From creation to production

Electronics Times, Feb 8, 1999

Creative Labs is moving into home electronics - Nick Flaherty reports

You may have only heard of Creative Labs as the maker of sound cards for your PC. But this billion dollar company is setting out on a track that may make the name as common as Sony or Sharp in the consumer business and as recognisable as Dell or Gateway in PCs.

Creative Labs has been doing much more than just sound cards in the five years it has been in Europe. It is the leading shipper of PC sound cards, DVD drives and speakers here, and also dominates the 3D graphics card market in Europe with a 30% market share and 50,000 resellers. With 23 million cards predicted to be shipped next year worldwide, that's a serious market to be in.

Creative claims to have a 65% market share worldwide in audio and multimedia, shipping 60 million units a year, says Mike Weatherly, vice- president of marketing for Europe. Its European Technology Centre just outside Dublin airport has nine lines packing boxes of products in 3000sq m to supply OEMs and retailers across 15 countries, this year adding operations in Poland, the Czech Republic and Hungary.

But it wants to take its strength in the retail PC market and use that in the consumer equipment market. The first stage of this was buying Cambridge Soundworks, a speaker maker in the US, which also gave Creative its first shops.

The stage coming up is taking the Creative brand to the 'man in the street', and the first product "to be announced shortly" is an all- digital portable audio player. This uses the MP3 compression technology to make music compact enough to be downloaded over the Internet.

Diamond Multimedia, the arch rival of Creative in the graphics and PC markets, has seen tremendous interest in Rio, its MP3 player launched a few months ago, and that has not gone unnoticed at Creative.

The MP3 player is the first of a new class of products, the personal digital entertainment appliance, that forms the heart of Creative's strategy.

"We see the PC as a hi-fi, video games machine and communicator," said Wetherley. "There's a marked trend away from the traditional games, word processing and home office applications.

"But we don't buy into convergence, that the PC will replace the TV in the living room. There's a strong trend away from CD-rom to DVD not for video but with games as the driver."

Creative is going into production with the next generation of DVD ram rewriteable disk drives in the middle of this year: "We also sell DVD ram direct [to the consumer], but that's not a mass market yet."

But all this is part of a coming together of the consumer side of the business with the traditional PC business.

"It's not so much convergence as a collision," said Mike Sullivan, general manager for Creative Labs in Europe. "I think there's quite an evolution going on with Creative and as we take the brand to the consumer the potential for conflict certainly increases.

"I run the European operation but I'm also responsible for Cambridge Soundworks in the US which is a $50m to $60m speaker maker and retailer. So I see both ends of the spectrum, both home entertainment and the PC."

But one of the major issues is getting into the market and competing with companies which already have strong computer brands, such as Sony and Sharp.

Sullivan sees Creative handling the PC side of the business, all the elements such as sound cards, graphics cards, DVD drives and now the hi- fi and MP3 components as add-ins, and perhaps licensing designs to consumer equipment makers for equipment that links to the PC.

For example, there could be a piece of hi-fi equipment that downloads music from the Internet directly which could then be linked to the home PC for editing. The portable MP3 player would link either to the hi-fi or the PC to download the tracks.

"Going forward for Creative, it's going to be really interesting to take the retail strength that we already have and modify it, change it," he said. "We want to get our feet into the water and see what sort of approach works. One solution is to use the Cambridge stores. The products that need to be demonstrated - I don't know."

Creative is also launching a range of PCs under the CreativePC brand in the UK and US, following test marketing of the BlasterPC in Italy, based on the same branding as the SoundBlaster and GraphicsBlaster cards.

"I think Creative is a strong brand and we need to get away from just the Blaster brand," said Sullivan.

But the PCs are intended to stimulate the sale of graphics and sound add-in cards and silicon by demonstrating the overall system rather than as a large profit centre in its own right.

This is a subtle part of the move to the OEM market, having PC customers recognise that the Creative Labs brand on an OEM PC adds 'more experience' to the PC and allows the OEM to charge a premium.

This is increasingly important with more direct selling over the Internet and phone, where Creative boards could be used as an upgrade when the customer specifies the machine.