History (1996): Exclusive Interview With Kim Edwards, Iomega CEO

At this year’s CeBIT, Iomega (Roy, UT) gave a press conference, following which CEO Kim B. Edwards accorded us a private interview.

Kim Edwards
His business philosophy is simple: “To be successful in today’s marketplace, a company must provide customers what they want, at a price they can afford to pay.” Succeeding Fred Wenninger as president and CEO of Iomega in January 1994, he had the same positions at Gates Energy Products, a rechargeable battery business with 3,200 people in Gainesville, FL. Before joining Gates, he spent 18 years at General Electric where held various marketing positions. He has a B.S. in Mechanical Engineering from Lafayette College. He holds 2 patents and serves on several boards of directors.

Computer Data Storage Newsletter: When you speak of the “New” and “Old” Iomega, it seems you don’t like much about the “Old” Iomega, or your predecessor …

Edwards: It has nothing to do with my predecessor. In 1993, the “Old” Iomega lost $17 million, there’s not too much to like about that. And Bernoulli sales were declining, so we had to develop a new Iomega, the old one wasn’t working. Iomega now has the 3 hottest peripherals in the industry. Every product we have now, Zip, Jaz and Ditto was created after January 1994. Zip was first conceived in March of 1994, Jaz was sometime in mid’94, Ditto brand came in mid’94. So everything was brand new. Nothing existed.

What did you change, fundamentally, in your company?
Fundamentally, it was a change from being internally driven by the engineers to being externally driven by the customer. The new Iomega is externally focused: everything we do is based on providing customers with what they want, when they want it, at a price they can afford to pay. Everything is customer driven in the new company. Just as importantly, instead of just looking at the world from the perspective of Roy, UT, we look at the world in 3 equal parts: the Americas, Europe and the Far East. In fact, in 1995, we expanded our research facilities down into San Jose, CA, outside of Utah, to take advantage of some of the disk drive engineers that are there. We also doubled our facility in San Diego, CA, where we do our tape R&D. We expanded manufacturing facilities into the Philippines, Singapore, Taiwan and even San Jose, and we established international marketing and sales HQs in Freiburg, Germany as well as in Singapore in the Far East, and we now have both customer service centers in Dublin, Ireland, and Singapore going forward.

What was your marketing approach?
We went out and talked to people in the industry to get a feel for how we should proceed. The storage industry is a very interesting case. In 1994, there were about 65 or 70 million HDDs sold, but more impressively, in ’95 it’s now estimated that there were close to 90 million HDDs sold, somewhere around 65 to 70 million floppy drives sold, approximately 30 to 35 million CD-ROM drives sold. There were some 4 to 4.5 million tape drives sold. Now we looked at the removable cartridge drive figures, which include Bernoulli, SyOuest and magneto-optical. In 1994, this category of removables was measured in hundreds of thousands of units per year, while the larger category of storage unit sales were measured in tens of millions. This suggested to us a large opportunity. Since then, IDC has recast these numbers. They re-projected the removables category in light of the impact of Zip, and the picture has changed drastically. They are now estimating over 40 million removables shipping annually by the year 2000. All this is really being driven by software, however. In fact, Windows 95 installed needs approximately 100MB. A key here is that a lot of companies are quoted in magazines today as trying to “shift paradigms.” We say that we’re not interested in shifting paradigms, we want to smash paradigms. Shifting paradigms would have been trying to take 30 to 40% of the cost of a Bernoulli away, focusing on the competition. Smashing paradigms is taking 70% of the cost of a Bernoulli out, creating a brand new market, and ultimately creating a brand new standard as we drive Zip to the floppy for the multimedia age.

How are the sales of the new products in comparison with the Bernoulli ones?
In 1995, our sales were up 2.3x, to $326 million, of which 80% were from our new products Ditto, Zip and Jazz. In the 4th quarter, our sales were $149 million, of which 90% or $134 million were from the new products. We have already shipped our one millionth Zip drive, and a combined 2 million of all three products. Last November we hit the million mark, and in the 1996 we hit the second million: so it’s growing very, very rapidly.

How many people from the “Old” Iomega are still around?
By year end 1995, of our 84 salaried-exempt executives, 69 were new, many coming from the package-retail business. In manufacturing, we started adding people in 1995, as we brought up volume-production of Zipdrives, and in R&D we started adding people very early in ’94 to create the new products going forward. In fact, we’ve doubled the number of R&D people in the last 24 months. About 64% of our employees are new in the exempt, salaried ranks.

