Creative Technology Chairman and CEO Sim Wong Hoo and CNBC Managing Asia Christine Tan discusses the dispute behind Apple’s unlawful patent infringement, in which Hoo successfully sued Steve Jobs for USD 100 million.
Christine Tan (CT): In the 1980s, everyone remembers Creative Technology for its Sound Blaster audio cards. It was your own tech superstar, then you kind of faded into obscurity overtaken by rivals. Now 20 years later, you are still at it now with a new audio technology called the Super X-Fi. You think
you can make as comeback?
Sim Wong Hoo (SWH): I think the Super X-Fi is actually far more exciting than the Sound Blaster. Sound Blaster was very successful with a good run. It lasted more than what I expected – 20 years out there, and it’s still selling.
We have come out with this new technology called Super X-Fi and it is 20 years in the making. It cost us more than USD 100 million to do it. About 20 over years ago, I wanted this Super X-Fi technology because I didn’t listen to headphones. I hated the sound of headphones because it made me fatigued after a while. After five minutes, I would throw it away. So, I asked my guys, can you do something that sounds like the real thing and they said, yes. I said, okay, let’s put money in it. Since then we have been investing and doing a lot of R&D for 20 years.
Ever since, I have been pumping money in until the past few years. Then we went out to the market and tested about 3 years ago with the prototype, and people were just blown away. We went out there last year to CES 2019 and we won 15 Best of CES Awards. This year, we went again with more products – a new generation of Super X-Fi and we won another eight. So, in total, we have 23. So, from the momentum I’m seeing, this will be something far more exciting, far bigger than the Sound Blaster.
CT: So, you think you can make a comeback?
SWH: I think we should make a comeback given the effort that we’ve put in. The kind of technology that has been put into this. This thing is really very, very new. It’s just like switching from black and white TV to color TV. You don’t want to come back to black and white TV again. I’m far more excited than having the Sound blaster, many times, hundred times.
CT: Now, the big question is, how are you going to monetize Super X-Fi quickly? What are you doing to increase usage and make money from this eventually?
SWH: There are many ways that we can monetize Super X-Fi. Super X-Fi is a technology, so it can be a chip. We can sell the products as a chip built-in. It can be an amp. It can be in headphones that we have here. It can be a software. So, the software can be actually inside an app.
It can be inside the OS (Operating System) that means we can license it to the phone guys, the PC guys, the notebook guys, the smart device guys.
It can be a software. So, software means we can prolific faster, lower cost or no cost, so we have both of these versions out there right now.
We are talking to a lot of people. We are talking to the OEM markets which means we are trying to license the technology on a chip to them. It’s a longer path and a longer selling cycle because they have to look at it, they have to be convinced, they have to study it and everything. It is a long cycle. So, instead of waiting for that long cycle, we said, we’ll go ahead and produce our products first.
CT: The 3D audio market is huge and untapped, but you have many competitors. Do you think you can built up your user base quickly, so you can establish yourself as a market leader?
SWH: The 3D market out there or as they call it 3D, I don’t want to use the term 3D because we are different. 3D was used 20 years ago or 15 years ago when we started to say 3D, then everybody just caught on the term and put in some rubbish 3D out there, and it became 3D.
The sound just appears around you but it’s not out there. It’s not like the real thing. Maybe they have some kind of positional audio, which they claimed. But we don’t feel that this is any kind of threat.
CT: So, how quickly do you think you can grow your user base? How fast?
SWH: We have a number – 50 million in 2 years of users, but that does not necessarily equal to revenue. The proper way is a step-by-step way to sell our product, get people to like it and then let it go viral. But it’s a learning process.
Just like black and white TV to color TV. The color TV took many years before people went with it in a big way. So, now we are exploring a new way to market to people: maybe face-to-face marketing that’s like a viral marketing campaign to get people to go out there to test it.
CT: When you talk about that marketing, that viral marketing you’re talking about, are you close to launching something exciting?
SWH: Hmm, we are working on it. We are looking at a more homogeneous market that is big enough, so we are looking at China now. So, we are planning to go to China. China is homogeneous huge, huge market out there. As we were going, this coronavirus thing came along, and things got frozen for the time being. After that, I think we will still march ahead.
CT: Let’s talk more about China because you opened your Shenzhen office at the end of last year to sell to the China market. Because of the health crisis, where do you see the recovery in China?
SWH: We are hoping that it can resume as soon as possible. We’re hoping all the best for the people. But I think there’s one good thing for this opportunity for us here: with this virus outbreak, they are scared to go to a lot of places where there are a lot of people like the cinema. So, what we can do with the Super X-Fi is we can bring the audio experience from the cinema to your home. That would be a big opportunity for us.
