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A Creative Strategy: If you cant beat them join them?

Business Management
Posted by DT
Aug 28, 2006
(2 comments)

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Huge news! Creative has beaten Apple!

Apple Computer and Creative Technology have agreed to settle their legal dispute over music player patents for $100 million, the companies announced Wednesday.

I’m sure this is old news by now. I’m not really surprised if you ask me, a lot of people pooh poohed Creative citing sour grapes, but one look at the patent is pretty clear that it was infringed. Not surprising for Apple as contrary to popular belief apple it notorious for “borrowing” technology.

Have you seen the very cool Mac OS Tiger Dashboard widgets, or taskbar at the bottom where the icons grow large when you mouse over it? Well all that was the work by 3rd party independent developers. Just Google “apple stealing ideas” and you get 4,380,000 hits…I digress.

But is this a sign of a new age of strategic alliances? First there was Sony/Ericsson, then LG/Philips, BenQ/Siemens, and now Apple/Creative? In this ultra competitive consumer electronics market, are companies are starting to realize the need to merge or perish? Any surprise that Dell, Apple and HP computers all use Sony made Batteries?

But if you think about its not really surprising if you come from the angle from leveraging on a company’s strengths.

If you look at Creative’s history, they made their money from making “creative” components like the Sound Blaster sound card for the PC. It’s still their bread and butter today or though not so much. Like all manufacturers they wanted a slice of the pie and decided to move into the personal digital entertainment market and develop a consumer brand.

After having a nice chat with an old friend’s husband over tea, we concluded that selling a product and brand management requires a totally different mindset, something many manufacturers cannot begin to grasp. Manufacturers work in absolutes and require results. Things like cost savings and margins are measurable. Branding and marketing cannot be measured, at least in the outset. Being pure businessmen they cannot afford the risk.

Ok so how?

One of the two solutions is, for a manufacturer to go into product sales and branding, they would need a completely new set of managers and completely different objectives and budgets. Otherwise they will struggle like the beast that creative is.

The other is what creative did, partner up with someone who knows what they are doing.

Somebody indeed woke up at Creative and I think its time to look at some creative stock for my portfolio if you ask me.




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Comments

ketsugi
Aug 28, 06 – 9:52 pm

Creative beat Apple? Are you sure? Have we been reading the same news articles?

Sure, Apple’s paying $100m to Creative, but that’s a drop in the bucket for Apple. Apple’s worth about $9b or so. That settlement is chump change to them.

Creative, however, is only worth about $200m. So technically it’s win-win for both companies: Creative finally gets some decent compensation for all the money they lost trying to compete (stupidly) against the iPod, and Apple throws out a few coins to get Creative off their backs.

And as part of the settlement deal, Creative has to start making iPod-compatible accessories. This is a huge blow to Creative’s mindshare because for the first time it has to acknowledge that people really do want to buy iPods instead of their own Zen products.

Meanwhile, Apple goes on making wildly popular music players, and Creative goes on trying to convince its shareholders that it really can turn a profit, next quarter, no really!

Design Translator
Aug 29, 06 – 12:25 am

Sure. They won the case right?

I think there is a lot more behind the agreement than stated. I believe there is royalties being paid to creative for use of their interface. Also being part of “made for ipod” program is not cheap and i bet creative got in with a huge discount of free.

Winning this settlement, creative achieved two things 1) got apple to admit they infringed or “stole” this idea in the first place, 2) allow creative to slide into the ipod acessories market with out losing face. So yes i do agree with your win-win acessment.

However, I think its a little premature to say its a blow to Creative market share. I quite disagree infact it could be the opposite. Honestly this settlement does not affect the Zen brand much, think about it, Zen will sell or not regardless to what apple does.

But this settlement does not stop creative selling their own product. But with the ipod acessory adding to their bottom line by securing a whole new line of business.

Add the end of the day i think creative is back at their roots, and that is focusing on being a supplier at the component level.

Personally this is a great thing as it pads their bottom line allowing to waffle in the PDE market. Hah!


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