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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Christobevii3 - Wednesday, October 3, 2007 - link
Sensaura was always plauged by being lower end. The companies that supported them would throw out trash $20 cards so that basically was their problem.Zak - Wednesday, October 3, 2007 - link
Corporate bullying, bloated software and crappy drivers, overpriced hardware, destroying superior Aureal3D technology, they got themselves into bad position. I've been using on-board sound for years via SPDIF fed to a AV receiver and I haven't touched a CL card in all this time, don't miss them.Z.
chizow - Wednesday, October 3, 2007 - link
I've always had a soft spot for Creative throughout the years. I'll never forget loading up Wing Commander for the first time after plunking down $100 for my first Sound Blaster and just oogling over actual MIDI sound (and later, voice with the voice pack) rather than beeps and buzzes from an internal speaker.Throughout the years I've continued buying Creative products with the latest being the X-Fi. After countless hours trying to troubleshoot it with Vista and my 650i mobo, I finally called it quits and came to the same realization the article predicts: add-in sound cards are dead.
Sure Creative products have had their share of problems here and there, but I'll certainly miss the superior positional sound of EAX in games. As much as people want to bash Creative, their drivers and their products, they sure as hell knew what they were doing when it came to audible differences in games. So long Creative, here's one person who will miss having a company who actually cared about PC sound.
leexgx - Wednesday, October 3, 2007 - link
new vista drivers are out for X-FI now ? not tryed them yet as i am running on me XP drive now (some games little BSOD unstable still heh)KillerCroc - Wednesday, October 3, 2007 - link
Creative were really responsible for putting sound cards and PC audio on the map - but they lost their dominance to advances in on-MB audio (despite Realtek's gaffes)and better chips from the competition. And as I'm writing this and listening to MediaMonkey/Shoutcast, I'm hearing a perfect example of "Years later, I come across many SB cards with horrible crackling noises," from my Audigy 2ZS card. maybe I'll do better with an M-Audio card....psychotix11 - Wednesday, October 3, 2007 - link
Other companies are releasing better sound cards. Creatives' junk really only has a point if you are a gamer and only a gamer. Their professional branded cards are a joke so let's not even delve into that. However unless all you do is play games that can use EAX5 auzentech, htomega, hell even asus now, make a far better product in both build quality, feature set, sound quality, and driver quality.Happy with my sound cards with full dolby DTS! Screw creative!
IKeelU - Wednesday, October 3, 2007 - link
I really hope it isn't the end of add-in sound boards. I don't care who makes the hardware, but I like having noise-free output w/ positional sound. The so-called "HD Audio" on my motherboard is utter crap. Even with a mediocre pair of headphones I can hear the noise. I just don't get how people can get by with that junk.Demon-Xanth - Wednesday, October 3, 2007 - link
When I had an AWE64 soundcard, I thought Creative was awesome, I had one of their Permidia2 cards and I was happy with it. I even had their DVD kit (with decoder card!). I was practically a poster Creative Labs fan. But then I got a Live card, and was less than impressed. It often flat out didn't work in my system, I ended up getting another as a gift and THAT one worked right. The first card worked in other systems, but not mine. So I stuck with the AWE64. It handled the inputs well and the sound was good. And best of all, the drivers didn't install extra crap that cluttered Windows.Then I got their Digital VCR card. My PC wasn't able to capture and convert full TV res to a compressed format at the time, and here was a card that captured to MPEG2. Well, this card turned out to be a steaming pile of crap. In two days I found a rather obvious and major bug in their software. It took them 11 months to fix it. And I couldn't find a single program that could handle the MPEG2 files that it exported to that could do more than just play them. (many failed to do even that)
But the key tipping point was when onboard audio stopped sucking. Is it as good as a dedicated sound card? Probably not. But it's not the CPU robbing POS that it used to be. And with most boards having it, the soundcard requirement went from nearly 100% to just a tiny little percent of users.
...and there was that time they wanted to charge for driver DLs.
Dfere - Wednesday, October 3, 2007 - link
Not being a techead... two thumbs up on the subject matter. Aslo good job for picking a company near (if not dear) to most of us.On the article you end with "only time will tell". IMHO do not equivocate. For a true business article, stick with facts and then possibly a projection -"The stock price is low... here is why", then "forecasts for home theater buys indicate...", or "if peripheral component sales become its focus, the company can still capitalize on its name and branding, it needs to find other companies it can acquire and slap a label on...." or something like "Seems like Creative needs to do something.... but what....?"
Did Creative release any comments about future direction.. etc etc...?
Ryan Smith - Wednesday, October 3, 2007 - link
Creative has not released its FY2007 shareholder report, nor have they filed their SEC form 20F yet, so no, there's not really much out of them on future direction. Since they are no longer traded on American exchanges, they're not required to publish these documents either.What I can tell you from their FY2007 conference call, they're aware their not doing well and they have some vague plans. For MP3 players, they're going to focus on flash players, and look to exploit the few markets Microsoft isn't competing in yet (which will be trouble with the Zune2). Their other big area is X-Fi licensing, including the actual DSP (Auzentech may not be the only one to license it) and the X-Fi crystalizer for other devices. Frankly none of this is very inspiring.