The Business of Technology: Creative Labs
by Ryan Smith on October 2, 2007 5:00 PM EST- Posted in
- Bulldozer
Creative's Technology
So what has brought upon these changes in revenue and Creative's overall business problems? The answer to that lies in what's been going on with their technology and individual product market share.
Earlier we called Creative the king of sound cards until recently, much of their business woes stems from that loss. Creative's history is one founded on the back of the Sound Blaster hardware and the Sound Blaster name, creating a problem for Creative in having all of their eggs in one basket that they have been trying to solve for years. All told, Creative hasn't had a lot of luck spreading out their business and doing well; various efforts like graphics cards and DVD-ROM drives never panned out. Of the few things that have panned out, Creative's major consumer product lines have settled in as the following: portable media players, sound cards, webcams, and speakers.
Since sound cards were Creative's biggest business at one point, it has been Creative's biggest loss. Onboard audio has gone from a joke 10 years ago to how the vast majority of computers today handle audio, and it has been Creative who has suffered the greatest losses from that. The Live and Audigy series have both been bonafide successes in terms of sales, but never the less sales are slowing and the X-Fi likely won't be nearly as successful. The fact of the matter is that the consumer sound card market is on its last leg and the possible user base for such hardware has shrunk to professionals and gamers, and that's it.
The X-Fi will likely be the last significant feature-heavy sound DSP to be released by anyone, and it will never match the kinds of sales Creative has seen with earlier products. The final nail in the coffin will be Windows Vista, which as we have discussed in our review of that operating system, under normal circumstances runs the entire audio subsystem in software, reducing the need for a sound card down to a DAC to handle the digital/analog conversion. Creative's own troubles in writing solid Vista drivers for their sound cards hasn't helped matters either, but this has only hastened the inevitable. The sound card is dead, and it isn't coming back.
So what is Creative's leading product with the demise of the sound card? As we saw in their financials, it's now portable media players, a growing market but unfortunately for Creative it's one that they're getting slaughtered in. Prior to the arrival of the iPod, Creative was vying for the top of the portable media player market next to the now-defunct Rio brand, leading to the infamous Slashdot quote about the iPod's release: "No wireless. Less space than a nomad. Lame." Now Creative is struggling in a market where it was one of the first players.
Apple has the vast majority of the North American market for obvious reasons, but #2 tends to be shocking to most people: SanDisk. With Apple's main focus on the mid-to-high end MP3 player market, it has left an opening for cheap media players that SanDisk has been able to fill. Meanwhile both SanDisk and Apple have kept Creative and the other competitors locked out of the market, with Creative taking the #3 spot with less than 4% of the market. Creative's problems are further compounded by Microsoft at #4, who is more than happy to lose money on the media player market for now, and previously backed the PlaysForSure technology that Creative uses for DRM. It should be noted however that Apple doesn't have this kind of penetration in Asia, but as there are no reliable statistics on sales in most Asian markets, we can't ascertain what Creative's exact share there is, but it's believed to still be well below #1.
As a result of all of this, what little share of the market Creative has is almost entirely composed of the near-commodity market, save the small number of "anything but Apple" sales. Their Nomad and Zen lines do not have any significant brand recognition, meanwhile SanDisk can build & sell flash based media players for less than Creative. What little bit of the near-commodity market Creative does have a strong foot in is hard drive based media players that focus on video, and even this is at risk of being undermined by Apple now that they have a full-screen iPod to compete. In spite of all of this the majority of Creative's revenue comes from portable media player sales, but fighting on the near-commodity market means they will never be able to attain much of a profit with it.
Creative's third market segment, webcams, is more or less the same story. Webcams are a commodity - there's a lot of competition and not a lot of money. They may stay in it, but they'll never be able to repeat their most profitable days relying on webcams.
There is one bright spot for Creative however, and that's speakers. In their efforts to branch out Creative picked up Cambridge Soundworks in 1997, and their speaker division has continued to perform well. Creative is only dealing in computer speakers which limits their overall market and they face stiff competition from the likes of Logitech, but this market isn't quite a commodity market like Creative's other major markets. In fact as a percentage of revenue the speaker division is nearly 20%, which is itself nearly twice as much as it was 2 years ago. We'd expect Creative to be pushing their speaker products harder as the sound card market finishes crashing, since even with the integration of audio consumers still need speakers.
