chammaryAsianometry · 22:41 · 5 years ago
Nvidia won by betting on Microsoft's Direct3D, writing its own drivers, and handing manufacturing to TSMC, while 3dfx lost its lead by buying a board maker and competing with its own customers. The win came from a company that nearly ran out of cash and shipped a flop first.
Nvidia – Founded in 1993 by Jensen Huang, Chris Malachowsky, and Curtis Priem, the company's first chip, the NV1, sold poorly and was discontinued in late 1996 because it lacked OpenGL and Glide support. The Riva 128 arrived in 1997, built to accelerate Direct3D, handling both 2D and 3D graphics, and retailed for about $140. It came out when the company had less than six weeks of cash left.
3dfx – At its peak, the Voodoo gave 3dfx 80% of the 3D accelerator market, but the card handled 3D alone. In December 1998, 3dfx bought board maker STB for $141 million and sold only its own branded boards, which pushed partners like Diamond toward Nvidia. The STB factories could not match Asian manufacturers, the division burned cash, and the remaining assets went to Nvidia in 2000.
Vertical integration – Nvidia took device driver development in-house because third-party OEMs had mismatched incentives, and it gained feedback from all its board partners. The drivers became a lasting edge over ATI and the rest of the field. 3dfx's move into manufacturing destroyed value, which shows that integration succeeds only when it adds business value rather than new capital burdens.
TSMC – After Nvidia's relationship with SGS-Thomson soured over conflicting interests, the company partnered with TSMC in 1998, which pledged never to compete with its customers. Nvidia split its engineers into three groups working on current, refresh, and next-year designs, which produced a new chip every six months. That cycle ground down rivals, and it left ATI as the only company able to keep pace.
Direct3D – Microsoft's 3D API was not in favor when Nvidia committed to it, and John Carmack publicly called it "horribly broken" before abandoning his port. Bill Gates promised improvements, and Nvidia wagered its future on that promise and on Windows integration. The bet paid off because Direct3D became the dominant API.