Wow. Okay. That makes alot more sense and sounds far more reasonable than
what I thought you were saying about the evolution of the market.
 
I would go a step further though, and say I think that there would be a few
contenders to D&D that would have been even stronger (relative to now).  They
too would have suffered less competition from a healthier more unified
market.  Even though the network effect might have made D&D stronger sooner,
I think that some contenders might have benefitted as well.  There are some
product lines of great quality that likely would never have been part of the D
&D tree due fundamental system differences. A healthier market would have
given them the same opportunities.  Even if TSR had wised up (or released in
'89 3E as you speculate),  there are other a few other factors like social
acceptability that held back RPGing. There is a whole genration of players
now that have grown up with games (especially RPGs) in a very different way.  
The potential market has expanded greatly. D&D would still be ! ! the biggest but
I am not sure it would have been the only tree.
      
I am curious whether you think that the other genres TSR offered early on
(but were based on D&D system derivatives) failed primarily because of the
system deviations or because of the quality of the settings and offerings. If
you think the deviations were responsible, do you think that the D&D system
was really flexible enough to have not needed them for other genres?  It is
my recollections that these lines died well before '89 when a potential
universal system was available.  Of course it all could have been due to
TSR's pure bungling or hostility rather than market failure.

-Alex Silva

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