[MUSIC PLAYING] WALTER ISAACSON: It must have seemed like a good idea at the time. After all, kids have been playing with dolls for thousands of years. Throughout time, children would talk to the doll and by the magic of imagination the doll would engage in conversation. In 1890, Thomas Edison set out to do imagination one better. By installing a miniature version of his new phonographic recording technology, a doll for the first time could speak for itself. Early that year, Edison’s talking dolls went to market. Just imagine the children of those early adopter parents soothed to sleep by this.
DOLL (STATICKY, HIGH PITCHED VOICE): Now I lay me down to sleep. I pray the lord my soul to keep. If I should die before I wake I pray the lord my soul to take.
WALTER ISAACSON: The doll was a flop. After just three months on the market, production stopped, a result of mounting complaints about breakage, malfunctions, and a cost equivalent to 200 of today’s dollars. Edison ended up referring to these dolls as his little monsters.
DOLL (STATICKY, HIGH PITCHED VOICE): Amen.
WALTER ISAACSON: The recordings inside these dolls marked many firsts. They are the earliest known commercial recordings. They are the first known recording of American females and the oldest children’s recordings known to survive. For the toy business, it was among the earliest instances of technology disrupting imagination, toys that had the potential to turn a child into a spectator rather than an instigator of play. This tech versus traditional tension would grow with the industry. And as you’re about to learn, it’s still very much at play today in an industry worth nearly $100 billion.
WALTER ISAACSON: I’m Walter Isaacson. And this is “Trailblazers,” an original podcast from Dell Technologies.
ANNOUNCER: Here’s every toy you’ve ever wanted.
ANNOUNCER: Meet Robert the talking robot.
ANNOUNCER: Scrubble Bubble makes bubbles when you scrub it.
ANNOUNCER: The doll with beautiful hair that grows.
ANNOUNCER: The amazing new toy that puts you in the pilot seat.
ANNOUNCER: It soars. It dives.
ANNOUNCER: Wow. What a car.
WALTER ISAACSON: The Consumer Electronics Show was a decade old before it first convened in Las Vegas in January, 1978. By then, the Consumer Electronics Show had built a reputation as a place of astonishing new product launches. In 1968, it featured a portable executive telephone, weighing in at a mere 20 pounds.
At the 1970s show, Sony unveiled the first home video cassette recorder. In 1974 came the laser disk. A year later, Atari unveiled Pong. And in 1976, inexpensive digital wrist watches were all the rage. The 1978 show would be remembered mainly for the launch of early home computers. But for toy buyers, the star of the show was at a Texas Instruments booth. There they found a flat, red plastic box with an alphabet keypad. It’s working title had been Spelling Bee. But it was later changed to Speak & Spell.
SPEAK & SPELL: Now spell Yacht. Y-A-C-H-T. Correct.
WALTER ISAACSON: With the rise of console games, traditional toy and game makers scrambled to respond, some with digital handheld electronic games with a few simple keys. Parker Brothers had Merlin the electronic wizard. Texas Instruments had already launched Little Professor, a math skills toy based on its early handheld calculators. That year, Milton Bradley introduced Simon a digitized memory game with four pads that lit up and played notes in sequence, which the player would then have to replicate. When successful, a new note would be added to the sequence.
What made Speak & Spell different was the introduction of DSP, or Digital Signal Processing, making it the first consumer product to use a synthetic voice. Just two years earlier, Texas Instruments assembled a team of four led by engineer Paul Breedlove with an R&D budget of $25,000. Their instructions were to develop some sort of product using their new DSP technology.
Before the launch, there were doubts. One concern was the suggested retail price of $50. In 1978, $50 could buy you a Mr. Potato Head, a talking view-master, a Frosty snow cone maker, an Easy Bake oven, four Hot Wheel cars, a Rock Em Sock Em robot set, silly putty, and a superstar Barbie. Market research produced more doubts. As Breedlove would later recall, initial focus groups didn’t understand how an electronic spelling toy would appeal to kids. But it did. And Speak & Spell was a hit. So much so that it would be immortalized four years later as an integral part of the machine that ET used to phone home.