How many Bernoulli boxes did you sell in 1995?
Less than 100,000. Bernoulli is declining by our own choice. When we introduced Zip, we knew it would attack Bernoulli for the mass-market; with Jaz, we knew it would attack Bernoulli for the power user. In the 4Q95, Bernoulli sales were less than 13% of our overall sales. We’re no longer a Bernoulli company. But we still support the product.

Where do you situate yourself within the market?
Zip was really the world’s first mass-affordable storage solution. The reason for it was that it was less than $200. All of our research told us that to be a high-volume, mass-market drive, the product had to be priced at less than $200. The disks themselves had be less than $19.95. A couple of products have tried to come close to Zip, including the EZ135 from SyQuest, which began shipping last year. But this is a company trying to compete with fixed disk media vs. our flexible disk media. That company lost over $50 million in the last 6 months. They cannot compete on pricing with Zip.

What is your projection for Zip sales this year?
We have capacity right now, today, to do 4x as many Zip drives as 1995. Today. We could do over 4 million drives with today’s capacity, and we are going to continue to expand capacity on Zip.

Now it seems that the Floptical technology that you experimented with is to be the main Zip competitor. How do you explain this revival, and what chances do you give them?
We sold that technology to 3M. We were in development on Floptical until mid-1994. In 1994, we sold off our development in Floptical to 3M. The reason: Floptical had inherently higher costs. I think the reason it’s revived is due to 3M which has rights to the media. That’s where they make money. So they’re desirous of making that a proprietary technology. I would say that with Compaq using it and 3M supporting it, those are formidable competitors. But the specs they announced were 500KB/s, vs. Zip which is 1,400KB/s on an EIDE basis. So they’re about 40% of the speed at about twice the price. They’re not going to have an easy time competing. In the US, in a Compaq unit, as an option, theirs is a $199 option. Zip is only $99. But you should go over to the Compaq/3M booth at CeBIT and see the drive reading and writing a real file. There seems to be a slight technical problem. By the way, they’ve had that problem for 18 months.

And what’s your opinion on the 128MB Swan/Antek/Mitsumi floppy disk drive?
In the States, there’s a musical called Annie, and one of the key songs in it says: The sun’ll come out tomorrow. Everything technically, in the future, is better than today. Everything. The difference is, we can show you a Zip drive right now, running.

You have apparently lost the biggest OEM/PC manufacturer, Compaq, for your Zip floppy drive.
It’s not true yet. Do you want to ask them to show you one of their drives running?

I’ll rephrase the question. Has Compaq evaluated your drive in competition with the 3M/MKE device?
Of course. But they never did it head-to-head. Compaq has an agreement with 3M for the drive. If you look at the specs sheet, it says Compaq/3M. But the word on the street is that 3M is giving Compaq money from the disks. I would ask you a question. If you’re a competitor of Compaq, a computer manufacturer, and you know that every time you buy a Floptical drive, you put money in Compaq’s hands, would you be happy?

What is the monthly rate of production on Jaz drives?
It did not start shipping in volume until December. We don’t talk about specifics, but what we will say is that we will sell more Jaz drives, in dollars, in the first quarter this year than we did in Zip drives in the same quarter a year ago. Production on Jaz will be greater than Zip, on a dollar basis. First quarter to first quarter.

What percentage of your revenue come from Ditto cartridge drives?
In 1995, our tape sales were $87 million out of the $326 million. And Zip and Jaz combined accounted for $174 million. Ditto has now become Europe’s ≠1 tape brand, according to IDC, at the end of 1995.

How do you see Zip, Jaz and Ditto evolving?
On Zip, we started at $199, but we’d like to take that down to $99 on an external drive. We want to take down the disk to $9.95 for 100MB, and we also have announced a 25MB disk for select applications, which will be priced as low as $4.99. Today we have 250MB drives working in the laboratories, we have on paper the ability to build 400MB in the future. On Jaz, we’re looking to come down to the $299 price range, down as low as $49.95 for 1GB, and we believe that within the next 18 months, we can have a 2GB drive available. Today, the Ditto drive is available in external version for $149. Our goal is to take that down to $99, within the next 24 months. The product is 420MB at the bottom level, 840MB for the mid-level, and 3. 2GB at the high-end. We’re already looking ahead to 5GB for the power user.

