Electronic Arts

Electronic Arts

Winning the game


Founder: Trip Hawkins





Age of founder: 28


Background: MBA and former Apple Computer executive


Founded in: 1982, USA


Headquarters: USA


Business type: Multi-platform games




N



ot many entrepreneurs spend 11 years planning their business's start. But from his first foray into business at age 17, Trip Hawkins knew he wanted to start his own. He just didn't know what it would do. Then, in 1971, he got a glimpse of an early prototype microcomputer at a friend's house, and an idea began to take shape. In the future, he realised, home computers would be commonplace.



From that initial flash of insight, the biggest company in digital gaming would arise. Trip knew it would take time for home computers to catch on, but he began to chart a course that would position him to profit from the coming electronic age.


He chose a date for his business launch: 1982. Just as planned, Trip did start a home-based, one-man business that year. That company became Electronic Arts, which now employs 7,600 people and made a profit of $677 million (£425 million) in 2010. How did it happen? Trip puts it down to a couple of personality traits: persistence and fearlessness.


'I was feeling completely sure of myself and totally confident about what my plans were, and pretty bulletproof', Trip recalls.


The very first game


Trip's interest in games began in childhood – and so did his interest in business. While still a teenage student at Harvard University, he borrowed $5,000 (£3,100) from his father to create a board game centred on his love of sport, AccuStat Football. The money allowed Trip to create several hundred copies of the tabletop game.


The game, although loved by those who played it, was a commercial failure, teaching Trip indelible business lessons that would shape his future plans.


'It was a thorough business experience for me, as I had to design, manufacture, have a marketing plan, and even assemble the product', Trip recalls. 'It helped me realise I was going to be an entrepreneur, but I was also disappointed that I failed. It made me a lot more careful and thoughtful before I started EA.'


At Harvard, Trip graduated with a self-designed degree in strategy and applied game theory, then added a Stanford MBA in 1978. Trip chose his first employer, Apple Computer, deliberately. He had seen the Apple II debut at a computer fair the year before, and wanted to work for a home-computer company.The Jobs years


In Steve Jobs, Trip found a mentor who would greatly shape his outlook. It was early days at Apple: the company, based in California, had just 50 employees when Trip joined.


Trip's responsibilities at Apple grew over his four years there, but he never lost sight of his primary goal: to develop his business acumen and wait for personal computers (PCs) to become more popular and powerful. From Steve, he'd learned to think of himself as creative and unstoppable.


The time was growing ripe for his start-up. One gaming company, Brøderbund, debuted in 1980. Trip heard from one investor who was interested in funding a game start-up. He worried he was getting behind the curve.


In Steve Jobs, Trip found a mentor who would greatly shape his outlook. ... From Steve, he'd learned to think of himself as creative and unstoppable.





His dream of starting a company had crystallised into what Trip thought of as his 'big idea'. Most software companies, he'd realised, treated developers like serfs instead of fostering their creativity. He wanted to start a game company that would operate like a music label.


'By this time, I had experience working with prima donna software development geniuses and realised these are really creative people', he recalls. 'I began to realise I could work with them as independent artists, and treat them as artists.'


Enter the crocodile


At just this time, Trip read about venture capitalist Don Valentine of Capital Management (which would soon become Sequoia Capital) in an airline magazine. The article said that Don was so intimidating that one young entrepreneur actually fainted in his office during a pitch. His management style was likened to that of a crocodile, lying in wait before rearing up to rip everyone's ideas apart.


While this might have caused most would-be business owners to pitch to someone else, the article prompted Trip to call Don and ask for a meeting. He admired Don's attitude and thought he could get frank advice from him, which was exactly what Trip wanted. He wasn't afraid of Don's bite.


Knowing Trip's track record at Apple, Don readily agreed to a meeting, and Trip arrived at the venue with some trepidation. He had no written business plan yet for the company he had christened Amazin' Software, and Apple was gearing up to launch the Lisa computer. He thought Don would urge him to fulfill his commitments at Apple and finish his launch work. But that wasn't Don's opinion at all.


'He said I should quit Apple right away', Trip says. 'He offered me free office space, which is like saying, "If you pull this together, I'll want to fund it." It was the encouragement I needed to take the final step.'


Amazin' Software in the hall


Trip quickly wrapped up his work and left Apple in April 1982. Before taking Don up on his offer of free office space, Trip spent several months working from home, refining the business plan. He incorporated the company in May 1982 and funded it initially with $200,000 (£14,000) of his own Apple stock profits.


During this time, Trip worked on learning about the music industry business model he planned to emulate. He flew to Los Angeles after a venture contact introduced him to legendary A&M Records co-founder Jerry Moss. Trip also spoke with a music industry lawyer and got a copy of a recording contract to learn how to structure contracts for his software 'artists'.


While still working from home, Trip employed his first few members of staff. The first was experienced PR man Richard Melmon, whom Trip knew from a stint at Apple. Richard left his job at VisiCorp, maker of the early spreadsheet product VisiCalc, to join the promising company.