CT: So, let’s talk about your financials because when we look at your last financial year ended June, Creative Technology posted a net loss of $3.8 million. Revenue was down 17 percent. How do you expect do to this financial year?
SWH: Well, now with all the uncertainties of the trade war and the virus, I think we are not looking at any kind of big optimistic projection, we just have to be careful. We have always been careful with numbers. So, we just want to stay that way and say, okay, let’s do the right things step by step, we will get it right. But I think the opportunity is still huge.
CT: When you look at Creative’s fading into obscurity after the Sound Blaster when Apple came on, what were some of the hard lessons learnt for you? How do you make sure something like this doesn’t happen again?
SWH: Hard lessons would be: don’t be too creative. I always say that the curse of Creative is creative. Because we are Creative Technology, we always strive to be creative and different. But to be different costs money and time. Sometimes, people don’t appreciate it, and sometimes, it costs distraction.
I have limited resources – when I get people to do either a lot of features in the product or do a lot of products being creative, then people get distracted. So, you are not focusing on your firing power. For example, the MP3 days when we were fighting with Apple, Apple focused all their resources everything on one product, one single product – iPod. They even neglected their PC. We made 20 MP3 players
at that time, one shot together, 20 versions. Plus, we still had our Sound Blaster, we had all the other products, so we were distracted by doing so many things because we wanted to be creative.
CT: So, now you want to be more focused?
SWH: After that lesson, we said, okay, we should focus after that. We dropped all the other products that were not important like cameras, webcams, modems and all kinds of things, we just dropped them. Until now, we are very focused on audio, very specific audio. We still have the Sound Blaster, we still dominate that part of the small market.
Then, we have speakers, even with speakers, we are now very, very choosy. We choose those that bring in higher revenue and bigger better margins.
CT: During that time after Sound Blaster, what went through your mind during the darkest moments of Creative? Did you ever think of giving up?
SWH: No, never, never thought of giving up. So, I don’t think we’ve actually…
CT: Did you do some deep self-searching?
SWH: Of course, there were deep self-searching, but I think we have to look at the facts out there. The stock price came down for many reasons. At that time, at the peak, there was a bubble. There was a huge dotcom bubble at that time, so the price just went up, out of control. I did not sell any shares. I did not benefit a single cent out of it.
During those times, we actually returned money back to the shareholders. We raised only about USD 100 million. And we returned to the shareholders seven times, USD 700 million. So, that was something that we were very proud of. I’m very proud of that. I’ve done my job, okay. Very few companies do that. So, about the share price coming down, it was not that the company had no future, it was because people didn’t see it and then, they just didn’t trade, and the volume was very low.
CT: So, what kept you going as an entrepreneur? A lot of entrepreneurs would have given up, what kept you going?
SWH: What kept me going? I just wanted to be different. I have the ideas how to make it happen. So, that is something that is positive. It’s always very positive. You lose a battle here, you lose a battle there,
it’s nothing. It’s common. It’s very common out there. I know the inherent strength of Creative.
CT: Apple was your nemesis then, because you took on Steve Jobs, sued him for patent infringements and walked away with USD 100 million in settlement. What did you learn from taking on big tech giants like Apple with such deep pockets?
SWH: It was something we had to do because Apple did not just you know infringe our patent. Actually, Steve came to our booth, saw our products and liked the product. He saw the future of Apple there.
CT: He saw the future of Apple there?
SWH: Yes. Then, he asked our people to go to his headquarter to present it to him. Our people went to look for some collaboration. Unfortunately, I was not there because I was in Singapore. Maybe if I was there, maybe the history would change. He was trying to work something together, but it didn’t turn out.
CT: So, he is trying to replicate what you were doing?
SWH: He was trying to maybe work out something together, then of course that didn’t happen, and he just copied what we did.
CT: So, you sued him?
SWH: We had to because they took away our market, they took our ideas. We had to take action as a responsible CEO, right? Of course, they knew that and wanted to settle. So, we finally settled for USD 100 million which was a good sum. I would call it a consolation prize. It was not the big prize, but it was still good for that. Of course, that time, there was no iPhone yet. So, it was only the iPod market that we were looking at.
CT: What was the conversation like with Steve Jobs? Did you have a meeting with him, face-to-face?
