Second Hand Smoke - Heads or Tails: Diamond and Creative

Diamond and Creative seem like anachronisms in the modern world of PC graphics; the world of the vertically integrated vendor. Vertically integrated is a nice euphemism for an add-in board company that uses its own silicon. Neither Diamond nor Creative really wants to be in the graphics chip business. They have strong retail branding, strong enough to create empires for a chip company, as they did for 3dfx, and both companies are capable of dramatically influencing the pricing and availability of products. It's a healthy dose of power. But, will they be able to live chip-agnostic in a world where 3D silicon is king?

The add-in graphics board industry has seen its influence in the PC market eroded gradually over the past eight years. It began with 2D Windows accelerators becoming fast enough, and is now, seemingly, ending with 3D graphics becoming a matter of who owns the best silicon intellectual property (IP). I am surprised that no one picked up on my column's revelation last week that Real 3D was going after 3dfx. It seems that Real 3D, having extracted licensing and royalties from Intel and SGI, has failed to get the same tribute from 3dfx. Silicon IP is Real 3D's weapon of choice.

Graphics board companies have known the value of silicon IP for some time. Not all graphics board companies are built the same. ATI, and its Canadian brethren, Matrox, target mainstream PCs, corporate PC buyers, dealers and OEMs with both chips and boards. Both have fine tuned, and popularized the notion that a graphics board is better done by the guy who makes the chip that goes on it. Vertical integration, folks.

However, it took a number of years for the graphics industry to catch up with the Canadians. Evans and Sutherland (E&S) was the first silicon vendor to take the ATI/Matrox model to heart, acquiring high-end graphics board vendor AccelGraphics a couple of years back. At the time of the acquisition, E&S had the workstation graphics market humming with its chipset, and was doing just fine supplying companies like Diamond Multimedia and, funnily enough, AccelGraphics. It wasn't that E&S wasn't successful supplying different board vendors, it just realized that in the workstation market the PC OEM was the only channel of distribution that really mattered.

Therefore, E&S did what everyone in the graphics industry knew had to be done, but didn't want to be the first to do; the company cut out the middleman to the PC OEMs, and took its destiny into its own hands by becoming both chip and board vendor. As if to confirm the validity of E&S's actions, shortly thereafter, 3Dlabs acquired Dynamic Pictures, and became a chip and board vendor in its workstation business. 3Dlabs still assumes that in the desktop PC arena it can continue to supply many different board vendors. Of course, many of 3Dlabs' customers in the workstation market, a little annoyed as they are by having lost a key supplier, are the same customers that 3Dlabs needs to hit up to make Permedia boards. You can figure out the rest for yourselves. This is the drama that is vertical integration, and it reached its Act II climax with the news of 3dfx's merger with STB.

In the final Act, it's all about serving the PC OEMs, a bunch of lazy innovators if there ever were any. A little harsh, but I'm trying to make a point. PC OEMs do not like graphics. Not really. It's always problematic, and requires a great deal of support. It moves too quickly. Too much change; too much confusion. The chip vendors always promise one thing, and the board vendors always deliver another thing. And, when you are a multi-billion dollar box shaker and mover, it's very hard to deal with a small graphics chip or board company that can never quite deliver the ultimate solution with a 10-15 per cent mark-up. PC OEMs like their components cheap and simple.

On the other hand, PC OEMs also like it when a graphics board adds value to their product line. They are perplexed and healthily respectful, of 3D, although most of their customers probably wouldn't know the difference between an Unreal, Half-Life, and Quake demo. Nevertheless, PC OEMs like to be on the bleeding edge without having to suffer the agony of the odd paper cut. They like graphics, as long as someone else does the work for them. They don't really care about games.

It used to be, and still is the case I guess, a board vendor would market a chip technology at retail and prove its viability, even if it was only in getting it a PC Magazine benchmark award, then the PC OEM would be more inclined to include said graphics technology in its PCs. ATI and Matrox proved how wonderful the process could be if the PC OEM was talking to chip and board company in the same breath. The high-end graphics workstation vendors said, "This is the future of 3D". Then, 3dfx and said, "This is the future of graphics". Not many board vendors left to disagree with them.