Iomega's business model for '99: "lots of media sales"

Emedia Professional, Jan 1, 1999 by Hal Glatzer

Want to hear the boldest New Year's resolution in removable storage for 1999? "Zip replaces the floppy."

That's how Fred Forsyth, the new president of Iomega's professional products division, describes his company's current business plan. The 100MB Zip is now a household word in PC circles, and is especially popular in the professional graphic arts and publishing niches that are also the core market for Apple's Macintosh line. "In addition to consumer sales, we have latched on to every major OEM, including Dell and Apple," Forsyth says. Such loyal users generate plenty of follow-on sales of blank media--which is the real payoff that Iomega is counting on, says Forsyth. "The theme for our efforts now is: `Do these things sell media?'"

But a handful of other magnetic disk technologies competing for that media sales mother lode offer far more attractive specs and better continuity in a post-floppy market: the 120MB Imation/Mitsubishi LS-120 or "SuperDisk" reads 1.44MB floppies, as does Sony's HiFD, which can store 200MB on its proprietary media. But those drives may have already lost the war to Zip. Compaq, which co-developed the LS-120, is not routinely installing it in its own PCs, servers, or workstations. A Compaq spokesman admits privately that Compaq is following Dell's lead in building computers only to customers' orders, and then only with the storage devices that customers request. So (are you surprised?) it's mostly Zip--not LS-120--that users are asking for.

ALL THAT JAZ

Iomega is not about to release a second-generation Zip: say, a 200MB drive that reads the old 100MB disks. There are apparently technical obstacles to its development, and the window for it may be closing anyway. Iomega would prefer that power users move up to Jaz, either to the original 1GB drive or to the new, backward-compatible 2GB version. Neither drive can read Zip disks, but users could presumably port their data to the bigger cartridges.

"Zip is for digitally recording and playing back data. Jaz is for people who want to create content, not just store it. There's some overlap between them; they can both feed files into a color laser printer, for example. And our market research shows that 50 percent of Jaz users also have a Zip drive."

In 1997, quality-assurance problems (which Iomega attributed to faulty media from second sources) caused many users to return Jaz drives under warranty. But as of late 1998, the installed base had passed 1.5 million drives and 5 million cartridges. "Warranty returns of 1GB drives are down 75 percent from what they were a year ago," Forsyth says, "and we've had no complaints about the Jaz 2GB."

Jaz 2GB not only holds twice the data of its 1GB predecessor; it runs up to 40 percent faster, with a specified maximum sustained data transfer rate of 8.7MB/sec. So it's being dubbed the "performance line" drive, while Iomega is positioning the 1GB drive as the "value line" drive.

"We can design our stuff to specs that are the equivalent of 70 percent of what a hard drive can do," says Forsyth, noting that there's a 3GB version in development, but acknowledging its limitations. "Media removability always introduces contamination; and while we can get a system to store 3GB, we can't get its costs down."

BUZ, DITTO, AND CLIK!

This past year, in an effort to encourage users to create big files--which would then need high-capacity storage media to hold them--Iomega branded a video still-image capture device called Buz. But Buz hasn't generated a lot of buzz, mainly because it came too late. The leader in that market niche is Snappy, which (like Zip) got to store shelves first, and was packaged in a snazzy box with a catchy moniker.

Iomega will continue to offer ancillary products like Buz, but Forsyth warns that the company is "not in a position to drive that market. So we're going to focus on storage now--it's our core business." That focus should probably be on Zip and Jaz, though, because Iomega's other storage products face serious problems.

For example, its proprietary 1GB (native) Ditto tape system, introduced in 1996, is "near the end of its product life," according to Forsyth. Industry analysts doubt that Ditto will get either a second-generation enhancement or a big advertising push--at least from Iomega itself, though resellers may take Ditto and run with it.

The other product, called Clik!, is brand new and, therefore, a question mark. It's a miniature (1.8-inch) floppy drive whose removable disks hold 40MB. Forsyth calls Clik! "an OEM play, over time, for applications such as digital cameras and cell-phones."

But Clik! was first announced (under the name nHand) two years ago, and analysts believe that reliability problems have delayed volume production. Early advertisements show Clik! drives in cameras and PDAs, and users casually stuffing the disks into purses and shirt pockets. If Iomega really wants people to do that, it had better make sure that the shutter on a Clik! disk can keep out dirt and lint. Encouraging media sales is a viable strategy; but replacing too many failed disks could wreck it.