Do you plan on using MR heads in future gens of the Jaz drive?
We have evaluated that, but in the short-term, they’re too expensive to meet the price points we had.

If you were Syed Iftikar, SyQuest’s CEO, what would be your strategy?
To learn how to make some money.

What would be the best strategy to compete with you?
Sometimes it helps to join rather than compete.

Have you studied the new SyQuest/Nomaï standard?
No. We approached them before to talk about different things, and they weren’t interested in a discussion, apparently. So we left it at that.

Maybe you recall what happened to SyQuest and Nomaï? Have you protected your technology?
We have some 20 patents pending or already on file for our disks, roughly 91 for our drives.

Who are your main distributors and OEMs?
We’ve allied in the US with Ingram, MicroAge, Merisel and TechData. In fact, we were ≠1 in tape drive sales at Ingram this last quarter. Here in Europe, we’ve allied ourselves closely with Computer 2000, Actebis and Peacock. On the retail side, we also placed a lot of focus, taking Zip and Ditto into every major retailer. Once again, we were ≠1 in 4 of the top 5 retailers in the Christmas period of 1995 for tape sales. Here in Europe, it’s an equally long list, starting with Escom, Vobis, and so on. But the most important part of all are the OEM relationships. First of all, we got Zip and Jaz into Power Computing, which are the Mac clones. We are allied very closely with Glyph and MicroNet, which are high-end manufacturers of audio/video equipment. They use Jaz drives. Micron is a major US PC manufacturer that offers Zip and Jaz, where you can have a Zip option installed in their computer for $99. Roland is keyboard manufacturer for the music industry, both high-end where they use Jaz, and mass-market where they are looking at Zip. Most recently we announced an alignment with Hewlett-Packard, who will take their Pavilion line and offer it with the Zip drive. Here in Europe, we’re allied with Escom, who have 50 computers in their booth here at CeBIT, all installed with Zip drives, which they offer as an option for DM199.

Who manufactures the media?
We buy the magnetic flexible disks from Sony, but we assemble them in the US. And we also have a company called MegaMedia in the Far East who make floppies.

MegaMedia is a subcontractor, but they don’t sell your media…
That’s correct. But Seiko/Epson does, Fuji does, Maxell does, Sony does. Needless to say, we focused heavily also on forming manufacturing alliances: Seiko/Epson, in 4Q95, who built as many Zip drives as we did in Roy, UT. We have a close relationship with Fuji, who provides the magnetic media that fit inside the disk, but additionally they’ve added capacity to meet the growing needs of the Zip disk in the future. We have a company called First Engineering in the Far East, they help to manufacturer Ditto drives, which we also build in Roy, UT. And finally, Sequel, a recent manufacturing partner that builds Jaz drives in San Jose, CA, and we build the Jaz disks in Utah.

You are probably the only storage company in the state of Utah, a predominantly Mormon state. Is it an advantage or disadvantage?
The old company was headquartered up in Roy, UT, which they honestly felt was the center of the universe. The problem the company had was in being too inwardly focused and technologically driven, rather than in understanding what the customer was. But the positive side was excellent technology, excellent quality, and very, very good R&D engineers. Certainly the production and work ethic is very good there. Incidentally, Novell is there. Then there are a few other companies, in the aerospace industry, which are also very large there. We’re one of the larger companies, but not the largest. Is it an advantage? From a production worker point of view, the accessibility is good.

How much did you spend in public relations or communications?
We don’t break those figures out specifically, but I could say R&D will be somewhere around 6%, and SG&A, which includes marketing, will be somewhere around 15%, maybe as high as 18%, because of the advertising expenses. We stared television advertising in the US. in February with Ditto, on cable channels such as CNN and CNBC, but also spot TV in 6 major metropolitan areas, on major network shows. This month (March), we started TV advertising in the US on Zip. From the point of view of media coverage, we’re still getting the same coverage from PC magazines, but now we’re getting additional press from business magazines, and we were in the December issue of Vogue, along side a bottle of perfume and women’s clothing. We’re getting to the broad marketplace. With the introduction of Ditto, we’re still getting coverage in the specialized PC magazines, but now we’re getting coverage in major newspapers and magazines throughout the country.

Note: Edwards resigned from Iomega in March 1998, ending his career in 2001 as CEO of Xigo.

This article is an abstract of news published on the former paper version of Computer Data Storage Newsletter on issue 99, published on April 1996.