09 November 2005

Loss of Creativity

I noticed the announcement of a new Creative MP3 player yesterday - the Creative Zen Sleek Photo. I like to see what the competition is doing to fight the iPod phenomenon. What struck me was how far they seem to have fallen behind the iPod. It's a 20GB player with a screen that can show photos (jpeg's only). It does have one or two extra features over the iPods in terms of FM tuner and built-in recording (though the iPod now has excellent recording features built-in if not directly usable). But the corresponding iPod now has a 30GB disk - 50% greater capacity. The Zen is 46% bigger in volume and is 16% heavier. It's screen is smaller. And, it doesn't do video. It's price is... well, the same as the 30GB iPod.

Now, I was about to blog just about this very item before I also came across this quote from chief executive Sim Wong Hoo at the recent post-result briefing. "We'd like to focus on the profitability and not market share". You can google this quote at many news sources. That was around the same time Creative announced a pretty dire set of results with the MP3 player business gouging their previously highly-profitable sound card business. And, the same time that Creative criticised Apple for locking up supplies of components (presumably at prices that Creative could not obtain). So, that accounts for why this is priced realistically rather than aggressively.

So, with Rio departed from the market, and Creative essentially in retreat, that leaves just a few big players around who have the deep pockets to make this a competitive environment. First to mind is of course, Sony. However, their deep pockets are also stretched on making the next-gen PS3 a success, which they hope to do by subsidising the players. A large company doing well financially may be able to have a few of these initiatives, but Sony is not performing, so I would doubt it could muster up another set of subsidies to make it's players more attractive. It certainly doesn't win it with features, and it certainly doesn't woo the customer with it's anti-consumer actions such as ATRAC, Sony Connect, and most recently the debacle with it's Copy Protection system on CD's that does nasty things to PC's. Perhaps Sanyo (with a range of cheap and cheerful players) or Samsung (with storage manufacturing capacity to allow it to price effectively) are the only other people who can realistically put up a fight. There is still iRiver of course, but they are facing the same issues as Creative.

The one other contender could be Microsoft. But even this company seems stretched in a number of areas (XBox, Vista, Office, Windows/Office Live, etc), and selling own-brand hardware for MP3 playing would be a tricky gamble that would risk alienating many of it's partners not just in the hardware business but also in the music sales area. They would also then be open to the one charge that Apple is vulnerable too - the complete control of a relatively closed eco-system. Microsoft may rue that it was not nimbler when the market was less mature, and had managed to get a range of decent players from it's partners and a range of music services that truly did "play for sure" while offering good value and fair DRM. Too little, and too late.

In the meantime, Apple will go from strength to strength in this area. It understands how people evaluate innovative products. It didn't tell people "heh, you need a video player" it gave people a compelling reason to try it out by offering the same as before in a smaller package with more features at the same price. Likewise with the nano - it offered essentially the same as a mini but in a MUCH smaller package that could be manhandled (scratching issues aside), so much more useful for the active market, again at the same price. The good thing for consumers is that a powerful supplier of hardware may be able to exert pressure on the already too powerful and oligopolistic content providers that in the end will break open the market. A similar thing happened with the VCR which the media companies were in the end unable to fight to the benefit of all. If the labels think there will be alternatives to Apple, then they may hold back, and spend the time bitching about 20cents per item here or there. But if they realise they'll have to play ball, then perhaps we'll get some innovation in digital content distribution and usage. At the same time, let's hope as consumers, that Apple doesn't get everything it's own way and become arrogant and unresponsive. I no longer can see Apple being brought down by competition in this market. It's reign can be ended by innovation/convergence in gadgets rendering the iPod useless (as Smartphones have done to PDA's). For reasons I've already blogged here, I'm not sure that will happen too soon. It's reign could be ended by it's own mistakes (e.g. arrogance, failure to integrate into the home environment). But in the end, I wonder if it will be the competition authorities that will have to intervene in a few years time to free the consumer from a system of content distribution in which one company sets the rules, sets the pricing, while selling the hardware, the software, AND the content too.

I'm not saying this is imminent or even the likely outcome - far from it. But it has become a realistic scenario for sometime around the turn of this decade.

No comments: