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CAL MATHERS SWUNG BY THE MALL psyched to test-drive the magic box. The 22-year-old college senior from New Jersey bounded across the electronics store into computer-game turf. ""I want to check out the 3DO,'' he told the clerk, ""and the coolest software it's got.'' Mathers flipped a compact disc called Total Eclipse into the sleek display model and spent a minute or two exploring vivid alien landscapes. Next he conspired with an animated figure of actor Kirk Cameron to escape from a medieval castle in The Horde. The verdict? ""Cool. But not $500 cool. I hear cheap-er, better stuff is on the way with killer software. I'll wait.''
Such words blow cold these days through the halls of one of Silicon Valley's most publicized start-ups. Just a year ago, 3DO was touted as a budding Microsoft. Founder Trip Hawkins claimed his Interactive Multiplayer would not only crush Nintendo and Sega but would one day emerge as the box bringing interactive programming to the world. Time Warner, Ma-tsushita and AT&T bought in early. Thousands of investors followed suit, snatching up shares at $15 when the company went public in May 1993 -- before there was even a product.
But Hawkins's vision hasn't materialized. Sales have been tepid -- largely because the machines were priced too high and few software programs were available -- and Hawkins is pouring his own money into the company to pay for marketing expenses. Meanwhile, 3DO's stock has plunged almost 70 percent since October (chart), and some analysts say the company's survival depends on a strong Christmas shopping season this year. Hawkins denies there's anything wrong and contends that business is looking up. Sales have recently shown some life, and some of the new software for the multimedia player looks promising. But even the most optimistic industry watchers insist that 3DO doesn't have much time to turn things around as companies ranging from the big game-machine makers to PC manufacturers produce newer and better products. ""The decline of 3DO is a cautionary tale for anyone investing in a new high-tech company,'' says Mark Stahlman, a highly regarded computer-industry analyst.
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Until this year, 3DO had all the markings of a winner. Hawkins, 40, had the perfect pedigree. At Harvard he created his own major in ""game theory.'' (His senior thesis was a computer simulation of World War III.) He had plenty of experience with start-ups. As a teenager he borrowed $5,000 from his father to market his own fantasy football game, which failed. Fresh from Stanford business school, Hawkins was the 68th employee hired by a man whose zeal for his work exceeded even his own: Apple's Steven Jobs. After four years there, Hawkins cashed in several million dollars of company stock and in 1982 founded Electronic Arts, now among the nation's biggest makers of sport and game software.
3DO was born of his frustrations there. Hawkins was convinced that the future was in CD-ROMs (compact discs with extra memory), not the cartridges favored by the Japanese game-machine makers. And he was furious over the royalty fees -- as much as $20 per cartridge -- that Sega and Nintendo charged software makers for the right to market games for their players. His machine would change all that. The plan was this: instead of manufacturing it himself, he would license the rights cheaply to several electronics companies. His profit would come from software royalties, but unlike his competitors, he would charge game makers a mere $3 a disc.
Unveiled in January 1993, 3DO's prototype drew raves. Its graphics made Sega and Nintendo seem as primitive as Pac-Man. It was hailed as the ultimate toy for boys from 18 to 40. Matsushita had agreed to be the first licensee, producing the box under its Panasonic brand name as the ""Real 3DO Interactive Multiplayer,'' with a $700 price tag. Hawkins predicted that the post-college crowd he coveted wouldn't wince.
But for those who knew where to look, cracks in the plan were already showing. First, Hawkins's friends in the software community didn't fall into lock step. Despite the low fees, many refused to create games for 3DO until at least a million machines had been sold. Hawkins kept a lid on the troubles through last summer, say Silicon Valley insiders. Friends say he figured to bridge the gap with sheer charisma. He traveled the country, cajoling retailers, charming conferencegoers and courting the press. Still, by the time the machine was launched, there was only one title available, the unfortunately named car chase, Crash 'N Burn. Christmas, says a 3DO backer, ""was not the smash we planned.'' By New Year's, analysts say, most big investors had bailed out, leaving mom-and-pop types to watch their shares tumble. The first few months of the year were just as cruel. Analysts say the $200 price cut that Hawkins negotiated with Matsushita in February was too late and not steep enough. Says star venture-capitalist Don Valentine: ""Turning this around looks like mission impossible.''
Ridiculous, says Hawkins. He insists the machine is taking off at last. Sales may not reach the original target of 500,000 within 12 months, but 120,000 have been sold so far -- the vast majority in Japan, where college kids have made it a real hit. ""People like to take shots at us, but no one wants to look at the things that have worked,'' says Hawkins, adding that the machines are now selling at a rate of 10,000 a month. (Matsushita wouldn't confirm the figure.) More silver linings: a South Korean manufacturer, Goldstar, plans to make the machine under its label for the U.S. market, and Hawkins is promising about 100 new games by the holiday-shopping season. And last week another announcement: that Hawkins and his backers would invest an additional $37 million, including a reported $10 million from Hawkins himself. That helped boost the company's stock.
Still, in the fast-moving world of high tech, it may already be too late for 3DO to regain its momentum. For example: while 3DO released more software titles this spring, it still doesn't have a hit that would attract large numbers of customers to the machine. Nor does it bode well that some game makers have given up on 3DO. Spectrum Holobyte, a leader in interactive technology, was supposed to design a ""Star Trek: The Next Generation'' game for 3DO, but spokesman Tom Byron says plans are on ""permanent hold.'' A top sports-game maker, Accolade, has scrapped all 3DO projects ""unless their fortunes reverse, which no one expects,'' a spokesman says.
Meanwhile, competitors are closing in. Many people who could afford 3DO's player would rather buy personal computers equipped with CD-ROM drives, now that they're com-ing down in price. Advance word on Sony's Play Station and Sega's Saturn interactive game player, due out in 1995, is strong. ""3DO is old news, the techno-savvy have moved on,'' says consultant Mark Macgillivray. And so may 3DO, unless Hawkins can produce some software hits fast and peddle a slew of multimedia machines. After all, there are only 200 shopping days left before Christmas.
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