To the traditional toy industry built on generations of plastic dolls, Tinker Toys, and Lincoln Logs, it would spell utter disruption. Toys are ancient. The toy industry, not so much. The last 100 years or so have seen many innovations in mass production that helped create the industry we see today. But it wasn’t until the 1970s and the introduction of the digital age, where how kids play would meet a disruption that the industry and parents are still struggling with today.
WAYNE MILLER: In the late 1970s into the early 1980s, there were a number of other non-toy companies that were introducing video games and video technology. And it was an incredibly hot market.
WALTER ISAACSON: Wayne Miller is the author of the book “Toy Wars.”
WAYNE MILLER: Some of those companies are still around today. These of the non-toy companies– Nintendo, for example, and Atari. There were other companies– Commodore, Texas Instruments. So there was a whole– it was almost like the dot come era of the ’90s. There were an amazing number, a very large number of companies jumping into this. And it seemed to the major toy companies and even some of the smaller toy companies that this was an area where naturally they should go.
WALTER ISAACSON: With the introduction of new, disruptive digital games and computers, the toy store had become a new kind of marketing battleground. Rather than develop strategies to integrate traditional toys with digital technology, the toy giants treated the two worlds as mutually exclusive. Michal Lev-Ram is a senior writer with Fortune magazine.
MICHAL LEV-RAM: It did used to be very siloed. And if they tried doing anything in the tech or digital space, then it was some acquisition that more often than not horribly flopped and didn’t work at all and led to them losing a lot of money. And there really wasn’t an integration at all.
WALTER ISAACSON: Nevertheless, Mattel plunged headlong into the digital games category. Tom Kalinsky was in Mattel’s toy division at the time. And he would later serve as CEO.
Tom Kalinske: Frankly, Mattel struggled with technology in the toy business back from the time when I was involved in it. We both struggled and we pioneered. So there’s a lot of things that Mattel has done with technology over the years that was quite good. But there was also a lot that they struggled with and never got quite right.
WALTER ISAACSON: In the early 1980s, Mattel invested almost $400 million into a home game console called Intelevision. It was a risky venture, but one that if it paid off could lead to Mattel dominating an entirely new market. Around the same time, they also released a series of handheld LED games, small, portable, digital devices that could be taken and played with anywhere.
Tom Kalinske: These products were very interesting and we decided to market them not to children because we thought they were a little complicated for children, but to market them to fathers for Father’s Day. Well, that worked pretty well. But as it turned out, we were completely wrong on kids being able to manipulate these things. They were better at it than their fathers. And that handheld business really took off for Mattel.
WALTER ISAACSON: Other traditional toy and game companies also found themselves venturing into digital. More than a century after Milton Bradley founded the first color lithography shop in Massachusetts, his company launched its own game console, Vectrex. Parker Brothers, another games company with 19th century roots, invested heavily in arcade games, including versions of their flagship board games, Monopoly, Clue, Sorry, and appropriately enough, Risk. But not every toy giant was quick to invest in digital games.
Hasbro founded by two Hassenfeld brothers in 1923 built a toy empire on Mr. Potato Head and GI Joe. According to Wayne Miller, Wall Street had mocked Hasbro for not jumping into video gaming, calling them Hasbeen. Then it happened. The video game crash of 1983. Saturated and woefully lacking in quality control, the video games category collapsed and video game buyers stayed home in droves. Wayne Miller.
WAYNE MILLER: It was a disaster for Mattel. They had invested all that money. But then the crash of 1983 , where the whole industry, the whole video game industry crashed and so they lost all that money, a huge amount of money.
WALTER ISAACSON: Mattel’s Tom Kalinske recalls approaching legendary financier Mike Milken for some desperately needed cash.
Tom Kalinske: Met Mike Milken at his famous desk, and said well, we either had to go chapter 11 and lay off thousands of people– we were still manufacturing in southern California in those days and certainly had all of our corporate offices there– unless we could get financing. And Mike said to me and the chairman of the board, Art Speery, said, Barbie should never go bankrupt. I’ll refinance you in 36 hours. And he did.