'He was by far the most important and highest-ranking guy I hired that year', Trip recalls. 'I hired him because I felt I should have someone older than me around to provide a little adult supervision.'


Richard and Trip would turn out to clash, and their versions of events differ – Richard's biography suggests that he, not Trip, raised the funding money for EA, for instance. In any case, Richard would end up leaving EA after just a few years.


The budding company quickly outgrew its one small room in the back of Don's office suite, with some staff camped at card tables in the hallway.





From Apple, Trip drew product manager Dave Evans, gaming fan Joe Ybarra, and one of the rare women in tech at the time, Pat Marriott. The trio would be Amazin' 'producers', working with talented game designers to create products and bring them to market.


The team was rounded out by an office manager, Stephanie Barrett. In August, the small team took up residence in Don's California offices. The budding company quickly outgrew its one small room in the back of Don's office suite, with some staff camped at card tables in the hallway.


Playing hardball


Trip kept paying the bills: for payroll, equipment, and software development in-house, as well as fees to outside software 'artists'. He had the resources to keep going in this fashion for another year or so but felt he needed to bring in investors to tap their business expertise and accelerate the company's growth.


Several investors were interested, but Trip focused on those he wanted on board, starting with Don, and Ben Rosen from Sevin Rosen Funds, whom he knew from Apple. Others came knocking: Trip recalls picking up the phone at his home in the Portola Valley to find future legend John Doerr, who was then new to Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers.


As he wasn't desperate for the cash, yet, Trip was feeling cocky. Thinking that Don wanted too rich a deal, Trip played the venture capitalists off against each other to get a better valuation for his company, lowering the percentage of Amazin' the venture capitalists' money would buy. In the end, he raised $2 million (£1.25 million) in the first round at the end of 1982, half from Don, with the other half split between Sevin and Kleiner.


Amazin' then moved from Don's office to a small office of their own in October 1982. During the company's short stay there, Trip continued hiring, luring Stanford friend William Bingham ('Bing') Gordon. Other early hires were Tim Mott, David Maynard and Steve Hayes, all from Xerox PARC. Amazin' soon moved to more spacious quarters, still in California, where the company would remain for more than a decade.


Becoming Electronic Arts


Around the time of the move from Don's office, the newly hired team were pushing for a new company name. Some team members disliked the Amazin' moniker. In one early business plan, Trip had used the name SoftArt as an amalgam to convey both software and artistry. But both Trip and Richard Melmon knew Dan Bricklin, founder of VisiCalc maker Software Arts, and thought it best to avoid such a similar name.


Trip wanted to include the word 'Electronic', and suggested it might be called Electronic Artists, in part as a tribute to independent movie studio United Artists, whose model of artist-driven production he sought to emulate. But Hayes reportedly objected, saying that the developers were the artists rather than the staff. Finally, the team settled on Electronic Arts as the new name.


Bad timing


Despite all the years of Trip's planning for his launch, the newly renamed company's timing turned out to be a bit off. The technology needed to play truly full-featured electronic games had arrived, but had not yet been widely adopted by consumers. The dominant game system at the time was an 8-bit Atari console, which offered a puny amount of memory.


Trip knew from the start that he didn'twant to create games for the Atari. While waiting for the game console industry to mature, the company would focus on creating games for PCs. This posed its own challenges as the most popular PC of the time, the Commodore 64, did not yet come with an external disk drive. One would be added in late 1983, but at an extra charge that would discourage many home users.


To counter this problem, Trip devised a method that ended up being used in Europe for the company's first game releases: the games were converted to audio signals on a tape cassette. With the help of an A/B adapter cord, the data could then be input to the computer to play the game.


In 1982, EA's producers had released their first games for the Apple II – Hard Hat Mack and Axis Assassin – as well as a few games for the hated Atari 800 console – Pinball Construction Set, Archon, M.U.L.E., and Worms.


In keeping with Trip's recording artist philosophy, each game was packaged like a record album with an eye-catching,graphical cover. This immediately set EA's products apart from competitors, whose packaging was less slick-looking.


Rather than signing a distribution deal with an established company or competitor to get the games into stores, Trip and the entire team set out to meet thousands of independent computer shop owners to sell them, one by one. It was hugely time-consuming, but paid off in new relationships – and enabled a distribution scheme in which there was no middleman so EA kept more of the profits. Of the first group of games, Archon and Pinball Construction Set emerged as the big sellers.


A key game was released in 1984 that would set the course for much of EA's future success. The basketball-themed Dr. J and Larry Bird Go One on One took Trip's recording artist theory one step further, leveraging the name recognition of the two sports stars to sell games. Fans loved the chance to essentially be one of their sports idols, and the game went on to be EA'sbest-selling release for the Apple II.


In keeping with Trip's recording artist philosophy, each game was packaged like a record album with an eye-catching, graphical cover. This immediately set EA's products apart from competitors.





During the scramble of the first few years, Don fulfilled Trip's expectations, offering universally critical feedback and never making a positive comment. In July 1984, he sent Trip an EA budget with two numbers circled: burn rate and cash reserves. 'Two months left!' it said. But Trip knew sales of Dr. J were going to avert a financial crisis.