Finally there are all of Creative's other markets, which we'll touch on briefly. Creative continues to sell various peripherals, such as mice and routers, but most of these are low-volume products that are simply rebranded products form other suppliers. In fact most readers have probably never seen these products in a local store; Creative's minor product lines are almost exclusively limited to the Asian markets. The profitability from these operations is reportedly decent, but it's not something that Creative can win at in the international markets.
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EarthsDM - Tuesday, October 2, 2007 - link
Sorry, I meant to say 'sooner' not 'soon.'tacoburrito - Tuesday, October 2, 2007 - link
I bought the Creative Rio when it first came out and loved it. Lent it to my grilfriend but she lost it. Bought another Creative mp3 player and it worked even better. I also bought a couple of cheapo Creative soundcards to install on Pentium 2 and 3 systems and they worked great. I'm in the process of getting the Creative Zen player.I have great experience with Creative products and I don't understand the hatred towards the company. Is all the hatred because of what they did to Aureal?
trelin - Tuesday, October 2, 2007 - link
No, it's a combination of various things they've done (and continue to do). True, for some people like me Aureal alone was enough to begin boycotting the company, but a large portion of frustrated users (in the soundcard market at least) stem from product support (eg, driver quality issues) and exorbitant pricing due to their monopoly of the EAX standard. I'm not qualified to comment further on recent quality because a RivaTNT videocard was the last Creative product I've owned.A recent (some would say rather small) example was charging for Alchemy for the Audigy. I agree that it is within their rights to charge for additional software to work with Vista (they made no compatibility claims on the Audigy regarding EAX support in Vista), but charging people an extra $10 just to continue using a feature does no breed happy customers.
As to your own experiences, I don't disagree on their other markets. I had an old Cambridge 5.1 system that worked just fine, and my friend had a Rio that I rather liked. My RivaTNT based Creative card was fantastic; I had terrific success using their Unified driver (a 3dfx wrapper).
yyrkoon - Tuesday, October 2, 2007 - link
I think the biggest part of their problem is that with the advent of multiple core CPUs, and onboard audio, people are starting to realize that discrete is not realy a must, not even for an enthusiast. Audiophiles would probably buy another brand already.It may behoove them to sink their future into chipset/onboard audio, with perhaps a discrete line as well, to placiate the people who just cant get it into their heads that discrete does not nessisarily mean better. Whatever money cow they find to keep themselves afloat, they better do it fast. Also, it sounds as though this company is led by 90 year old men, who think that change is *bad*, it would not hurt them to have a few people who thought 'outside of the box'.
Anyone remember who 3DFx was ? . . . *besides* the people at HP . . .
Zoomer - Saturday, October 6, 2007 - link
I hate to say this, but Realtek is hardly excellent.Trashy, perhaps. Try running games on it. It's totally broken.
Axbattler - Wednesday, October 3, 2007 - link
What has the advent of multiple core CPU have to do with audio? If you are talking about system resource, then frankly speaking, the difference between discrete and onboard has been pretty insignificant long before the first dual core CPU.Personally, I do not like Creative much as a company (mainly due to the Aureal stunt - and I also think they've not put enough innovation over the years).
But as an audio and computer enthusiast, I find that the Elite Pro is still a viable choice. First of all, onboard sound cards, as much improvement as they've made over the year, still sound bad on demanding headphones. The Beyerdynamic DT880 honestly sound like a cheap pair of headphones when plugged on an onboard sound card, and even an Audigy 2ZS (which is hardly audiophile grade) would make the listening more enjoyable. The X-Fi line fixes a number of issue with the Audigy 2, including the infamous re-sampling issue.
The Audigy 4 Pro, Elite Pro (not sure about previous sound card in their Pro line) provide the DAC you'd find in entry level pro card (Elite Pro is pretty much an EMU-1212 with the DSP). The issue with Pro cards is that they often geared toward recording, so you end up paying for lots of inputs you might not use. Of course, audio enthusiast could always go for an external DAC if they want even better. But it cost more, takes more space and you lose the DSP unless you had a low end X-Fi as transport.
