Ah, the Iomega Zip drive. It brings to mind the special memory of running back and forth between the university computer lab and the dorm room transferring songs downloaded from Napster 100 MB at a time. In a short window between the dominance of the 3.5″ floppy disk, and the development of the CD (compact disc), the Zip drive ruled them all. Let’s take a look how it all started…and ended for Iomega.
Silicon Valley, Bay Area, San Francisco you ask? Nope, the story of Iomega Corporation begins in Roy, Utah. David Norton and David Bailey both worked on the same project for IBM in Tucson, Arizona, in the late 1970s. You may have heard of it. It was eventually branded the Bernoulli Box by Iomega, but let’s not get ahead of ourselves. The two David’s worked well together and realized they both went to Utah State University. Norton had his PhD in mechanical engineering, and Bailey earned his master’s in electrical engineering. IBM, however, had no real interest in pursuing the project and eventually halted development. Instead of giving up on all of their hard work, Norton and Bailey decided to start their own company, which they named Databyte. That name lasted for less than a month, and they renamed it Iomega in May of 1980.
The David’s were motivated, but they needed some fast cash to get the ball rolling. They were funded in part by the oil-rich Bass family in Texas, and their fund Idanta Partners managed by David Dunn. David Norton was determined to start the company in Roy, Utah, where he had connections, but Dunn was skeptical and worried that the partners would not hire outside of the Mormon church. Norton and Bailey prevailed, however, agreeing to promote diversity within the company. The deal was struck for roughly $5 million, and Dunn became the board chair of Iomega.
Early Years and Product Evolution
The company’s vision was to revolutionize the way data was stored and shared. Up until this point, the primary means of storing data was a 5.25″ floppy disk, followed by its 3.5″ counterpart introduced in 1982. In its early years, Iomega focused on developing storage solutions that catered to the needs of both individual consumers and businesses. These first years proved difficult as engineers scrambled to come up with a product that could go to market quickly. They also had no cash coming in other than the venture capital that was funding them. Things started to take a turn for the better in 1983, and Iomega’s had it’s first significant success with the introduction of the Bernoulli Box.
The Bernoulli Box was dubbed so based on the Bernoulli principle, which was integral to its design. Named after the Swiss mathematician Daniel Bernoulli who first formulated it in the 18th century. The Bernoulli principle has numerous applications across various fields of science and engineering. It explains the functioning of a wide range of devices and phenomena, from the lift force on airplane wings and the operation of carburetors in engines to the behavior of natural river flows and the dynamics of atmospheric pressure systems. In the case of the Bernoulli Box by Iomega, it inspired the technology that allowed the drive’s read/write heads to float on a cushion of air, thus reducing physical damage and the risk of data loss. It utilized a flexible disk that spun in a manner where the disk itself did not come into physical contact with the read/write heads, thanks to the air cushion created by the high-speed rotation. This design significantly reduced the risk of data loss due to head crashes, a common problem with early hard drives. The Bernoulli Box was well-received, especially among graphic designers, video producers, and businesses that dealt with large files. The original disks came in capacities of 5, 10, or 20 MB, far surpassing the 1.44 MB everyone was used to with the 3.5″ floppy drive. It was considered a premium product retailing at $2,700. With a price point reflecting its advanced technology and benefits, Iomega was paving the way for itself in the high-capacity storage market.
Going Public
With this new portable powerhouse of storage on their side, the little company in Utah went public in 1983, raising $21.7 million during their IPO, and generated $7 million in sales the same year. The next year was looking promising when Iomega reported its first annual profit of $2.5 million, and annual sales soaring past $50 million. By 1986 sales were over $126 million, and investors were elated. However, Iomega miscalculated market demand, and paid little regard to changing technology in personal computers. Most PCs were now coming with preinstalled hard disk drives, and drive manufacturers were lowering their prices. Soon, Iomega found itself with warehouses full of Bernoulli Boxes and no buyers while their expenses were climbing to perilous numbers. At the end of the year, the company owed $8.5 million in bank debt and their stock prices tumbled nearly 83%. 1987 proved no better, with sales decreasing by 30% and the company was on life-support. Flirting with bankruptcy, they had no choice except to shut down all manufacturing and get the cash flow under control. They brought in Michael Kucha, an early investor and business turnaround expert.
Ups & Downs
Kucha was named CEO and immediately started trimming wherever he could to keep the company afloat. Faced with a series of unique challenges, his first step was to cut labor down to 750 employees from the previous 1,350. However, he didn’t take one penny away from research and development. Kucha knew that in order to survive, Iomega would need to innovate. By 1988 the company was starting to look healthy again. The bank debts were cleared, $18 million in cash was freed up, and a new and improved Bernoulli Box was developed. Kucha’s work was done, and he was ready to step down as CEO.
