USB Flash Drives: Not Just for Files Anymore
By Om Malik, March 30, 2005
business2.com
Back in November 2003, Business 2.0 published "The Rise of the Instant Company", which tracked the trend of smart entrepreneurs who were taking off-the-shelf commodity components, layering them with smart software, and laughing their way to the bank. At the time, the trend was limited to network-centric appliances and storage devices. But now the instant company is going mass market, and we can thank the lowly USB flash drive for that.
The size of a pack of chewing gum, the USB flash drive combined cheap flash memory with omnipresent USB connection technology to kill off the floppy drive. These rugged, featherweight marvels can store lots of files and, on a per-megabyte basis, are dirt cheap. Most computer users have several of these drives, dangling from their key chains or hidden in their computer cases.
At first blush these devices are poster children for the curse of commoditization. The relentless march of Moore's Law has driven memory prices to an all-time low. A 1-gigabyte drive that cost about $200 only 15 months ago is going for half that these days. Falling prices have boosted adoption -- nearly $4.5 billion worth of these drives were sold in 2004, and that number will top $5.6 billion in 2006, according to market research firm Web-Feet.
This fast adoption means opportunity. Take Apple's (AAPL) iPod Shuffle. At its core the iPod Shuffle is nothing but a cheap USB flash drive. While a 512-megabyte flash drive costs about $45 in the open market, Apple sells the Shuffle for twice as much. How? By adding special Apple software and some chips, it turned a cheap drive into a slick music player. (The lesson here is that if you want to make real money, you should differentiate the commodity product with good industrial design and software.)
Others are waking up to this opportunity. U3, a Redwood City, Calif., startup backed by major flash memory makers Sandisk and M-Systems, is developing a drive that would let you carry around the programs and data you use most often. By plugging it into any computer, anywhere on the planet, you could use your e-mail, browser (and bookmarks), and other applications as you would at home.
U3 achieves this by adding a thin software layer on top of the drives. The company is currently wooing developers to adapt their software programs for flash drives. Its hope is that it will add more value to ordinary flash drives. I recently met with CEO Kate Purmal, a former Palm executive, who pointed out that U3 is working with folks like Corel, McAfee, and the Mozilla Foundation to port their software onto these bite-size drives. The company is also licensing its technology to other flash drive makers, such as Verbatim, that no longer want to sell plain-vanilla storage drives.
Apple and U3 have shown that, with a little bit of imagination and more than a little chutzpah, there's a great opportunity where most see just a commoditized market.
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