WALTER ISAACSON: It was a reprieve that the company needed. Barbie had saved Mattel. Other toy giants weren’t so lucky. General Mills, the parent company to both Kenner and Parker Brothers, merged the two as Parker Kenner. In 1987 Parker Kenner was sold to Tonka. Four years after that, Hasbro acquired Tonka.
The video game collapse also doomed Milton Bradley’s Vectrex game system. So in 1984 Hasbro acquired Milton Bradley as well. Wall Street wasn’t laughing anymore. The company once mocked as Hasbeen was now being lauded for its foresight. Alan Hassenfeld is former chair and CEO of Hasbro. He recalls a core principle that guided the company through those digital storms.
ALAN HASSENFELD: Technology for the sake of technology isn’t very good. Our job in any toy that we come out with– very, very importantly– is to make sure that hopefully it will stimulate a child’s imagination, creativity. Many toys are out there that are dealing with dexterity and things like that. But a toy cannot just be– in the old days we had what were called watch me’s– toys that you turned on the battery and it ran around in circles for about an hour and then died. That’s not something that stimulates the imagination. We have to find ways of truly stimulating. First of all, we have to make sure that the brands we’re backing and the people that we’re partnering with, that they’re contemporary in their storytelling.
WALTER ISAACSON: Ironically, it would be the Hasbro acquisition Tiger Electronics that would produce the Furby, a furry creature that could talk back to its owners. It became the gotta have digital toy of 1998. Alan Hassenfeld.
ALAN HASSENFELD: Furby was probably one of the first toys with artificial intelligence. And you have to know that after being on the market for a couple of months it was, needless to say, an incredible success. But Furby had two problems. Number one, it didn’t have a shut off button and we drove parents a little bit crazy because Furby had to go to sleep if you wanted him to be quiet.
WALTER ISAACSON: The second problem? Much to Hasbro’s surprise, Furby presented a national security risk. Wayne Miller.
WAYNE MILLER: Many years, there’s like this craze, this mania for a toy. And Furby was it that year. And so employees of the National Security Agency, the NSA, began bringing these things to work because they were like so cool. And NSA officials saw this all going on. And they got paranoid. They got paranoid. And they banned their employees from bringing Furby to work. They thought that this thing could tape record. It had no such recording capability. But whoever banned it at the NSA didn’t know that or didn’t believe that. And so they banned the toy because they thought that Furby would be going into classified meetings of the NSA and secretly recording what was going on.
WALTER ISAACSON: While security officials fought to keep America safe from digital plush toys, a decidedly low tech European toy icon was about to go from near ruin to the top of the industry, and would owe much of that success to a worn out pair of sneakers belonging to an 11-year-old boy.
The story begins in the tiny town of Billund, Denmark, population 6,000 and change. It was here in the 1930s that a carpenter named Ole Kirk Christiansen decided to augment his business by making and selling ladders and ironing boards. When the sales slowed, he branched out, handcrafting toys and building blocks from the wood. As the business grew, he named his company LEGO, a conflation of Danish words meaning play well. After the war, invested in a plastic molding machine and began making his famous plastic bricks. For decades, LEGO grew and flourished.
Fast forward to 2000. Like many traditional toy makers, Lego is in flux with digital games eroding its traditional customer base. Complicating matters, LEGO’s last patents on its interlocking bricks had expired. Copycat competitors began crowding the market. In the ’90s, it had responded by going on a development binge, tripling its numbers of products hoping that if it threw enough new products at a wall, some would stick.
Many new products were online or experiential and had nothing to do with its famous bricks. Production costs soared while sales remained sluggish. Dave Robertson is author of “Brick by Brick, How LEGO Rewrote the Rules of Innovation and Conquered the Global Toy Industry.” He likens LEGO at that time to an urban legend.
