History of video games market in 1978 with the Odyssey, while toy company Mattel released the Intellivision in 1979, which featured graphics superior to any of its competitors. After both Atari and Fairchild made a strong showing in 1977, the market hit a difficult patch in 1978 when retailers resisted building inventory, believing that the newly emerging electronic handheld market would displace video games. Atari, for example, manufactured 800,000 systems, but proved unable to sell more than 500,000 to retail. This helped precipitate a crisis at the company that saw co-founder and chairman Nolan Bushnell and president Joe Keenan forced out by Atari's parent
Galaxy Game were well into development and had gotten permission to place the machine at the Tresidder student union building at Stanford as a test site. It was then that they received a call from Nolan Bushnell, who had heard of their project and wanted to show them his similar project he was working on. Bushnell had also played "Spacewar" during the 1960s and wanted to make an arcade game version of it, but had gone in a different technological direction. He and Ted Dabney had initially started with a US$4,000 Data General Nova computer which they thought would be powerful enough