Iomega Corp launched its ‘Zip’ removable storage device a year ago last April, but by July, officials were faced with a severe problem. It’s a manufacturing nightmare, said Srini Nageshwar, senior vice president at the time. Demand for the $200 Zip cartridge drives exceeded company anticipations tenfold, and the company was struggling to keep its customers supplied. Iomega has since gone into overdrive, cranking out huge volumes of cartridge drives, shipping more than one million units, and entering computer industry folklore. Iomega, which just over a year ago turned in first quarter revenues of just over $40 million, recorded $222 million in its first quarter 1996. Iomega’s dramatic rise to prominence is barely a year old, but analysts are asking whether the company – which was so unprepared for its success – is ready to deal with the revolution it helped to spark. The company’s innovation was to offer high capacity 100 megabyte (MB) cartridge drives as an alternative to the increasingly inadequate 1.4 MB floppy disk drives. Now other suppliers have recognised the advantages of this approach, and are threatening to break its lucrative but short-lived monopoly. It is easy to see why Iomega was overwhelmed by Zip’s success. Its business had previously concentrated on high-end removable ‘Bernoulli’ cartridge technology. Iomega engineers used the Bernoulli effect to pull up stationary read-write heads using strong air currents. The cushioning air, and the lightweight flexible media, made the cartridges and their in-built spinning disks shock-resistant and thus portable. Kim Edwards, Iomega’s chief executive since 1993, saw that the future was limited for such specialist products. For its Zip drives, Iomega jettisoned most of its expensive technology and started from scratch. The devices store up to 100MB of data, and have fast enough seek times and transfer rates to run applications directly from the drive. The Zip drives use a combination of drive technologies from floppy drives, hard Winchester disk drives and the high spin-rate flexible media used in Iomega’s existing products. The disks cost under $20, look similar to 3.5 floppies, but are slightly thicker. Initially, Iomega did not realize that the Zip drive might have a chance of replacing the ageing 1.4MB 3.5 floppy disk. Having lost its software distribution role to the CD-ROM, the floppy’s main role has been reduced to moving and backing up files. But as the size of desktop hard disks has increased, and average file sizes have expanded beyond the 1.4 MB limit, the need for an alternative became increasingly urgent. A 2.5 MB IBM floppy disk scarcely relieved the problem. Iomega’s first Zip drives were attached via external small computer system interface (SCSI) drives aimed at the Macintosh market. PC versions would only work through the much slower parallel port, or with a SCSI adaptor. But even then, ZIP sales surged, driving up the company’s revenues. Iomega introduced ‘IDE’ versions of the Zip, designed for internal use in PCs, and signed up its first six major OEM customers which will build the drives into their PCs: Micron,Hewlett-Packard, Unisys, Escom, Packard-Bell and Acer. This was recently crowned with a deal to supply drives to IBM. (It also supplies Apple Macintosh clone-maker, Power Computing and the electronic musical instrument and effects company, Roland). But while consumers may delight in a high capacity alternative to the floppy, Iomega’s shareholders are starting to worry that Zip’s technology is about to become obsolete. In March, 3M launched its own contender for the replacement floppy, a 120MB laser servo magneto-optical drive: the LS-120. 3M has developed the drive with Matsushita-Kotobuki Electronics and O.R Technology (parent company to Optics Research Inc), and, ominously, with Compaq, the PC market leader. Compaq has agreed to ship the LS-120 with some models of its high-end Pentium systems. Last month, Mitsubishi Electric Corp said that it planned to manufacture LS-120 diskette drives – news which caused Iomega’s share price to tumble.
Arguments
Arguments rage over which offers the best technology. The LS-120 offers greater storage capacity, and, most crucially of all, will read 1.4MB floppies as well. The Zip drive is claimed to be twice as fast in both average access times and sustained data throughput, but does not offer backwards compatibility. 3M argues that the ability to read older disks is an advantage, but Iomega’s Nageshwar points out that there was no backwards compatibility in the transition from 5.25 to 3.5. If that had been an issue we’d still be using five-and-a-quarter, he says. Iomega says it gave up on magneto optical three years ago when it realised that the price/performance figures did not add up. Ironically, it sold its ‘floptical’ technology to 3M. At the high end, the storage companies argue that optical drive technology (aside from CD-ROM) has not kept far enough ahead of magnetic to deliver its promises. Magnetic is the bull market right now, said storage guru Fred Moore at a recent briefing organised by Storage Technology Corp. But at the low end, it may be different. 3M has kept below the crucial $200 price point for its new drives, and has the advantage of higher capacities. At the very least, Iomega is likely to have cut prices faster than it originally expected. Elsewhere, disk and cartridge drive manufacturers are scrambling to build a presence in the new markets. Syquest, which has built up revenues of $300m selling traditional, removable magnetic cartridge drives with upwards of 40 MB capacity, has slashed prices for its drives and introduced a $230 MB drive, the EZFlyer, for under $300. The LS-120’s ability to read floppies may yet turn out to be key. While PC users maintained 5.25 and 3.5 drives simultaneously during the previous transition, the space for a second slot has been taken up this time by CD-ROM. Iomega is stepping up its marketing efforts. Aware that any standard needs multiple sources of supply, it has signed up Epson to make drives, and Fuji, Maxell and Sony to produce Zip media. 3M says that announcements of support for the LS-120 are imminent, and confidently expects Compaq’s involvement will help keep its revolution permanent.
