Sweet Spots - Industry Trend or Event

Computer Technology Review, July, 2000 by Hal Glatzer

Manufacturers like to sell into what they call the "sweet spot" in a market. That's the price-point where a product matches customers' needs (and budget) perfectly--maybe even effortlessly.

The Zip drive is a classic example of a product that was launched right into its sweet spot and stayed there for a few incredibly profitable years. Logging 100MB into a $10 disk with a $199 drive was a lot of bang for the buck eight years ago. By contrast, CDROM drives took almost 15 years to find their sweet spot, but they've held on to it for two years and are only now being squeezed by recording drives (about which, more in a moment). Once the OEM price of a CD-ROM reader fell below $50, they were installed as standard equipment in every PC and almost every laptop, but sweet spots don't stay sweet forever. Zip and CDROM drives are low-end devices that you can buy today--with external enclosures, cables, and bundled software--for $79 or less.

Markets--like budgets--tend to stratify into low, middle, and high fields. The low-price end is always crowded. New competitors tend to build along well-established design lines, using off-the-shelf components, in countries where labor is uncommonly (maybe even illegally) cheap. There's only one sweet spot at the low end and that's where the lowest of the low resides--until it's knocked off by the next bottom-fisher. Elsewhere, the manufacturers' goal is to find a sweet spot in the higher ranges, where they can afford to pitch bang over buck.

This year, there are two (non-competing) storage devices that may actually enter the marketplace right in their respective sweet spots: Plextor's ultrafast CD-RW with 10X-speed rewrites and Panasonic's second-generation DVD-RAM with a capacity of 4.7GB/side.

In the CD-RW market, a low $199 retail price-point has already been reached--and advertised. So why is Plextor bringing out a rewritable drive with a MSRP of $329? Because it's the fastest drive around, that's why. Plenty of read-only drives and most rewritable drives now offer 32X read-speeds, as Plextor's last two drives have also done, but its new CD-RW model 12/10/32A goes further: burning write-once -R disks at 12X and rewritable -RW disks at a whopping 10X. Those $199 drives in the full-page ads record -R disks at only 4X or 6X speed and can't rewrite any faster than about 2X, which is adequate performance at the low end of the market, to be sure. Yet Plextor's strategy is (and has been, for quite a while) to aim high.

The competition will be playing catch-up, at least through the rest of this year. Sony, HP, and Teac offer SCSI and IDE/ATAPI drives (Teac offers a USB version too), but none can rewrite faster than 4X and, until recently, only SCSI drives could push rewrite speeds up even to 4X. Plextor's 12/l0/32A is an IDE/ATAPI drive, which is also easier (and cheaper) than SCSI for OEMs to install in their PCs.

Incidentally, Plextor is incorporating a technology licensed from Sanyo, dubbed BURN-proof, that pauses the recording process whenever it senses a buffer underrun. That should keep the relatively expensive -RW disks from turning into coasters. As luxury-automobile makers have long demonstrated, there will always be a niche for "the most expensive" product in its class--so long as the price is justified by performance and customers hold value in higher regard than mere price.

The best value in a different market space, this year, has to be Panasonic's newest DVD-RAM drive with 4.7GB capacity. Expected to roll out of the factory in September, the ATAPI drive will retail for only $549 with the SCSI version slightly higher. There's no removable-media disk system with comparable capacity in that price range at all and $549 is actually below what was charged for the 2.6GB DVD-RAM drive when it was launched in 1998--which was $799!

Things are looking up for DVD-RAM as a general-purpose storage medium. The jukebox market can be expected to migrate to the higher-capacity drives, of course, since they'll easily read the 2.6GB media, but more important, the three DVD-RAM developers--Panasonic, Hitachi, and Toshiba--are no longer alone. They've lined up Teac and JVC in Japan, AOpen (Acer) in Taiwan, and Samsung and LG Electronics in South Korea to either brand or build the new -RAM drives, starting now and they have commitments for media from twelve manufacturers, including all of the best-known labels.

Besides that, the competition simply isn't a threat. Starting at $17,000 and even after being cut to $5,000, Pioneer's write-once DVD-R system has always been too expensive for any application beyond professional content publishing. (Lately, too, anecdotal evidence is accumulating that a key DVD-R component is too heat-sensitive and, hence, short-lived.) Pioneer has talked about a rewritable version, called DVD-RW, but it's been just talk so far and DVD RW (called "plus-RW") from Sony, Philips, and four other partners has been nothing but a promise for four years.

One of RW's few promised advantages--that it would use "bare" media without a jacket or caddy--is now moot. The new DVD-RAM drive also accepts bare 4.7GB single-sided disks--exactly the sort of media that could make DVD the inevitable successor to CD.