That's twice I've mentioned the DSP. People may think that if you are serious about audio, then you should not care about any form of 'sound processing'. And yes, I am not keen on any form of 'processing' when listening to music. I could not care less about the 'Crystalizer'. But I simply can't say the same about CMSS when watching movies through a good pair of headphones. I've yet to find any software or hardware processing that has given me more satisfying surround sound on my AKG K701.
On a side note, I am slightly surprised that neither Aureal nor E-MU was mentioned at all in this article.
Calin - Wednesday, October 3, 2007 - link
I remember them. My first real touch with 3DFx and Voodoo was in some game, a comparison between running on 3DFx Voodoo 2 and a Riva TNT PCI (on a top of the line Pentium II 300MHz). There was little difference in quality and speed.Guess I've lost the golden 3DFx years
Reflex - Tuesday, October 2, 2007 - link
Having worked with Creative in a professional capacity at multiple times in my career I have a few observations of my own:- Over the years Creative has refused to embrace new technolgies and trends. This includes PCI(had to buy Ensoniq to have a PCI product at all), PCI-E(offered poor excuses about latency to avoid having to release a new product), ACPI(poor driver and firmware support) and now UAA(Vista standard).
- Along those lines they have also refused to move into areas that are seemingly obvious for fear of cannibalizing their add-in board market. There is little reason that Realtek is ruling the on-board sound market, that could just have easily been Creative considering their background. Instead they chose to put on blinders and pretend that on-board audio could never compete with an add-in card. They may be correct in the absolute sense, but the average user does not give a damn. Back when it would have mattered, a Creative branded AC'97 solution with some enhanced drivers would have gone a long way, now no one would care.
- Absurd 'fanboy' attitude towards certain companies. The CEO of Creative has a passionate hatred for Microsoft. This is why MS had to develop its own drivers for Windows 2000/XP for the SBLive, and why there are no drivers for their products in Vista. Likewise, they have repeatedly had poor dealings with other manufacturers, and have treated competitors in ways that were they not a Singapore based business they would have been prosecuted in the US or EU for(Aureal is the obvious example, but they did the same to numerous smaller companies in other markets). Business is dispassionate, you do not refuse to be part of a standard(UAA) simply because you dislike the standard bearer when they hold 95% of your target market. You do not foster bad feelings among the larger market, making it unlikely that others will work with you, at some point you may need some allies.
As far as I and many in the industry are concerned, Creative is reaping what they have sown. They were lucky enough to set a standard and they rode that single success for years based on their brand name alone. Even now there are plenty of oppurtunities in their original market for them to revitalize thier success(UAA, for instance, can be paired with a powerful DSP and it will use it for accelleration), but it is doubtful that Creative will capitalize on those oppurtunities, they would rather go out of business than do things in any way other than their own.
So long Creative, I'll always remember you as the guys who gave me great sound in Doom, but I won't shed a tear for your passing. In the long run, Creative will perform its greatest service by serving as an object lesson for other companies on how not to do business.
maverick85wd - Wednesday, October 3, 2007 - link
Excellently put.I will also not be displeased to see them go, I have a Zen media player that had a screen die after four months of use. After trying to make me pay $20 for tech support (which I avoided by telling them I had already troubleshot the problem) they tried to make me pay another $20 for fixing my barely used defective player AFTER they had returned it to me. The whole situation was laughable. Either way, I will never purchase anything from them again.
Scorpion - Wednesday, October 3, 2007 - link
Yeah you summed up a lot of it.Creative's Motto for over the past decade: (which I coined for them)
"We don't innovate, we regurgitate"
I boycotted Creative back in 1998 with the last soundcard of theirs I purchased. A nightmare situation for drivers. Their drivers were terrible! And it was such a headache to even figure out the right drivers that you needed back then. With Aureal, and everything else... Just look at the PC sound market. Now look at the PC graphics market. Creative's undeserved monopoly on the market stiffled innovation for so long. We could have a rich PC sound industry right now I honestly believe if it weren't for Creative. Aureal was trying to make that happen. Creative didn't feel like competing, so they litigated them out of the market.
I hope you burn in hell Creative. Now I can stop looking at your ugly call center here in Stillwater, OK.