DAVE ROBERTSON: And thankfully this is apocryphal. It didn’t really happen. A guy who took a Chevy Impala, strapped a jet engine to the top, went out to the Arizona desert, accelerated up to highway speeds, and then lit off the jet engine. The car took off down the road. And then the story goes that there was a turn in the road, there was a sheer cliff face at the turn, and a couple of yards up there was a three foot deep impact crater, and just small pieces of Chevy Impala and jet engine all over the place. And I thought that was a good metaphor for LEGO, that when LEGO tried to disrupt, to reinvent, to come up with new revolutionary types of play experiences, the problem was that not that it didn’t happen, but that it did, that they had so many people working on so many different things, it was like that guy flying through the air. He’s trying to put on the brake and turn the steering wheel in an airborne car. And nothing is really working.
WALTER ISAACSON: By 2003, LEGO was near bankruptcy. This is where the sneakers come in and the consumer insight they helped inspire. Brand consultant Martin Lindstrom has worked with LEGO over many, many years. In fact Lindstrom’s working relationship with LEGO dates back to when he was just 12 years old. It was a relationship that did not begin smoothly.
MARTIN LINDSTROM: What happened was I built a LEGO Land in the backyard of my garden. And I was pretty obsessed with this stuff. I created small canals with water in it. I had bonsai trees created. I mean, this was a serious business for me. And I’ll never forget the day I opened the LEGO Land to the world. Only two people showed up, my mom and my dad, which I guess was the low point of my career.
So I went into panic. I decided to approach a local print office. And they– I don’t know why, but they decided to sponsor me. So two days later, I had an ad in the paper and guess what? 131 visitors showed up. Only problem was that visitor number 130 and visitor number 131 were the lawyers from LEGO suing me.
So, of course I said to them, why. And they said, well, we own the brand. I said, no, I own the brand. I bought all those boxes. And that became kind of an odd relationship where I got a job at LEGO at the age of 12. And I began advising them on innovation. And I guess I’ve had an on and off relationship with the brand ever since.
WALTER ISAACSON: Years later, that incident would serve Lindstrom and LEGO when the toy giant launched its first website.
MARTIN LINDSTROM: They had an army of lawyers attacking basically everyone in the world whenever they used to reference to LEGO or the LEGO trademark. And that has become almost like a little army which were fighting against the consumer. So one of the first things I did was to say to them, hey, guys, you need to communicate more with the world and listen to them. Because if you do that, surely you’ll be ahead of everyone else.
WALTER ISAACSON: Martin Lindstrom is also the author of “Small Data, the Tiny Clues that Uncover Huge Trends.” For years, he explains, big data had shown LEGO that younger girls and boys had the patience to invest six, eight, or 10 hours building a LEGO castle.
MARTIN LINDSTROM: Now what happened was a small outbreaker group at LEGO decided to do something highly unusual. They had a feeling of that the data obtained from the research was really wrong. And so they went into homes across Europe. And they end up in this home of an 11-year-old kid in Germany. And as I was sitting on the floor interviewing this kid, they asked the kid one simple question. What are you most proud of? And the kid pauses for a second. He looks at the shelf and pointed at a shelf where there’s an old worn down pair of sneakers, smelly. And he says, those ones.
So of course, they ask him why. And the kid replies, well, because I’m the best skater in town. And if you are the best skater in town, you need evidence. And this is my evidence. You see, if you’re really a good skater, you slide down the skateboard at a certain angle and that exact angle is creating a certain wear and tear on the side of the rubber. What I realized is this is really the first time LEGO discovered the power of small data, what is defined as insignificant observations made in our real life which suddenly turns into become pretty dramatic in terms of the destiny of a brand or future.
And that observation was really the fact that time is not in the essence of kids. No, I mean, if they can spend hundreds if not thousands of hours of fine tuning the wear and tear on a soul of a worn down shoe, well, why wouldn’t they spend hundreds or perhaps even thousands of hours playing with LEGO.
WALTER ISAACSON: By then, LEGO’s new CEO was Jorgen Vig Knudstorp, who wasted little time rebuilding both the company and its culture. Author Dave Robertson.
DAVE ROBERTSON: So he brought LEGO back to those traditional toys, the things like a fire truck or a police station, what’s now known as the LEGO City Line. And he tightened up the range of different colors and shapes that were in the inventory. He cut it in half. And he asked the team to do more with less. Not just in terms of colors and shapes, but also, you don’t have a lot of time. We need this to be in the stores at Christmas. We need it to be profitable. And you’ve got to do something great. And when he challenged his people, they came through. Jorgen Vig has this great phrase. He says, innovation flourishes when the space for it is limited.
