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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KingofL337 - Wednesday, October 3, 2007 - link
How do you spend 60+ million in R&D a year and release almost nothing except a few iffy mp3 players. Creative hasn't released a new sound card product in years. They just keep re-releasing the Audugy brand and thats about it. How long has it been since Nvidia released the soundstorm chipsets? Everyone you talk to about sound cards wants real time DD / DTS / AC3 encoding and creative still hasn't released a product with that feature.I for one won't miss Creative's overpriced crappy sound cards once they are gone.
Scorpion - Wednesday, October 3, 2007 - link
I've been saying this since '99:Creative doesn't innovate, they regurgitate.
Pyramix - Wednesday, October 3, 2007 - link
It was an informative article and I am glad to see this new direction on this website.Spoelie - Wednesday, October 3, 2007 - link
But there are three 'but(t)s' in the last paragraph, but it's not really that annoying, but also a little annoyingsmn198 - Wednesday, October 3, 2007 - link
Ditto.mindless1 - Wednesday, October 3, 2007 - link
I beg to differ with the article on the point of onboard sound being a joke 10 years ago. 10 years ago onboard sound was superior for it's primary (most common) purpose, 2 channel analog output.Take for example Intel P2 boards with Ensoniq (later bought by creative) 1370 chip on them. They had a very full sound, better bass, and it was more immune to system noise than today's integrated audio. People I built systems for back then often remarked about how unusually good they sounded compared to what they had been used to with some sound cards. Creative later rebadged the Ensoniq 1370 and made some sound cards, but things when downhill when the industry went to 48KHz rate and resampled everything.
The same goes for many solutions back then, they typically used discrete sound chips and did fairly well at 2 channel analog output. While there weren't a lot of bells and whistles, and the paper specs didn't look as good, I think we all know paper specs mean little when it comes to sound quality, at least when talking about low level signals opposed to circuits with high gain like power amps.
The terrible truth is, most people have two analog amplified speakers and nothing matters to them except whether that config sounds good. With onboard sound today there is usually a lot of undesirable noise from the onboard audio, and as such it is almost the worst onboard audio has ever been. I partly blame the higher currents in today's systems, but nevertheless it effects the result. Some systems are bad enough you have to disable ACPI/Halt just to get rid of a lot of the noise, if you care much at all about audio quality.
LoneWolf15 - Wednesday, October 3, 2007 - link
Of all the driver problems I had with sound cards, the Ensoniq 1370-based ones were the biggest pains. The entire AudioPCI family was just plain and simple, miserable; I've had numerous occasions where I ripped one from a machine because of cards working, not working next reboot, driver installs sometimes fixing it, sometimes not, etc. Sad, knowing that the original ISA Ensoniq Soundscape cards really rocked.Onboard sound was bad years ago. IMHO, it still isn't great, although the ADI/Soundmax and Sigmatel codecs used on Intel boards put most of Realtek's stuff to shame. Creative had a golden opportunity at some point to do this with their own chips, but I think a combination of elitism, and likely demanding higher prices probably doomed this. The only one that has taken them up on this is MSI, and the sound chip used has been the rather lame one used in the Audigy SE and SBLive! 24-bit, with no true hardware DSP. I think the sound card market death is only partially due to Creative; some of it is due to the new way Vista DirectX works, sacrificing possible innovation in audio for relative driver stability, and some of it is due to no other vendors stepping up to the plate to provide true competition, especially in the mainstream and gaming markets.
mindless1 - Thursday, October 4, 2007 - link
I think you just had bad drivers or buggy motherboard bios, I ran 1370 boards without any problem. If you are only referring to early win95 era drivers, ok, but most drivers for win95 were junk, that's how it went with driver development at the time and unfortunately too many people were quick to fault the OS. NOt that Win95 was flawless but there's definitely some variable besides the card when I didn't have the same problems.Cincybeck - Tuesday, October 2, 2007 - link
Looking back, I think Aureal probably suffered more from bad legal council and childish antics. Yes Creative issued the first lawsuit but, Aureal fired back with its own counter-suit. Aureal ended up winning that first lawsuit, but the two companies bitterly went back and forth like two siblings. Aureal even went as far as publicly announcing Creative's first PCI card on their website. A low blow if you ask me on Creative's late entry to the PCI market. I don't see how any one can entirely blame Aureal's demise on Creative.As for Creative's products I've never had any bad luck with them. They've all worked as they should and I can not remember a single time where I’ve had a BSOD as a result of the Audio drivers. Maybe I've just have been lucky.
As for Vista support I believe the gun should be pointed at Microsoft on that one. Because not only is Creative having issues but Turtle Beach is as well. Even going as far as stating that any one using their computer to accomplish a task should stick with WinXP "http://support.turtlebeach.com/site/kb_ftp/5882198...">http://support.turtlebeach.com/site/kb_ftp/5882198.... Its obvious Microsoft cut the floor out from under their feet with not supporting DirectSound/3D in UAA, maybe a legacy mode? I don't know.
Personally I enjoy the quality clear sound provided by my Audigy and still plan on buying an X-fi, if that means sticking with XP for a year or two more I have no problem with that. Granted I haven't heard a new on-board as of late, but the quality still echoes in my mind and just Blah. Anyway XP does everything I need it to and it would appear in most cases it does it better than Vista.
PandaBear - Tuesday, October 2, 2007 - link
With everything getting integrated, you either have to move up and be a chipset (at least south bridge) company or consumer product company. They have the Cambridge soundwork name, why not build good home theater system with it? Just relying on Nomad for MP3 is not enough, esp others are doing it for other reasons (sandisk do it to sell more flash, MS do it to get more monopoly, etc). You have to wonder what is the advantage Creative have over the others.In the end, I think they should either go into a chipset company for mp3 players like sigmatel or get into home theater business like pioneer. They are just another logitech but with much higher overhead.