Iomega Corp CEO Werner Heid knows how the razor blade principle of business works: give away the razors and customers will have to buy the blades.
As a vice president for Hewlett-Packard Co, he learned that the theory works in the world of computers. Sell enough printers at rock-bottom prices, and consumers will make up the difference by buying ink cartridges at US$27 a pop.
Now he's trying to revive Iomega's flagging sales by applying the concept to the company's mainstay products. Move enough Zip drives, he figures, and maybe customers will buy enough Zip disks to buoy up Iomega's bottom line.
Problem is, it's unclear if there's room for growth in magnetic storage devices. Rewritable compact discs are getting cheaper every day and rewritable DVD's are around the corner.
Iomega is pressing forward nonetheless, putting money into marketing even as the company is laying off 1,250 of its 3,300 employees in an effort to slash costs. The company lost nearly US$36 million in the second quarter of 2001.
Heid took the CEO's job in June, replacing Bruce Albertson, who resigned over differences with the board. He is paring down Iomega's product lines, temporarily abandoning efforts to push trendy retail products that Albertson had championed such as the audio player HipZip and picture storage system FotoShow.
Instead, Iomega is reaching out to current Zip users (it estimates 42 million drives are currently in use), producing new software that will encourage them to use more storage space. The company is also targeting new customers by cutting prices on Zip drives, which accounted for nearly 79 percent of its revenue in the latest quarter.
Heid said Iomega may soon sell its 100-megabyte drive, now US$85 on the company Web site, for about US$50 at Target or Wal-Mart. The drives would come with Iomega's ActiveDisk software, which lets users run applications directly off their Zip drives, bypassing the need for a hard drive.
"If you have small kids at home who are constantly hammering the computer but want to play their own games, the kids would basically plug their disks in and can play without ever touching your hard drive," said Heid.
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