In 1974 the first edition of Dungeons & Dragons created by Gary Gygax and Dave Arneson was released through their company TSR. This is a roleplaying game whereby each person develops a character or alter-ego whose abilities are delineated point by point. The individualised character then goes on quests within a Lord of the Rings world orally described and managed at each step by a games director. The game was a big hit.
In 1979 Roy Trubshaw in Essex England wanted to find a way to play Dungeons & Dragons online with his friends. To do this he developed a software system that he called a Multi-User Dungeon (MUD). A MUD is a roleplaying game which involves collaborative storytelling within an interactive textual environment. Roleplaying games can be played so that there are winners and losers, but often they are played simply to find out what will happen given a certain set of experiences and a certain set of characters, which really makes MUDs a cross between literature and theatre.
This was a significant step beyond Colossal Caves which can only manage a single player roaming through its textually described catacombs. Here everyone who joins is a character. Your character can be anything you wish it to be within the genre of the particular MUD, and on many MUDs players may be given permission to build onto the environment with their own textual descriptions of their homes and businesses. This is collaborative storytelling at its most integrated.
MUDs were also a big hit, so much so that they eventually proved inspirational to game developers who wanted to find a way to combine CD-ROM technology (with which you can make money through unit sales) with the Internet, examples include DOOM, Diablo, and Ultima Online.