. Gottlieb sells 39,978. Bally sells 62,000.
1981 is much worse. Gottlieb sells 22,509. Bally sells 36,200.
This might seem bad for both companies at this point. But Bally has multiple divisions, and pushes them to innovate. Arcade game manufacturer Midway, which was purchased by Bally in 1969, was actively pushing into video arcade games in 1973, the year after Atari began manufacturing Pong. Midway’s first huge success was Space Invaders in 1978, the same year it stopped any EM pinball design. In 1981, with the pinball industry dipping, Bally started production of the arcade video game Ms. Pac-Man, which sold more than 117,000 units in the United States. Midway was also responsible for games like Galaxian, Pac-Man, Omega Race, and Tron, among tons of others.
Gottlieb followed Bally into the video game industry. The only Gottlieb arcade hit was Q*Bert in 1982, but its free-falling pinball division continued shrinking and only manufactured 17,070 pinball machines that same year. The next year, Gottlieb only managed to produce 8,305 pinball machines. By 1984, with sales continuing to be abysmal, Gottlieb was shut down.
The assets were purchased by investors attempting to resurrect the company, but the new Gottlieb never produced a game that sold better than 5,700 units again, closing permanently in 1996. As Q*Bert would say…
Bally was flush with cash from its arcade divisions and started rapid expansion, including purchasing the Six Flags amusement parks in 1982. Interestingly, it purchased Marriott’s Great America near its Chicago headquarters in 1984, allowing Six Flags to acquire the rights to the Looney Tunes characters, so next time you see Bugs Bunny at a Six Flags park, know that you have the transition to SS pinball to thank for that.
In 1983, Bally bought Health and Tennis Corporation of America, as well as Lifecycle to form Bally Fitness Products, by 1987 becoming the largest operator of fitness centers in the world. In 1986, they purchased a few different casinos, including the former MGM Grand in Las Vegas, which remains named Bally’s Las Vegas to this day. (Today’s MGM Grand was the Marina at the time of the sale and was not owned by Bally.)
By 1988, this expansion took its toll on the company, and they sold both Bally Pinball and Midway, as well as Six Flags. After the sale, both Bally and Midway continued to dominate the arcade industry as part of Williams.
Even though the parent company collapsed under mismanagement within 10 years, for a brief moment in time, Bally absolutely dominated the pinball industry thanks to its embrace of a new, unproven technology.
Will we reach a tipping point like this with electric cars? I expect we will. It’s how the market works.
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Frugal Moogal A businessman first, the Frugal Moogal looks at EVs from the perspective of a business. Having worked in multiple industries and in roles that managed significant money, he believes that the way to convince people that the EV revolution is here is by looking at the vehicles like a business would.