Creative Technology profits plummet

My reporter friend Aaron Pressman was good enough to feed my schadenfreud by sending along this note about Creative Technology, which makes MP3 players that pretend to compete with the IPod.

Chief Executive Sim Wong Hoo told an
analysts’ conference that Creative won’t aggressively seek a greater share of
the MP3 market. He also said the company is willing to let market share fall to
help Creative improve financial results by the end of 2005 — a shift from last
November, when Mr. Sim unveiled a $100 million marketing campaign he predicted
would give Creative a 40% share of the MP3 market.

I predicted this one
several months back.

Any idiot could tell you that other MP3 player companies were in trouble once Apple came out with the Shuffle.  The impressive part is that I could tell you why, and predict the outcome.  In classic fashion, Apple sucked all of the profit out of
Creative’s product line, so they couldn’t compete.  Again, from Dow

Creative Technology Ltd. said
net profit fell 85% in the company’s fiscal first quarter, and some analysts
are warning that the maker of MP3 players and sound cards is likely to face
fierce competition from two new products from Apple Computer Inc.

Creative has another product line that Apple isn’t likely to pursue:
sound cards.  This sort of hardware is not Apple’s forte.  It’s not
sexy, it’s not iconic, and it sits inside a box where nobody sees it.
There’s no point is designing it well, because nobody will ever touch it.

While the company is forecasting a profitable holiday
quarter, analysts say the outlook is mixed, as Creative is likely to continue
to struggle in the MP3 market even as it tries to give more focus to
higher-margin products such as sound cards.

Unfortunately, the sound card market has for years been fraught with
commodity knock-offs, and I have no doubt Creative will now be even
more threatened by them.  If you want to know how I know all this, go read Clayton Christensen’s "Innovator’s Solution".

It really comes down to who you are as a company.  You’re either a high
value firm like Apple, that makes things so well that everyone must
have them, damn the price, or you’re a commodity producer who is trying
to make something cheaper all the time, with never a brand of your own.

There is no middle of the market for long.  And Creative will, for a short while longer, be right in the middle.