Sree's Stories

Bloomberg Columns

Technology Focus: Building a Better Suitcase for Data

Thursday, March 13, 1997

By JOSHUA MILLS & SREENATH SREENIVASAN

New York, March 13 (Bloomberg) -- You can store the entire
text of a good-sized book on a 3.5-inch, 1.44-megabyte
diskette. But that's not enough capacity for many people who
work with graphic images, video and audio files. This
growing appetite for larger, portable storage has fueled
intense competition.

The ``super-floppies,'' as they're known, include Iomega Corp.'s Zip drive
and SyQuest Technology Inc.'s EZFlyer, and they're surging in popularity.
``The Zip drive allows me the freedom to live in California and run a
business in three states,'' said Robert Schumacher, who keeps Zip drives
in his offices in San Francisco, Sacramento, Phoenix, Dallas and Midland,
Texas. ``I just carry the floppy from site to site to back up and
synchronize data.''

Schumacher, who has an oil and real estate business, also carries one with
his laptop computer. ``I can be totally mobile and have access to all the
information I need,'' he said.

Zip drives, introduced in mid-1995, use diskettes about twice as thick as
the conventional floppies that hold 100 megabytes of data each. The Zip
($149 after a $50 rebate) has rapidly made Iomega, of Roy, Utah, the
market leader in super- floppies, with more than 5 million drives sold.

Soaring demand for removable disk drives is driven both by improvements in
technology and the growth of the Internet. Producers of on-line content
for the World Wide Web and on-line services, as well as consumers who want
to download huge files from the Internet, often work with huge multimedia
files. These don't fit on a traditional floppy, and they can quickly fill
up a hard drive.

Keeping those files on capacious, removable diskettes not only keeps the
hard drive from clogging, but also provides easy transportability -- from
office to office, from office to client, from office to home. ``We saw
that customers were getting into sophisticated applications that used
audio and video and were hungry for a product that worked like a hard
drive but was also portable,'' said Andrew Grolnick, Iomega's Zip product
management director.

Three-Pronged Tool
When the portable drives were first introduced, they were
marketed as a three-pronged tool: a way to back up data from
the hard drive, an expandable alternative to installing a
larger hard drive and a portable means of storage. Corporate
buyers and consumers responded, and the market grew to $2.7
billion in annual sales in 1995 and $3.3 billion last year,
according to DISK/TREND, a market research firm in Mountain
View, California. It predicts sales of $5.5 billion by 1999.

Phil Devin, an analyst at Dataquest of San Jose,
California, expects Iomega to sell an additional 5 million
drives this year. ``If Iomega is allowed to continue to control
this market throughout 1997, the competition may as well give
up now and save the investment,'' Devin said.

But they aren't giving up. Instead, the competition is
heating up, particularly for the more expensive drives sold
to businesses.

SyQuest Technology of Fremont, California, the leading challenger, has
stepped up its marketing of the EZFlyer ($244 after $55 rebate), whose
diskettes hold 230 megabytes of data. To compete with Iomega's internal
model ($199), it plans to offer an internal model next month, matching its
rival's price.

Iomega and SyQuest also compete with larger drives. SyQuest's SyJet uses
diskettes that hold an astonishing 1.5 gigabytes -- 1,500 megabytes -- and
Iomega's Jaz, with 1 gigabyte diskettes. Each sells for $499 (external)
and $399 (internal).

Storage media is an unsettled field. No company has set an industry
standard and no one's products are compatible with another's.

Other competitors include a consortium of Compaq Computer
Corp., Matsushita Industrial Electric Co., and 3M Corp., which
make the LS-120, a 120-megabyte drive available as a $100
feature on some Compaq models. Later this year, a joint venture
of Mitsumi Electric Co. and privately-held Swan Instruments, of
Santa Clara, California, will offer a floppy that holds about
130 megabytes of data.

Unlike the Iomega and SyQuest drives, both the LS-120
and the Mitsumi/Swan are ``backward compatible'' -- the drives
can use traditional floppies as well, but that makes them
slower to retrieve data and more expensive.

Paul Gottsegen, a product marketing director at Compaq,
in Houston, predicted backward-compatibility will prove a huge
advantage. ``We can't afford to have two floppy drives in every
system, so the LS-120 is perfect for the years ahead,'' he
said. ``The Zip is not a long-term solution.''

Despite surging popularity of the super-floppies,
no computer maker is abandoning the traditional floppy any time
soon. So Compaq may well persuade large corporate customers
that a drive that can read regular and super floppies is better
than one that can't.

``Iomega's competitors have reasonable chances,
especially as far as new users are concerned,'' said Crawford
DelPrete of International Data Corp. of Framingham,
Massachusetts. ``But the clock is running and the more Zips
that Iomega ships, the more difficult it will be for the
others.''

Other competition could come from ``recordable'' and
``rewritable'' CD-ROMs and DVD, or Digital Video Disc, which is
slowly being introduced this year. These formats, which cost at
least $500, are not yet competitive in price.

Aggressive marketing has played a major role in the
success of super-floppies, and Iomega has been the most
aggressive.

``Iomega did everyone a world of good by educating
consumers'' about the need for removable disk drives,
acknowledged Gary Marks, SyQuest's marketing vice president.
But he called Iomega's market leadership ``95 percent marketing
and 5 percent product.''

SyQuest's drives have larger capacities than Iomega's
and have received excellent technical reviews in industry
and consumer publications. But some analysts say SyQuest was
sluggish in its marketing and may also have misjudged pricing.
``SyQuest is on life support right now,'' said Joseph
Besecker of Emerald Research of Lancaster, Pennsylvania. ``I
don't think SyQuest gets it: This segment is about price points
and ease-of-use.''

Iomega is working hard to increase the price pressure,
arranging to sell the Zip through computer manufacturers.
So far Dell, Micron, Hewlett-Packard, NEC, International
Business Machines, Gateway 2000, Packard Bell and Apple
Computer have signed up -- sometimes offering the Zip at less-
than-retail for customers who buy it as part of a new computer
system.

``About six months ago, we looked at SyQuest, LS-120 and the Zip, and the
factor that was most important to us was price. There really was no
comparison, so we went with the Zip," said Tony Grasso, marketing manager
for desktop storage at Gateway 2000, in North Sioux City, South Dakota.
``We are seeing a lot of demand for it.''

Price Concern
At Apple Computer, price was only one concern. ``We looked at SyQuest and
Iomega very carefully, and chose the Zip because we did not have the
confidence that SyQuest could deliver the volumes we'd require or the
quality we need,'' said Ross Ely, product line manager for the Power
Macintosh. Apple offers an internal Zip drive as a standard feature on its
Power Macintosh 8600.

SyQuest's Marks acknowledged that his company had had
some problems in the past. ``We are addressing and fixing
them,'' he said.

``Iomega did a superb job in marketing the Zip,'' said
Bob Katzive, who tracks the disk drives industry for
DISK/TREND. ``You'd have to be a penguin in the South Pole
to not have heard of a Zip drive.''

Copyright 1997 Bloomberg L.P.