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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Sabresiberian - Saturday, October 6, 2007 - link
After having trouble with Creative products a couple of years ago, I'm not a fan. Fine with me if they belly up, I'm not going to buy any of their products anyway.I am saddened to think the high-end graphics card might die out, though; I can't help but think on-board audio and software reliant audio means reduced quaility. I hope this doesn't happen.
Vista handles sound through software, by-passing the audio card? I thought audio was handled by DirectX, which largely bypasses the OS. This is definitely a step in the wrong direction.
Sabresiberian - Saturday, October 6, 2007 - link
Well after reading saratoga's comments, I see I may be wrong :) hopefully the SOFTWARE for audio will be developed to reach audiophile quality.AnnonymousCoward - Tuesday, October 9, 2007 - link
I don't think that's possible. When it comes to generating analog signals, extra physical hardware (board space, capacitors) allows for quality. A single-chip solution in an MP3 player can't compete with an Audigy card that's populated with components. There's a reason why high quality receivers are big and heavy.R3MF - Friday, October 5, 2007 - link
While I see lots of people cheering the demise of Creative (and i loath the company too), are people really willing to see the last proponent of Hardware Audio Acceleration disappear down the pan?The amiga way of having dedicated hardware to massively speed-up discreet computing needs is always the best way of doing things, and we know it which is why we buy GPU's, PPU's and APU's.
Using the generic and unspectacular power of the x86 CPU to shoulder the burden of any of the above tasks is stupid. Period.
I know that Vista currently has no acceleratable (sp?) audio API, which is making Audio DSP cards like the X-Fi look redundant, but there are two advancements in 3D Game audio that did not appear to be covered in the article above before the authors leaps to his conclusion. They are:
1) OpenAL - many games now use this API and I believe that Creative do intend that the X-Fi be able to accelerate this in hardware.
2) Vista SP1 is supposed to bring the Xbox XNA (sp?) 3D audio API to the PC, why could not Creative do with this as they have done with Direct3D/Alchemy.
There seems to be plenty of future potential for hardware acceleration of 3D Audio in PC gaming, and it seems cretinous for PC gamers to accept that the best place to process the 3D audio is within the CPU.
What do you think; should the article be updated to make mention of this?
saratoga - Friday, October 5, 2007 - link
Its not going away exactly, its just moving from proprietary cores on the PCI bus to additional CPU cores, and then onto specialized x86 hardware like AMD's Fusion and Intel's on die accelerators.
This is really nonsense. I've personally seen this strategy blow up because a product was designed to process fully in hardware (not even CPU cores, literally multipliers and registers in series). It works great until someone comes up with a new task, and then you're screwed. No such thing as a software fix when you've fabbed hardware for the task.
At best hardware works when software is too slow. But its always more expensive and less flexible. Always. As soon as CPU hardware gets fast enough, you want to move to software. Cheaper, more flexible, and in the end its almost always faster just because AMD/intel can afford better fabs and more engineers then the Creative Lab's of the world.
The Xfi is a wonderful example. Each core on a modern Intel CPU outclasses it by roughly a factor of 5-10, and the gap gets bigger every year. I worked out the math a while ago, and the most expensive Core 2 CPU had something like 100x the throughput of an Xfi. Its its infinately more flexible (full IEEE754 support, large cache, faster memory, no PCI bottleneck, standard development tools, etc).
I'm sorry, but you're just plain ignorant.
You're really confused about whats happening here. The problem isn't that MS is preventing Creative from using their hardware under Vista. They're not. The problem is people aren't buying XFIs in sufficient numbers to keep it going. Take a look at Valve's hardware surveys sometime. Creative's share has been dropping 20% a quarter for some time now. Sometime in 2008 the percentage of people running steam with SLI will likely surpass the number of people running an Xfi. Think about that for a moment.
The xfi will be the last of its kind because their is no market for an xfi successor.
gramboh - Friday, October 12, 2007 - link
First off I hate Creative Labs as a company.The problem with comparing the Core 2 to the DSP chip on the X-Fi in terms of computational power is you are ignoring the hardware that produces the analog sound signal (as a poster below points out). This is my problem with onboard, the sound 'quality' I get through my phones (entry level Sennheiser HD570) and speakers (Klipsch Promedia 4.1) is awful compared to what I get from my X-Fi XtremeGamer.
I almost went with onboard on my msot recent build but luckily there was a rebate on the X-Fi XtremeGamer so I got it for $75 (still a brutal, ridiculous rip-off).
0roo0roo - Friday, October 12, 2007 - link
well i just don't think that there would be no solution to that problem if creative died. there would be m/bs with better sound on the market, and there are always all the other board makers you can try. and atleast none of them would try to waste our time with more eax lock in stuff. and as others have already said, the other boardmakers succeeding as they have shows how many people get by without creative, or buy alternatives to spite that company.0roo0roo - Friday, October 12, 2007 - link
yup given the choice between spending on a bigger lcd/faster gpu/cpu and a creative soundcard, people will drop the soundcard. the difference in most games is insignificant compared to the other factors. and in cases where creatives proprietary nonsense isnt supported, theres nodifference at all. best to go with software audio for game development and give your entire customer base access to what you've been working so hard to create.DDG - Friday, October 5, 2007 - link
Finally, someone who shares my thoughts on this. Hardware-accelerated audio will always trump onboard audio period point blank. While Creative has made mistakes that's no reason to want to see the company disappear. Hopefully Creative can get their financial house together and continue on making great sound cards.Googer - Friday, October 5, 2007 - link
The author forgot to mention Creative's Purchase of 3d Labs put the company in to the discrete graphics card business. But it seemed they never bothered to do much in the way of product development and were mostly ignored.http://en.wikipedia.org/wiki/3Dlabs">http://en.wikipedia.org/wiki/3Dlabs