WALTER ISAACSON: Knudstorp recognized that decades of success and growth had left the company inward looking and slow to respond to trends. Martin Lindstrom.
MARTIN LINDSTROM: I think like any other company in the world that when a company becomes too powerful and too mighty, what happens is it loses contact with the world. And it becomes its own customer somehow. Suddenly the customer is not those outside, is those inside.
WALTER ISAACSON: A key to LEGO’s turn around was a shift in its corporate culture. Rather than insulate itself, it began listening to and collaborating with its customers. Dave Robertson.
DAVE ROBERTSON: They have something called the LEGO Ideas Platform where if you or anybody else has an idea for a new toy that you want LEGO to make, then you submit it to this community. And if enough people in the community like it, then it goes to the next round where LEGO management reviews it. And a few of those toys make it to market. And if they do, you get a share of the revenues from that toy.
WALTER ISAACSON: The new strategies and tactics, including its popular movie franchise, have resurrected LEGO from its near oblivion to the top of the toy industry, with earnings topping $6 billion in 2016. How exactly does a generations old building block toy reign in the digital age? One key is to nurture a strong online community. Another is to stay culturally relevant through its films and partnerships, with powerful brands such as Batman and Star Wars. At the core is it back to the brick philosophy and understanding the simple formula for its success– physical play combined with imagination. This, says Wayne Miller, is a key to Hasbro’s successful navigation of so-called traditional toys in the digital age as well.
WAYNE MILLER: Digital is not driving the ship here. The master of the ship is always the brand. So it starts with the brand. And then it goes out into different areas. It goes into the online and digital world. They’ve been very successful with co-producing movies. “Transformers” would be the most notable example of that. They didn’t say hey, let’s do a movie and come up with something that will fit into a movie. They have a brand, and say how does that brand fit into a movie, not the movie into a brand. This is sort of an important component of how they’ve kept their brands alive. It really has less to do with the technology than the storytelling they’re able to create around their brands.
WALTER ISAACSON: While giants such as Hasbro and LEGO embrace imagination as a greatest asset, Mattel is doubling down on digital, setting up what could be a fascinating showdown. Michal Lev-Ram.
MICHAL LEV-RAM: In Mattel’s situation in particular, its just it says so much that they hired Margo Georgiadis who, again, was a longtime Google executive. They hired her to be their new CEO. And this is a really, really traditional toymaker. You know they’ve been around for over 70 years. And it’s not just that the products are traditional. It’s a traditional company. The culture is just very kind of old school. And the fact that they took a chance on someone who comes from Google and doesn’t have any prior experience in toys is really interesting.
WALTER ISAACSON: Fortune magazine reports that global sales of toys have fallen 13% from a year ago. Mattel CEO Margaret Georgiadis connects that trend directly to the bankruptcy of the once mighty Toys R Us. But while the supply chain has changed, the need for play hasn’t. Toymakers who survived the ’80s benefit today from hard fought lessons about the eternal joy that comes from play and from imagination. In the digital age, toy giants are embracing TV and feature films not to disrupt young imaginations but to stimulate them. 130 years since Edison was traumatizing kids with his talking doll, the toy industry may finally be finding ways for technology and imagination to play nicely together.
I’m Walter Isaacson. And this is “Trailblazers,” an original podcast from Dell Technologies. This marks the last episode of our first season. We’ll be back with brand new episodes in January. You can subscribe to our show on Apple Podcasts or wherever you get your podcasts and new episodes will automatically be downloaded for you just as soon as they’re released. And as we plan the shows for season two, we’d love to hear what you think of this show. The best way to do that is to leave a review for us on Apple Podcasts. We read all the reviews you write and truly appreciate everything you have to say. It’s really helped us shape the show. And if you want more information on the toy industry, you can go to delltechnologies.com/trailblazers. Until the new year, thanks for listening.