News Stop: Apple settles with Creative for $100 million

han - nice comment. though personally i think the real enemy is nokia.

claris:

thank you :)

Hi Han, what you said is very good.
Rather than keep fighting in lawsuit as Apple has done in the past. Apple acknowledges that it is better to befriend Creative and take advantage of good relationship with Creative to ward off attack from Microsoft's ipod killer.


It remain to be seen if Creative want money from Microsoft since Microsoft has cross-license technology to Creative, for example the Portable Media Center technology, and thus most probably has more leeway to innovate across Creative's IP.


This strategy remind me of one of the 36 war strategies which is better to seek shelter under a less ruthless adversary rather than face attack from much powerful and dangerous adversary.


Apple could have fight Creative to the end and most probably could drive Creative's share even further down. However, it also realized that Microsoft will gain at the expense of the situation. Moreover, Micrsoft's strategy as in the past could also mean to help Creative by pumping money to Creative to help fight Apple while Microsoft will launch its product silently. It means to "borrow one's knives to kill someone"

Apple is smart to realize its threat is no longer Creative but Microsoft. Creative has repeatedly failed to capture the market, and Apple most probably knew the reasons, however, Apple is less sure of Microsoft.


Apple give $100millions to Creative is also another way to build relationship with Creative and also most importantly save Mr Sim's face. Apple know the culture of the Asia which is saving face. Mr Sim has incurred Creative's great loss, and yet Mr Sim still remain CEO. Giving money to Creative at least partially tell the public that Mr Sim is still "wise" because he manage get tons of money from patent and drive the share price significant high.


Finally Mr Sim realized that it is not marketing as he believed in the past, that had caused Creative to lose his mp3 market share. The key I believe is focus and consistent message.

Han, that's very good analysis.

I think we should also consider some additional factors here.

Firstly 100mil is chump change for Apple. Secondly, 100mil will help Creative alot. Thirdly, this is a one-time charge, no recurring licensing costs for Apple. Fourth, if you do a Google search, you will realise that Creative has entered into the "Made for iPod" family, meaning that they have official Apple endorsement to make accessories for iPod.

What does all this mean? If you look at this carefully from a business perspective, BOTH Apple and Creative are winners here. Apple has removed the uncertainty of litigation by paying a one-time charge without further on-going licensing costs, Creative has gained some money, access to a new market in the form of official iPod accessories, AND a "respectable" patent due to Apple settling.

What you are witnessing, in terms of business strategy, is the beginnings of an alliance. Why? Simply because the enemy of my enemy is my friend. This can be summarized in one word: Microsoft.

I think some people would know by now that Microsoft is coming out with a new mp3 player system called "Zune", which does not use the PlaysForSure DRM system that they made all their Windows Media partners sign up to. This effectively means that Microsoft has shafted all their mp3 player partners in the ass. When Zune comes out, Creative will be one of the first casualties.

With this in mind, does it make sense for Apple and Creative to try and kill each other off through litigation? Far better for Apple to pay Creative some cash, legitimising the patent, and then let Creative use that patent to go harass OTHER mp3 players e.g. Zune.

The real enemy is Microsoft, and business strategy dictates making nice with former enemies to counter the greater threat.

It's very "sad' that our local hero, Mr Sim, lost a lot of money over mp3 player and incurring a lot of inventory that eventually may have to sell below margin. Is this due to ego and emotion that caused Mr Sim to fight Apple over MP3 player market ?? Afterall, Creative is "first" to come out with Mp3 jukebox. The history seem to repeat itself where Creative almost go bust a more than decades ago because of overwhelming CD-rom inventory that have to be sold below cost.

It seem to me that Mr Sim is over-confident again, thinking that he is going to win big-time. However, Mr Sim forget that one reason that Apple winning in the Mp3 player is not only because of IPod's stylish and innovation. Apple's win bigtime because it can convince the public that the company stand for innovation and style which not only fit into consumer's lifestyle, and that its single's image and positioning also actually attract the consumer to adapt Apple's "digital-life-style" way. And any product that consumer buy, they buy into Apple's way of life, and moreover, Apple's successful marketing imply that all their products are able to "interoperate" and work well with each other. And almost all their software are known for ease of use like itune, quicktime, imac etc. Apple try to make every of its product standout so that it can attract customer to buy its's other product.

However, Creative's strategy seem to be create product that adapt consumer's preference and existing way which consumer may not find interesting or intriguing comparing to Apple. Even Creative's packaging see to me "cheapo" as compared to Apple's "designer" packaging. Creative is basically a hardware company with reputation for producting "less-user" friendly software. Moreover, Creative's inconsistent quality of its many product's model actually discourage consumer from purchasing from Creative. If a consumer purchase a budget mp3 player from creative and find that it is inferior in quality despite the low price, the consumer will still have perception that Creative's overall products is inferior compared to competitors. Creative doesn't seem to take the psychology of the consumer in mind when making product strategy.

Anyway, the $100million is what Creative need to jumpstart its share price now, and to make up for the lost inventory. Creative is maybe lucky this time, but in long run stand to lost since they don't really have a successful number one product other than sound card for a big company.

It's amazing that Creative has yet to learn from Apple. The product it create is just a reflection of the culture of Creative, and unless the company overhaul its organization to focus on stylish and customer-orientated innovation than commodity product, it will stand to lose in long-term.

Creative has first-mover advantage but yet could not sustain it because it seem that it has over-diversified too much.

Perhaps there may be other reasons why Creative is losing ground. Any ideas ??

To quote the article -- "The patent applies to portable media players, which includes devices like the iPod or cell phones that have the ability to play music"

Sounds like it could be a possible impediment to further innovation along those lines if Creative decides to go litigation-happy.