SWH: I think we had quite an amicable meeting. At times, Steve was very dramatic as usual. At times, he walked out the room just to posture many times, but he would come back again, and said, let’s work on something else, let’s try this route, try this angle or try that angle. I knew that he wanted to settle, so we finally settled. I think we settled on a friendly basis, so I was happy that we settled also because this long lawsuit could be very costly and drag on forever. Then, you would have to fight this battle for your life. I wanted to go back to my innovations to make products and to create technologies that are exciting.
CT: Well, Apple has been very successful. For Creative Technology, is there anything you can learn from Apple that you can bring to Creative?
SWH: I think I’m very proud of that – to make them very successful.
CT: You think you are responsible?
SWH: From the iPod, they got the iPhone. So, I think I am part of their success which I am very proud of. So, to learn is actually… like I said, not be too creative, not to try to defocus ourselves because we got to separate our limited resources on 10, 20 products when they are focusing all their big resources on one product. It is very hard to win.
CT: Whether it’s with the Sound Blaster or with the Super X-Fi, what are you doing to make sure that the lessons learnt from the past don’t happen again? And that you’re not overtaken by rivals, and that you can be truly successful this time? What are you doing as CEO?
SWH: If we fear too much of these things, then we will be always watching our back and not looking into the future. The key thing now is what I told my guys, now we have something very exciting and we have already exposed it to the whole world, especially winning so many awards and all the focus are on us, we
expect people to try to copy us. We have to set that expectations just like Apple did. The big companies, the big boys will do it. So, what do you do? You run like hell.
CT: You run like hell?
SWH: We should all run like hell, I told my guys. So, that’s why when last year we got 15 awards, I’m not happy with that so let’s push our technology. If you start to rest on your laurels and start to say, let’s monetize it and forget about the future, then people can catch up.
Now, people are still struggling to catch up with our generation 1, we are now in generation 2. Before they get to generation 1, we are at gen 3 already. Now, we are looking at gen 4. So, we have to run like hell. So, this innovation shouldn’t stop and that should be the key to win.
CT: So, Creative is still creative, but are you a lot smarter?
SWH: I’m a lot wiser, as you age.
CT: So, in 1992, Creative was the first Singapore company to list on the Nasdaq. By the year 2000, you were Singapore’s youngest billionaire. Now, fast forward 20 years, you are still at it, with the same tenacity, with the same passion and determination to succeed. What drives you? What keeps you going?
SWH: The key thing is to make a difference to the world. That’s something I wanted. From young, I always wanted to be like that. I always wanted to make the world a better place for all. And that’s why I am being creative.
If you look at back at Creative’s history, there are many times when a lot of people including my close siblings who would say that you would never get through this because it’s so onerous, it’s so difficult, you are going to fail, you’re going to fail. Somehow, we get through.
CT: So, you didn’t listen to the naysayers?
SWH: No, it’s not one time, two times, 10 times, 100 times, it’s thousands of times. People will say you cannot make it.
CT: So, you have a certain conviction in yourself that you can do it, that you are able to succeed?
SWH: Yes, that I was able to succeed. I was able to get through this. People said, how? I said, somehow. They asked me, what was I going to do? I said, I didn’t know yet, somehow. Because I had the conviction, I believed in it. Therefore, after I looked, looked, looked, something happened. So, I call this looking for cracks in the universe. So, you are trying to bash through a wall, but you couldn’t bash through because this is a wall. So, I looked for cracks. So, there was a crack there, I squeezed through the crack and I managed it.
CT: You’re 64 years old, you’ve been in the game for 40 years. You’re Singaporean, you graduated with a diploma in electrical and electronics engineering. You founded Creative in 1981, tasted your first success with Sound Blaster in 1989, then kind of lost your way a little bit and now you are trying to make a comeback with your Super X-Fi. Has your leadership style changed and evolved over the years?
SWH: Not much, but I give my people more free-rein now, that means that as you age, your energy is not as much as in the past. When I jumped into a project or something, I would go in and look at very detailed things, which even our people are scared of because I am very, very, very detailed. I would tell them, “What’s this? What’s this?” Now, I cannot keep on doing that forever because my people will never grow up. Now, I say, okay, I let you all do it, so I give you all the benefit of doubt.
If people dare to argue with me on how to do certain things, if they put up a good fight, a good argument, I would let them do it their way. But it could be wrong because I still have more experience. I could say, maybe that is not going to work. But I am not going to discourage, so I say, okay, you try your way but maybe here’s some advice you should take care of these other things if you’re going this route. Because there are them many roads that can lead to your goal, there are many paths. I tend to give more leeway because [we] have to grow the next generation.
(Ed. This transcript has been edited from the original transcript provided courtesy of CNBC Managing Asia. Featured image of Sim Wong Hoo by Joseph Nair.)