Background
Early computers used punch cards to load programs and data into computers. The software was a stack of cards, each card one line of a program. Data input were cards on the top of the stack. Eventually, then the entire thing fed into a card reader. The reader read the stack, processed the data, then printed results.
This process left the computer idle for a large amount of time since the computer did little to nothing while reading the stack of cards.
Computers in the 1950s and 1960s were extremely expensive. However, even with the lag-time and cost, using the computer was vastly faster, and thus less expensive than doing computations by hand. Therefore, companies and governments did not especially mind: the reduction in cost, even with the waiting, was still enormous.
However, this model did not work well for University’s, where many students shared a computer and needed to wait in line to try running their programs. In response, researchers created a new type of operating system, a timesharing operating system, allowing multiple people to use a computer at the same time.
As a side effect, these timesharing operating systems enabled input and output to terminals rather than through punch-cards and printouts. That is, the computer could read keyboard inputs from multiple people, sharing the time required to focus on each, and also run programs.
One side effect to timesharing is that computers became interactive. People could do something, then the computer could respond, then the user could do something else based on the response. This was a dramatically different use for computers which, until that time, functioned more like powerful calculators.
Spacewar!
In 1962, using an interactive DEC computer with circular monitors, Steve Russell created the first modern interactive computer videogame, Spacewar! Two players flew around in ships, with a star in the middle, trying to blast one another. The ships obeyed the laws of physics. The and the sun acted like a gravity well and would destroy ships. Earlier experimental interactive games were dull: tic-tac-toe and mazes.
Computing legend Alan Kay, the inventor of object-oriented programing and the laptop among other things, remarked: “the game of Spacewar blossoms spontaneously wherever there is a graphics display connected to a computer.”
Eventually, Nolan Bushnell and Ted Dabney created a coin-operated knockoff, Computer Space. That game did well and the two went on to create the first computer gaming company, Atari.