Beyond the floppy

Beyond the floppy

The floppy drive's days are numbered. Verbatim, Australia's leading manufacturer of floppy disks, which also produces CDs and DVDs, has witnessed a marked decline in floppy disk sales over the year. "We've been expecting it for a really long time but in the last 12 months it has noticeably declined," says Timmi Gibson, marketing communications coordinator for Verbatim Australia. She says the number of PCs shipping without floppy drives has a lot to do with the decline. Prior to this, consumers rarely considered the alternatives. Now the question on everyone's lips is: what will replace the floppy?

There is a plethora of removable storage devices already circulating in the marketplace - Zip, CD, DVD, Secure Digital (SD), MultiMedia Cards (MMC), removable CompactFlash (CF) and portable hard drives - but according to Gibson, nothing has directly replaced the once all-powerful reign of the floppy. "CD and DVD appear to be the front runners but it remains to be seen what medium will win out," she says.

Meanwhile, the channel is bracing against plummeting prices. Melbourne research firm IT Market Insights puts unit sales of CD/RW at around 550,000 to 560,000 for 2001 as opposed to 1999 sales of 180,000 units. 2002 sales have plateaued and should reach around 600,000. Jeff Li of local PC assembler Pioneer says the price of CD burners is around $85 for dealers. This means Pioneer can offer them as integrated devices in entry-level notebooks for as little as $1,399 (dealer price). It boosts demand but also reduces the profit on the sale.

Zip is also sustaining damages in this respect. Iomega Asia-Pacific president James Payne says that while sales have remained stable the price has come down, causing revenues to fall. "We haven't done a good job of explaining to consumers why they need both [Zip and CD/RW]. CD/RW is great for mass distribution media because it is cheap, but Zip is magnetic, it's secure and it's encased. If you look at the advantages, Zip wins most of the time. At the moment it loses in capacity but we will crack that fairly soon."

Meanwhile, Josh Velling, PC and server category manager at Tech Pacific, has his eye on the rapidly emerging DVD sector. It's early days for DVD burners and there are still some standards issues to be settled, but Velling says that as an emerging sector it will have serious legs. This growth will be aided by Microsoft, which has announced built-in DVD-burning software in its next version of XP (the current version has built-in CD/RW capability). This forum will have distinct winners and losers; dedicated burning software developers such as Nero will be squeezed while the winners will be Panasonic, Sony, Ricoh and Philips, which collectively own the patents for the total array of CD and DVD technologies.

The multimedia concept being touted by Microsoft is a huge driver for removable memory media, according to Velling. PDAs, digital cameras and audio players are finally generating notable demand, although Sony's optical storage product manager, Gordon Kerr, says cameras are the number one driver. "Ninety per cent of the market is buying this for one thing, and one thing only, and that's digital cameras," he says.

Nick Angelucci, marketing manager for Creative Labs, says the headway achieved in audio devices has not been without its tribulations. Pitching new and innovative devices in a conservative market like Australia is a tough task. Resellers are struggling with digital convergence and a fear of diversification has them passing up 30-point margins on new technologies.

Kerr says that with so many different products and vendors in the market, dealers' primary concern is holding stock. "They are quite happy to sell the product but they're not going to stock it. They rely on the likes of Tech Pacific to stock it and if the customer walks in they can order it in within a day," he says.

In addition to validating the distributors' role in the supply chain, (the ability to carry risk on behalf of the reseller) this leaves the responsibility of creating demand squarely on the shoulders of vendors. It means sinking in the big dollars on advertising and showcases, like the Consumer Electronics show held at Sydney's Fox Studios last week.

"Customers want to see, touch and feel, that's why Sony has gone to huge expense to set up show stores. Originally, resellers accused us of trying to compete. Gerry Harvey was spewing when we set up a Sony store at Fox Studios because one of his biggest Harvey Norman Superstores is just down the road at Moore Park. But since we opened that store, Gerry's sales of Sony product have gone through the roof," says Kerr.

Anita Ng of JNC agrees that there is no escaping the advertising angst. The Hong Kong-based manufacturer has been pitching its range of MP3 players to Australian retail outlets but is moving low volumes at this stage. "Part of the challenge is education, alerting resellers to the fact that these products exist and that they offer very generous margins," says Ng. Not helping the situation is IT resellers' obsession with corporate clients rather than attacking the entertainment sector, says Creative's Angelucci. He feels PC resellers tend to underestimate consumers' ability to spend $1,000 on quality PC/home entertainment gadgets.

Meanwhile, PC assembler and distributor Servex (soon to become Bluechip Infotech) is selling USB drives to the corporate sector as "the floppy disk cure". "Deloitte still gives its mobile PC users 15 floppies to back up on," says Servex's business development manager, Tim Davoren. With USB drive capacity currently up to 1GB, it leaves the 1.4MB floppies for dead. Its other advantage, according to Davoren, is that USB is almost universally installed. Countering this, the main drawback is the cost. "[Zip is] feeling the pressure [from USB flash storage] but luckily the price is up very high for a smaller capacity," says Iomega's Payne. By comparison, CD media is very inexpensive and likely to remain so.

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