Computer disks slip in face of cheap substitutes

3.00pm - by CHARLES ARTHUR

LONDON - Have you got any floppy disks around? Of course you have - even if you haven't written something on one for years, you'll have a drawer somewhere where they lurk, contents mysterious and ancient, with odd labels such as "SYSTEM BOOT 3a BACKUP (DON'T USE)" and "DOCS (MUST KEEP)".

Even though no Windows PC company has bitten the bullet and killed off the floppy drive across its range (though Dell has made it optional on some newer ones, and various portables offer it as an add-on), the floppy lives a zombie existence, offering too little storage to be useful, yet indispensable by virtue of being a standard.

For a while, it looked as if the storage company Iomega would change all that permanently.

When introduced in March 1995, the Zip disk and drive combination could store 100 megabytes, and ran as quickly as a floppy disk.

For people in graphics and businesses who needed to move big files quickly pre-internet, the Zip drive was nirvana.

Iomega followed up smartly with the Jaz drive, able to store up to 1 gigabyte of data, and Iomega was soon in clover.

In 1996 it made profits of US$57.3m, compared with US$8.5m the previous year, on revenues of US$1.2bn, up from US$326.2m.

But then the wheels began to come off.

By mid-1998, the company was shedding executives as analysts reckoned that it had paid too little attention to quality control and to controlling costs of supply.

Profits fell, but Zip disks still sold well.

Iomega had problems, but they weren't terminal in themselves.

Its real troubles, however, were just around the corner.

Iomega made its profits on the Zip and Jaz drives by what's called the "razor blade" model of business: sell the handle cheaply, sell the blades at a huge profit.

The drives are cheap, but disks are pricey.

The internet couldn't overturn that, since moving 100Mb files around isn't trivial, even on broadband.

But cheap CD burners, which came on the scene in 1999, hit the Zip and Jaz businesses hard.

Today your choice is: use your £100 CD burner to burn a CD costing less than £1 with 650Mb of data, or use your new 750Mb Zip drive (introduced last year, cost £115) to store slightly more on a disk costing £7.50.

No contest.

And you can be confident that the lifespan of the burned CD will be better.

Iomega's latest results show that in 2002 it had total sales of US$614m, on which it made a (respectable) net profit of US$34m.

But that compares with 2001 sales of US$831m - on which a net loss of US$93m was recorded.

Iomega has been smart, and diversified: it now offers CD burners, and separate hard disks (the latest "HDD" portables are good value, and available in sizes up to 120Gb), and is even moving into networked storage, which turns on IT managers but does nothing for me.

It's surviving. Yet it's a bleak reality: where Iomega once had a lock on the corporate world's desktop just-in-time storage needs, now it's scrapping for market share with dozens of other companies that make CD burners and hard drives.

What's happened? Standards have happened.

Obviously, Iomega kept its Zip drive interface secret; there have never been third-party versions.

But while it made hay, other standards came up on the outside and, as American footballers say, blind-sided it.

For you and me it's a tale of joy, because we get to store things anyway at the best price.

But for anyone looking to get a proprietary lock-in, it's a salutary tale: the diversification of users drives the development of standards and commoditises everything.

Fight those standards, and you'll lose.

- INDEPENDENT