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To: Z Analyzer who wrote (1911)	8/1/2000 3:23:45 PM
From: Gus	Read Replies (1) \| Respond to of 1989

The July 2000 issue of Insight (IDEMA) has a must read article, excerpted below. Warning: some of you may not know whether to laugh or cry after reading this article. The desktop markets changed dramatically in the spring of 1999, but the fact remains that there was simply no meaningful strategic or tactical reason for dropping desk- top pricing to such low levels in June 1999. What the industry sadly exhibited was money-losing behavior, with no appreciable market share shifts and no clear winners (other than the OEMs). Everybody lost. Dataquest finds it curious that executives from all of the publicly held drive makers claimed to have responsibly walked away from OEM price quotes that did not make good business sense, and yet entry-level desktop pricing still fell to unprecedented levels. Obviously, the top-tier PC OEMs had the luxury of enhanced multiple choice and pricing leverage, and mercilessly used this leverage to create a downward pricing spiral. Obviously, more than one drive manufacturer capitulated. Obviously, many of the drive makers sold some products at desperately discounted prices (whether for the sake of merely maintaining or stra-tegically increasing their market share is irrelevant). Some drive makers may have quoted an outrageously low price with no intention of delivering any substantial volume of product at such a discounted price — this is a standard if ignoble ploy that has been used in many industries to decimate competitors’ short-term profits. Dataquest believes that, in this kind of pricing environ-ment, there are no innocent bystanders, only survivors, and all players are perpetrators. All of the desktop drive makers should hold themselves jointly and severally accountable for legitimizing new entry-level price points which also drastically dragged down the price of higher-capacity desktop drives. Because of a lack of patience, combined with the difficulty of determining which price quotes were real and which were not, the industry established — as it has so often done in the past — prematurely low (and mostly profitless) prices...... .......Product line managers, who are primarily responsible for pricing decisions in this industry, have to deal with a stupefying quantity of disinformation. It is always hard to judge the difference between a necessary and a foolhardy price reduction, because customers and salespeople are prone to strategic falsehoods. Most RDD salespeople are reimbursed based on revenue (rather than, say, on combined average selling prices to major OEMs), and most corporate OEM buyers are compensated based on their ability to negotiate better prices. These compensation schemes definitely favor the OEMs and not the drive makers, and Dataquest suspects that many unholy alliances forged over cocktails have expedited RDD price erosions....... .....A recent industry rallying cry and buzz-phrase seems to be: "Thirty gigabytes for thirty bucks!" Let us assume that some day in the near-distant future we can reliably produce a 30-GB device for a burdened cost of $30. Will we sell this hypothetical product for $45, $39, $35, $32 or (God help us) $29? We need to remember that the choice really is (to a large degree) ours to make. We can have healthy (even fierce) competition without merciless and irrational blood-letting...... The Past May Be Prologue or History May Be Bunk: Reflections on a Perilous Quarter John Monroe, Chief Analyst, Rigid Disk Drives Worldwide and Conference Chair, Dataquest StorageTrack idema.org