Creative Declares War on Apple

War has been declared. Not the conventional type with the troops, tanks, and smart bombs, but an entertainment war for the $3 billion global music player business. Creative Technology (Nasdaq: CREAF  ) has decided to move in against the giant Apple (Nasdaq: AAPL  ) in an attempt to capture a 40% market share for MP3 music players. In the three years since the iPod's launch, it has become the worldwide player of choice, claiming about 85% of the market, so to call this an uphill fight is something of an understatement.

Before the iPod made MP3 players fashionable, Creative was one of the upstart companies that made them popular. Back in 2001, Apple introduced its first 5-gigabyte iPod, but Creative already had a 20-gigabyte model of its Nomad Jukebox on the market. Others like Rio -- now part of privately held D&M Holdings -- popularized players by using flash memory instead of hard drives. The iPod, the size of a deck of cards, was revolutionary, and became "the" player to own.

Creative's plan of attack is a two-pronged approach. First, launch a wave of spending to the tune of $100 million to market its players such as the Zen Touch. This is very iPod-like in appearance, and has a 24-hour battery life, twice that of the best iPod. One hang-up for the Zen Touch -- other than there isn't any camouflage style available -- is that tracks from iTunes won't easily transfer. The files have to be converted into MP3 files first, but tunes from RealNetworks' (Nasdaq: RNWK  ) music store, Harmony, can be easily transferred to the player.

Secondly, the company has recruited an ally to help gain some advantage: Microsoft (Nasdaq: MSFT  ) . Creative was one of the first hardware manufacturers to release a combination video/music player based on Microsoft's Portable Media Center concept earlier this year. And while so far reaction hasn't been great, many consider portable video players to be an important product category going forward.

If recent history is any guide, the battle to win over iPod users has yet to be very successful. Various interlopers have taken on Apple with lower price points before, and failed largely because the iPod design is the most compelling. The big A has so far eschewed flash-based players, but rumors are swirling that that might change in 2005 at the MacWorld trade show in January. Speculation has leaked that CEO Steve Jobs will unveil an inexpensive Apple-branded flash music player.

Competitors who want to gain market share have one battle plan to work from. Be as much like Apple as possible. Hewlett-Packard (NYSE: HPQ  ) decided that joining forces with the big A to sell HP-branded iPods made more sense than waging war. Perhaps with HP, the cliche that if you can't beat 'em, join 'em applies. Ultimately the functionality, features, and price will determine tomorrow's must-have device. Having those three weapons ready to launch will be key if Creative wants to win the war for digital music players.

Here's more Foolishness about comparing Apple to apples and other fruitful companies:

Fool contributor Kelvin Taylor does not own shares of any of the companies mentioned.


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