Removable storage vendor Iomega increased its sales 540 per cent in the first half of 1996 over the first half of 1995, to $US490 million. The company has had problems, however, coping with technical support and product supply. While in Singapore recently, Iomega president and CEO Kim Edwards, who orchestrated the company's shift from the Bernoulli drive to the consumer-driven Zip, Ditto and Jaz drives, talked to IDG's Leong Yin Leng, about the company's new plant in Penang, and his views on supportIDG: The success of Jaz, Ditto and Zip has resulted in supply and support problems for Iomega. How will you deal with these problems?
EDWARDS: Well, first of all, supply is no longer an issue. We can meet the supply or the demand around the world. You're probably aware of the seasons with retail, such as at Christmas.
Where we will focus a major portion of our production is actually in Penang, Malaysia, where we purchased a 37,000 square metre facility with some 10 per cent of that as world-class cleanroom. We wanted to have our new Penang facility up and running, in addition to maintaining the current production facilities that we already have, to be able to support the Christmas season. We've also been working with vendors to ensure we have inventory in place to meet the demands.
IDG: Will the Penang plant supply most of the demand worldwide?
EDWARDS: We'll continue to produce in Utah and also continue to work with our contract manufacturing partners, but the primary line will come out of our Penang facility. We're now ramping up our Jaz drives there, we've actually made line shipments of Jaz out of there already. We've just started shipping Ditto drives out of there about a month ago. We intend to start building Zip drives probably inside of the next three months in Penang. By next year at least 60 per cent of all three products will come out of the Penang plant.
IDG: What about your technical support problems?
EDWARDS: The computer industry in general has possibly set some false expectations on the part of the consumer. If you went back 10 years and you looked at the computer user out there, it was normally a pretty technical individual; his/her computers weren't very well established, and by the way, the margins on that computer were very, very high because the volumes were very low. So you could afford to get into a dialogue with the user, one engineer speaking to another engineer in many cases.
The thing the industry missed was that eventually this would evolve into a consumer electronics product not too dissimilar from your stereo or Walkman type of product. When we get into that type of model, the margins just aren't there any longer to support the one-on-one technical dialogue. What you really have to do is solve your technical problems inside the box, right inside the consumer packaging itself.
You have to have instructions that make this very easy to use; you have to make it install easily in the system. So, our real objective is to make our products foolproof when you bring them home. And the fact is, on a Zip drive, or even on a Jaz drive, most consumers can have the drive up and running in less than 5 minutes.
The other key thing you run into in the com-puter industry is that contrary to popular belief a lot of parts of the computer are not compatible. You can buy certain CD-ROMs that work in certain computers, and they don't work in other computers because of BIOS and other considerations.
So now we get into a separate problem: you the end-customer buy a computer, you think it's going to work with all the complements in the world, and for one reason or another you run into compatibility problems. Then you have to ask the question: who really should pay for that?
IDG: Who should?
EDWARDS: Fundamentally you want the computer manufacturer to have made the system such that you don't have these compatibility problems. But when there is a problem, it's not the user's fault, but to say that it's the peripheral manufacturer's fault isn't correct either.
The primary problem we had in the United States was not being able to supply technical support, that wasn't the issue. The issue was how long you had to wait once you called the technical centre. There were times, quite honestly, it could take you 45 minutes on hold. Now as a consumer, that would be a very, very frustrating experience, particularly if it was not your fault.
So we said, let's cut down on the time you have to wait on the phone itself. Today, working with an outside vendor, we've now got hold times down to less than a minute. And the way we've been able to accomplish that is we now have a system where, through a series of questions, we determine if this is an Iomega product problem, or this is a problem of some other origin.
If this is an Iomega problem, we will manage that problem and fix it for you for free. If it's another issue, we will charge you for the time.
And to get back to all your questions relative to support, the place to fix support is in the box, not on the phone. If you can't make it easy to install to begin with, you don't have a successful product. And we announced in May of this year we've already shipped two million of our drives. The number of returns are insignificant. And by the way, the number of phone calls relative to two million drives is insignificant.
IDG: So if it is a defect on your part, how long does Iomega take to fix the drive and get it back to the consumer?
EDWARDS: Well, this is a consumer electronics product. Let's say that you buy a stereo in Singapore. If you have a problem, you take it back to the retailer, and the retailer says, the stereo's bad, I'll give you a new stereo, I'll talk to Sony and they'll fix it. That's exactly what we want to do at Iomega.
In fact, in the States, that's exactly what you can do. If you have a bad Zip drive, you take it back to Computer City or Circuit City, two very large retailers in the United States. You won't have to wait, as a consumer.