In 1989, Fred Wenninger from Hewlett-Packard came on board to pick up where Kucha left off. While Kucha focused primarily on getting Iomega’s financials in order, Wenninger brought a different perspective from HP, and focused on the company’s manufacturing. He clearly saw need for improvement. He cut the turnaround time of product manufacturing to shipment from 28 days down to just 2 days. He also slashed the design time for both circuit boards and product aerodynamics considerably. By 1990 the company was back on track and boasting annual sales of $120 million. The successful rebound, unfortunately, was short-lived.
During the early 1990’s Iomega was a roller coaster of success and failure. They found themselves in a nearly identical position before Michael Kucha came on board. Their niche market for the Bernoulli Box was suffocating the company. The product wasn’t attracting enough customers to turn a profit, and its price point was looking less attractive than the emerging competition. Their main buyer was the government and some other large corporations. With investor confidence at an all-time low, stock prices dropping to $2 a share, and losses totaling $14.5 million, Wenninger announced that he wanted to jump ship and that the board should start looking for a new CEO immediately. The constant rotation of personnel was starting to take its toll on the beleaguered company.
Enter Kim B. Edwards in 1994. His idea was to shift the company philosophy of Iomega. Rather than being a technology-driven company, Edwards focused primarily on marketing efforts, and did he ever! In just a few months, he shifted all energy toward marketing and reaching the customer base in a more profound way. He sent employees out to engage with customers directly, asking them what they wanted from high-capacity storage devices, and the number one answer was one they could afford. Edwards worked with the manufacturing and development team to slash the high price tag and create a low-cost version of the Bernoulli hard disk drive that could make its way into mainstream markets. It was released in March of 1995 to the general public. They called it “Zip.”
The Zip Drive Era
The first Zip drive offered an unprecedented storage capacity of 100 MB of data. More importantly, it was priced at just $199 versus the $2700 for the original Bernoulli drive. 100 MB zip disk was sold for $19.95, and just $9.95 for a 25 MB version. They also launched a sister product named the Jaz drive, which had a 1GB capacity and a much higher price point at $649 to satisfy their niche market and customers who required higher capacity storage solutions. The cartridges were sold under the name “Ditto.”
However, it was the Zip Drive that dominated the storage market. Its convenience, reliability, and capacity, made it the preferred choice for backing up important files and transporting them between PCs. The drives sold out on the first day they hit shelves. Consumers couldn’t get enough of them. The idea of having 100 MB of storage capacity on hard disks that could be carried in your pocket was unheard of. The drives easily connected to the parallel port of the PC, and featured a through-port to support existing printer connections. Zip even dipped their toe into the fashion world, selling hats and t-shirts with the Iomega logo. The Zip propelled Iomega to its peak, with sales soaring and the company’s stock price hitting record highs. Iomega continued to innovate, releasing later versions of Zip with higher capacity drives and disks—250 MB and later 750 MB disks. They also expanded marketing operations overseas in Europe, Japan and other parts of Asia. Revenue totaled $362 million in 1995.
By 1996, Iomega’s revenue was $1.2 billion, and the company was the leader in data storage. The Zip drive was the industry standard, and its success was due to direct-to-consumer marketing. Kim Edwards knew that in order to stay relevant, he’d need to position the company to sell B2B directly to computer manufacturers. His strategy was to double-down on B2C marketing. He knew that if home users demanded it, computer manufactures would be forced to integrate Zip drives within their machines. The company’s stock price rose more than 2,000% in a tech bubble and by May of 1997 the bubble burst with shares dropping 68.1%
Challenges and Decline
Despite its early successes, Iomega faced significant challenges as the technology landscape continued to evolve in the late 1990s. For once, it had direct competition in the storage market. The introduction of rewritable CDs and DVDs, external CD writers, along with the rapid growth of USB flash drives in the early 2000s, began to erode the market for Zip drives. These new technologies offered greater storage capacities, faster data transfer rates, and were increasingly becoming standard features on personal computers. The Zip drive also had an unfavorable phase coined the “click of death,” which typically signaled a catastrophic failure within the disk itself. It resulted in a class action lawsuit filed against the company, which also tarnished the Zip brand.
The emergence of cloud storage and streaming services further diminished the need for physical storage devices, impacting Iomega’s core business. Attempts to diversify and innovate within the digital storage space, including ventures into media readers and network storage solutions, were unable to reverse the company’s declining fortunes.
Acquisition and Legacy
In 2008, Iomega was acquired by EMC Corporation, a global leader in information storage and management, for approximately $213 million. This acquisition marked the end of Iomega as an independent entity but also highlighted the enduring value of its contributions to data storage technology.
The legacy of Iomega and its Zip drives endures in the memories of those who lived through the era of floppy disks and the early days of digital storage. The company’s rise and fall serve as a compelling case study in the fast-paced world of technology, where innovation can rapidly shift from being a market-leading advantage to a struggle for relevance. For those of us who remember the glory days of the Zip Drive, and Iomega, they are fond memories in tech history. While the company may no longer exist as it once did, its impact on the portable storage market and the lessons from its rise and fall continue to resonate within the industry.
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Photo By Yuri Litvinenko / 30pin
