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Any zing left in Iomega's Zip?

The storage device maker lets loose a faster, 750MB Zip drive into a market dominated by CD and DVD formats. Can Zip speed back to the top of the pack? Analysts have their doubts.

Can Iomega put zip back into Zip?

The San Diego-based company, which introduced a faster, 750MB Zip drive Thursday, seems to think so. But analysts have their doubts about how much life is left in the speedy line of detachable drives.

The new Zip 750 drive is available immediately in a version that supports USB (universal serial bus) 2.0 connections. Iomega plans to unveil a FireWire model at next month's Apple Expo in Paris. The USB 2.0 drive sells for $180, while a disk goes for $14.95 singly or $12.49 in packs of eight. When available, the FireWire Zip 750 will sell for $200.

Zip technology was one of the runaway PC product success stories in the days before the dot-com boom made intangibles the hot commodity among technology consumers and Wall Street investors. Iomega launched Zip at the Comdex trade show in late 1994, at about the same time competing technology LS-120--later dubbed SuperDisk--debuted. The original Zip read 100MB removable disks, compared with 120MB for SuperDisk drives, which also were backward-compatible with standard 1.44MB floppy diskettes.

But the meteoric rise of CD-rewritable drives in the late 1990s, followed by the ever-growing popularity of DVD recording, cast a shadow over the high-capacity Zip floppy. The disk's capacity of 100MB--and later 250MB--could not compete with 650MB CDs or 4.7GB DVDs, particularly as trading of digital music files soared. The low cost of CD media, and the CD's ubiquity compared with Zip, also hurt the one-time contender to replace the venerable floppy drive.

Zip's position in the worldwide optical and removable storage market has steadily declined since its peak in 1999, according to research firm IDC. Zip's market share is about 2.5 percent, down from a high of about 10 percent three years ago. CD-ROM and DVD-ROM dominate the market with a 51 percent share. But CD and DVD recording, at 45 percent share, are rapidly closing on the older optical technologies.

Rivals zip by
"The market kind of zipped by them," said NPD Techworld analyst Stephen Baker. "But I'm not sure what they could have done differently."

Even as Zip's position worsened, the overall storage market increased, which for a time helped sales, analysts say. Iomega sells about 1 million Zip drives each quarter--the 250MB model accounting for 60 percent, and the 100MB drive for 40 percent, said Tim Dammon, Iomega's product general manager.

But if retail sales are any indication, Zip's position is rapidly weakening, Baker said. He isn't convinced the new 750MB drive can stave off the decline, given the wide number of cheaper personal storage options available to consumers.

"A drive that offers less than 1GB storage appears to be an anachronism in a market where I can buy external hard drives that offer 5GB, 10GB or 20GB of storage for a few hundred dollars," Baker said.

Retail unit sales of Zip drives fell 40 percent during the first half of 2002 compared with the same period a year earlier, according to NPDTechworld. At the same time, the average selling price actually rose to $125 from $112. Retail sales of the 100MB Zip plummeted 53.6 percent during the period, while sales of the 250MB model declined 21.4 percent. Likewise, sales of Zip disks dropped dramatically--40 percent during the first half of 2002 over 2001.

But Dammon argued the U.S. retail market offers only a limited perspective on Zip sales and does not take into account the large number of drives and disks sold with PCs or in foreign markets.

The Zip 750's larger capacity may appeal more to existing customers than to reviving dwindling sales, say analysts. The drive's ability to read and write to 250MB Zip disks and to read 100MB disks is an asset to that end.

The Zip 750 is "not going to be a repeat of the runaway success of the original Zip," said IDC analyst Wolfgang Schlichting. "But like the Zip 250, it would have the potential of a refresh, particularly with the install base--and it may go beyond a little bit. But I wouldn't expect any growth in the overall Zip market because of the new product."

Dammon acknowledged that the faster, larger capacity drive isn't likely to recover Zip's glory days. "It was the right product at the right time," he said of the Zip 100. He conceded that CD-rewritable (CD-RW) and DVD-recording optical drives have taken a huge lead in the personal storage market. "But we have a loyal following, particularly in government and education...this product is for them," he said.

Schlichting agreed. "There are pockets where Zip is still well-entrenched, and the 750 can continue its appeal," he said. "But optical is very well-entrenched in the entertainment market because of the prerecorded content on CDs and DVDs."

Zippier Zip
Still, Iomega believes the Zip 750's ease of use and speedy performance will appeal to people looking for a straightforward way to back up important data. "We're not really trying to compete with CD-RW. This product is for those people who want to back up and protect their data," Dammon said.

Iomega also improved the speed of 750MB Zip. The new drive's USB 2.0 interface delivers read/write speeds comparable to a 50X CD-RW drive. But going with USB 2.0 initially and delivering FireWire later is risky, analysts say.

Microsoft only began offering USB 2.0 support in Windows XP on Feb. 1, with the majority of PC makers waiting until the May availability of Intel chipsets to offer the high-speed connectivity option on new machines.

But many lower-cost PCs and most notebooks still ship with USB 1.1, an older version. USB 2.0 delivers throughput up to 480mbps compared with 12mbps for USB 1.1. The Zip 750 will work with USB 1.1-equipped computers, but transfer data at the dramatically reduced speed.

By contrast, FireWire, which supports throughput up to 400mbps, has been shipping on most PCs and notebooks for more than a year.

"Certainly going into next year, we will see USB 2.0 very quickly overtake FireWire," Schlichting said. "FireWire right now has the larger install base."

Iomega offered a FireWire attachment for the Zip 250 drive, but the company doesn't plan any such add-on for the new model. Those looking for a FireWire version of the 750MB Zip will have to wait until later this year.

"This product is more for our loyal Macintosh customers," Dammon said of the FireWire model.

But Baker thinks waiting on a FireWire drive is a mistake. "FireWire makes more sense in the market right now, even if USB 2.0 is likely to dominate next year," he said.

As Iomega looks to garner interest in the Zip 750, the company plans to emphasize the importance of secure, personal backup. Iomega also sees the product as important to filling out a storage line that now stretches from 100MB to 480GB.

With consumers accounting for 62 percent of sales, the company will be looking for new ways to generate retail sales, Dammon said. Still, PC makers represent the biggest sales channel for Zip and the best way to get drivers to consumers. So far, only one manufacturer has committed to the new model, Dammon said.

Iomega is considering repositioning the 100MB Zip drive, possibly cutting the price of the drives and disks. Even then, analysts remain skeptical of Zip's long-term prospects.

Baker said that with "the momentum in the market--increasingly given what people use storage for--the sizes Zip is offering are not competitive in the long run. Even rewritable CD is not a sufficiently large media to sustain itself in the coming years for personal storage."

He added, "750MBs? For personal storage, I can get a CD-rewritable drive for $50 and 650MB disks that cost 4 cents a piece in bulk. That's hard to beat, especially when the Zip media costs $15."