You as a consumer really don't want to have to deal with Iomega if you bought the drive at Challenger. And we don't want you to have to deal with us. If you have a faulty drive, we want you to be able to take it right back to Challenger, and Challenger simply swaps the drive, and Challenger deals with us. And that makes your life, the consumer, very easy. That's the way the model needs to work going forward.
IDG: How about your corporate customers? Will there be a different model?
EDWARDS: Only to the degree that you're a corporate user, the likelihood is you probably bought through a large reseller. And in that particular case, we would expect that you just go back to that reseller and say you had a Zip drive fail. And the reseller would deal with us, so essentially it'd be the same model.
Your point of contact, in that place, is the distributor. Your point of contact, as the consumer, is the retailer. We don't want you to have to deal with multiple contacts. We want your life to be easy, we want your life to be just like it is when you buy a consumer electronics good, whether you're a corporate buyer or a consumer buyer. That's really how it works today.
IDG: On a different tack, how do you see LS-120 technology? This is a technology Iomega sold to 3M.
EDWARDS: Yeah, we sold that technology back in early 1994, and the reason we sold it to them was it was too slow. You know that they are shipping some drives, very very low volumes, while we have shipped over two million Zip drives. If you got one of the LS-120 drives, at least the ones we've seen, you cannot show PC-quality video on it. They don't run fast enough.
So, if you're going to introduce a 100Mb drive, you should be able to show PC-quality video, because more and more software is going to allow consumers to do that, more and more consumers are going to want to do it, or business people are going to want to do it in business presentations. So fundamentally if you have a drive that can't show the PC-quality video, you may have a problem with the consumers.
IDG: The LS-120 drive is backward- compatible with the 1.44Mb floppy, whereas the Zip drive is not. Will this disadvantage Iomega?
EDWARDS: Let me take you back several years ago, when you had 51/4in floppy disks. When they went into 31/2in floppy disks, they weren't compatible at all. Now, what's happened with the three and a half inch floppy today once CD-ROMs came out for distributing software?
People aren't using them any longer. They're too small, they're too slow. Most software is distributed on CD-ROMs. The fact is, the three and a half floppy is obsolete already. People are getting it in their computers, but the only reason they're getting floppy drives is because the computer manufacturer continues to supply them.
But the fact is, if you interview a broad segment of users out there, they're not using the floppy any longer, and when people ask about compatibility, I'll go right back to the big issue of when compatibility was not an issue when we went from five and a quarter to three and a half.
So we're saying, backward compatibility is not an issue. We've talked to consumers, they're not using their floppies any longer.
Now, who wants to make backward compatibility an issue? LS-120 manufacturers. But talk to the end-consumer - the end-consumer doesn't care. The corporate world doesn't care either, because the corporate world particularly wants a drive that they can play PC-quality on, for their business presentations.
IDG: A lot of Japanese manufacturers such as Matsushita and Mitsubishi support the LS-120. Is the Zip drive suffering in Japan?
EDWARDS: No, absolutely not. In fact, you can't buy an LS-120 in Japan. You can't. And by the way, let's go through who's using Zip drives in Japan: Fuji, Seiko-Epson, Maxell, Teac, and most recently, we just signed a licence agreement with Matsushita Communications.
The Matsushita company, one of the largest companies in the world, is now offering Zip drives, and by the way, they were the company that initially was offering LS-120.
IDG: So the Japanese companies are coming around, even though they are manufacturing LS-120 drives and media?
EDWARDS: I don't think they're coming around. I think the Japanese companies from the beginning recognised that Zip was the right solution, because again the Fujis of the world, and Seiko-Epsons of the world, went to Zip first. There are some second-tier people going with LS-120, with the exception of Matsushita-Kotobuki Electronics. They're very big, and they were part of the 3M deal initially. But just recently, their sister company Matsushita Communications said they're going to offer Zip.
So I think, from a corporation point of view, Matsushita is coming to the industry and saying, well, maybe Zip has won here, so we're going to cover ourselves by getting a licence from Iomega to produce Zip drives.
IDG: But Compaq, arguably the biggest PC manufacturer in the world, is behind the LS-120.
EDWARDS: And how long have they been talking about that? For over a year, and now, finally, some LS-120 drives are starting to ship. But they're starting to ship at very high cost, and they will continue to have relatively low performance.
And by the way, we still consider, always have considered, Compaq a potential customer. So we'll be continuing to talk to Compaq about the possibility of using Zip drives, and we will continue to try to convince them that they really want to offer Zip drives in their systems.
IDG: How do you see competition from SyQuest?
EDWARDS: In the last six months, we made $US26 million. In the last quarter they lost over $US44 million on $US32 million in sales. Why? Because they tried to copy Zip unsuccessfully, and while we were making money, they were losing it.