Trip quickly learned that while he was envisioning the game designers as the prime selling point, gamers were loyal to the game, not the designer – a revelation that would shift the company's marketing focus for good. Sales that first year were $5 million (£3.74 million) – the company was off and running.


Just six months after the first venture capital round, Trip went back and raised $3million (£2.24 million) more in investor funding, mostly from the same investors. For the second round, with a few products out and several of them shaping up as solid sellers, Trip was able to obtain the funds at a company valuation four times greater than on the first round.


The desert years


As the company was releasing its first games, the hope was that games consoles would soon become a viable platform for EA's games, too. But instead, the games console industry collapsed. Atari's system was dated and the company had failed to plan ahead to release a new, more robust version. Consumers lost interest, causing retailers to stop stocking the games and suspect that electronic games might just be a fad.


Trip remembers the next few years as a time of serious hard work. The company scored successes with more celebrity-driven games, including Jordan vs. Bird: One on One and Earl Weaver Baseball.


By concentrating on games forcomputers and releasing popular titles, the company was able to bring in $11 million (£8.48 million) in sales in the financial year ending March 1985. EA began to turn a profit in autumn 1984.


'We were profitable', he recalls, 'but we had to be disciplined about how much we spent. We made sure we didn't overstep our bounds.'


In 1988, Trip decided to try international expansion as a means to grow during the gaming industry slump. The company acquired game-creation houses in Australia and France, opened an office in Japan, and in general overspent. Trip remembers the international foray as a 'misadventure' from which the company beat a hasty retreat.


Breakout success


Fortunately, 1988 also saw the release of a game that would prove to be one of the company's biggest franchises. Originally called John Madden Football and later Madden NFL, the game would go on to release annual versions and sell 85 million copies in 2010 alone. Madden would be joined in 1993 by another major sports franchise, FIFA. Together, the brands would drive the success of EA Sports, one of the company's biggest niche brands.


On the heels of the Madden success, EA went public in September 1989, netting $8 million (£4.88 million) for the company and more for its investors. The IPO (initial public offering on the stock market) gave EA a valuation of $84 million (£51.3 million). Sales that year were $63.5 million (£38.8 million), and profits were $4 million (£2.44 million).


Getting Sega on board


As EA was enjoying its successful IPO, a glimmer of hope appeared on the games console horizon. Nintendo had had a successful 8-bit game machine over the previous few years which, like the Atari before it, EA mostly ignored. But now, the more robust 16-bit Sega Genesis console was set for release in America. Trip was determined to turn it into a gold mine.


There was a major problem, though: it wasn't known exactly what machine Sega would bring to the States. EA designers obtained a Japanese Sega console, hoping that the US machine would be identical, and that EA could produce a game that worked on it. One big fear was that Sega might implement a security 'chip' on its games for the US market, a feature Nintendo employed.


In analysing the Sega machine, EA's software designers found that it used the identical 16-bit microprocessor the team was familiar with from its Sun workstations, as well as Apple's Lisa and later models. Taking the gamble that a security chip wouldn't be introduced and torpedo the effort, EA moved forward to reverse-engineer game designs for Sega's console based on the team's knowledge of the microprocessor.


While this was in process, Trip also actively contacted other software design studios to offer EA's help in creating games without Sega's official blessing. At the same time, Sega was calling on Trip to negotiate licensing agreement was finally hammered out after a round-the-clock negotiation session between Trip and Sega's lawyers. Instead of paying the $8 (£4.48) per unit Sega wanted, EA would pay just $0.40 (£0.22). The deal would be a bonanza for both sides – EA's games helped bolster Sega's market share in the USA, and the alliance gave EA a huge market for product at a low fee.


Whereas Nintendo didn't allow any one producer to release more than five games a year, EA was able to introduce 40 games for Sega in the next two years, skyrocketing the company's revenue. Another 23 games would come from independent studios affiliated with EA. Nintendo introduced a 16-bit machine the following year to compete with Sega, and allowed developers to adapt existing games for the new system, opening up another major revenue channel for EA. By the end of 1993, EA's market capitalisation soared to $2 billion (£1.13 billion).



Where are they now?
In 1991, Trip left EA to start a new gaming company, 3DO, but the effort failed. In 2003, Trip founded another multi-platform gaming company, Digital Chocolate, where he is CEO today. The 400-employee company had more than $30 million in 2010 revenue. Its hit games include Millionaire City. The company has had its games downloaded onto mobile devices more than 100 million times, and its online computer games have seen more than 100 million sessions.


EA would continue to dominate its industry for two decades, the only gaming company to enjoy such an unbroken streak of success. The company would go on to introduce many more wildly popular games, including Need for Speed in 1994, and The Sims in 2002, which captivated female gamers and spawned many sequels. The company also grew through many acquisitions, including the 2011 purchase of online game hit studio PopCap Games for $750 million (£486 million).


Towards the end of 2011, EA's history of linking with well-known celebrities and brands continued with the launch of Star Wars: The Old Republic, a MMOG (massively multiplayer online game) in which players engage in battles on planets featured in the Star Wars movies.