In 1992, executives at SyQuest Technologies in Fremont, California, were shown a new removable disc technology developed by Fuji. It used a flexible magnetic medium instead of a rigid hard disk platter. It was slower and lower in capacity, but it was dramatically cheaper to manufacture and far simpler for a consumer to use. SyQuest’s engineers tested it and passed on it.
Their verdict was that it was too slow and too small, a step backward from the Winchester hard-drive technology that had made the company the industry standard. Three years later, a struggling competitor in Roy, Utah, took that same concept and shipped it under a different name. They called it the Zip Drive. Iomega priced it at under $200, sold 10 million units within three years, and built a billion-dollar company on technology that SyQuest had held in its hands and set back on the table.
SyQuest’s market share dropped from 87 percent to 30 percent in a single year. The company filed for bankruptcy in November 1998. Its stock, which had traded at $19 a share in August 1995, closed its final months at 34 cents. In January 1999, Iomega bought what was left of SyQuest for $9.
5 million. It was the only offer. The 44-megabyte cartridge that once moved an entire industry now sits in boxes at flea markets, unlabeled and unreadable. This is the story of the company that made it.
Syed Iftikar was born in India and studied at the University of Madras before following a professor’s advice that computers were, in his words, the wave of the future. He immigrated to the United States in the 1960s, earned a master’s degree in mechanical engineering from the University of California, Berkeley, and in 1970 took a job at Memorex Corporation in Santa Clara, California. For the next decade, he worked on magnetic disc drive technology, learning exactly how data is written, read, and stored on a spinning platter. By the end of the 1970s, Iftikar understood Winchester disc technology as well as almost anyone in Silicon Valley.
Winchester drives, named after an IBM project, sealed a magnetic disc and its read/write heads inside a clean, airtight enclosure. This allowed the heads to fly just micrometers above the platter surface and store far more data per square inch than older, open designs. It was the future of computer storage, but it still lived exclusively inside mainframes and minicomputers. The personal computer barely existed.
In 1979, Iftikar joined a group of engineers who believed Winchester technology could be shrunk down to fit inside a desktop machine. The group included Al Shugart, a legendary disc drive designer, along with Finis Conner and Tom Mitchell. Together they founded Seagate Technology in 1980. Iftikar, as vice president of mechanical engineering, led the team that designed the first 5.
25-inch Winchester hard disk drive for personal computers. That drive, the ST506, shipped in 1980 and became the standard the entire PC industry built on for the next decade. It made Seagate one of the most important companies in the history of computing. Shugart got the credit.
The industry remembers Seagate as Shugart’s company. But Iftikar was already thinking about something else. A fixed hard drive sat inside a computer and stayed there. You could not carry it to another machine or hand it to a colleague.
The floppy disc was portable, but it held so little data that it was already becoming useless beyond simple text files. What the market needed, Iftikar believed, was a Winchester-quality hard drive built into a cartridge that you could slide in and out of a dock. Nobody was making one. The technology was not easy, because Winchester drives depended on precisely controlled air pressure and contamination-free environments.
A removable cartridge, by definition, broke the seal every time it was ejected. In early 1982, Iftikar left the company he had helped build, cashed in his Seagate stock for starting capital, and founded his own company. He called it SyQuest, short for Syed’s Quest. The quest was to build a portable hard disk.
The man behind it had just helped invent the fixed one. SyQuest was incorporated on January 27, 1982, in Fremont, California. Iftikar brought four co-founders with him. The team began building the SQ306, a removable cartridge drive using a 3.
9-inch platter that stored 6. 38 megabytes of data. The cartridge itself was a hard plastic shell roughly the size of a small book with a Winchester disc sealed inside. Slide it into the drive, and the dock sealed the environment, spun the platter up to speed, and flew the read/write heads into position.
Pull it out, and your data left with you. In December 1982, SyQuest introduced the SQ306 at the National Computer Conference. The drive cost $750. A spare cartridge cost $35.
At 6 megabytes, the capacity was roughly four times a double-sided floppy disc. But the concept was unlike anything else on the market. This was not a floppy. It was a genuine hard disk in a package you could carry in one hand.
The product was elegant. The market was not ready. SyQuest sold the SQ306 to original equipment manufacturers. IBM, Zenith Data Systems, and AT&T became early customers.
Within a year, those three accounted for 80 percent of SyQuest’s revenue. The company survived, but barely. Revenue was thin, losses mounted, and by 1984, SyQuest was staring at failure. A competitor called DMA was fighting for the same OEM contracts, and neither company was big enough to sustain a prolonged war.
Iftikar went to the United States Army personally and pitched a removable storage system that met the military’s requirement for secure, portable data. When a soldier pulled the cartridge out of the drive, the classified data left with it, and the machine itself was clean. The army gave SyQuest the contract. DMA did not survive the loss.
That military contract kept the lights on long enough for Iftikar to push the technology forward. In 1986, SyQuest increased cartridge capacity to 15 megabytes. One year later, the company shipped a 5. 25-inch cartridge that stored 44.
5 megabytes. Then something happened that no one at SyQuest had planned for. Apple shipped the LaserWriter, Aldus shipped PageMaker, and the American graphic design industry moved onto the Macintosh. The laser printer and layout software created desktop publishing.
For the first time, a graphic designer could lay out a magazine page, a brochure, or a poster on a personal computer and print it at near-typeset quality. Almost overnight, files got enormous. A single high-resolution image could fill 20 or 30 megabytes. A complete print job with fonts, images, and layout files might run to 40 or 50.
Floppy discs were useless. Fixed hard drives could store the files, but you could not carry a hard drive to the service bureau that would output your film separations. Designers needed a portable, high-capacity medium that was fast enough to work from directly and rugged enough to survive a bike messenger. The SyQuest 44-megabyte cartridge was exactly that medium.
It connected via SCSI, which meant it spoke the same interface language as the Macintosh. It was fast because the data lived on a genuine Winchester platter spinning at 3600 revolutions per minute. And it was removable. A designer could fill a cartridge at her desk, slide it into a padded mailer, and send it to a service bureau, where the operator loaded the cartridge into their own SyQuest drive and opened the job immediately.
Nobody at SyQuest had designed the 44-megabyte drive for desktop publishing. But the Macintosh desktop publishing boom of the late 1980s created a user base that needed exactly what SyQuest sold. Revenue climbed from $20 million in 1988 to $50 million in 1989, to $80 million in 1990, to over $115 million in 1991. The installed base fed on itself, because a designer who received a SyQuest cartridge from a client had no choice but to buy a SyQuest drive to read it.
The company’s business model was the razor-and-blades formula. Sell the drive at a modest margin and make the real money on cartridges, which customers bought again and again. Cartridge sales eventually accounted for 55 percent of SyQuest’s total revenue. By 1990, SyQuest had shipped over 150,000 drive systems and 700,000 cartridges.
Roughly 75 percent of those sales went to Macintosh users. In December 1991, SyQuest went public on the NASDAQ exchange, raising approximately $23 million. But Wall Street wanted growth beyond the Mac niche. Three-quarters of sales going to one platform was a dependency, not a strategy.
The IBM-compatible PC market was vastly larger, and SyQuest had barely touched it. Iftikar opened a subsidiary called Sydos, based in Boca Raton, Florida, tasked with selling removable storage to the PC world. The competitor there was Iomega, a Utah-based company that had been selling its own removable drives, the Bernoulli Box, since 1982. The two companies had coexisted for years because they served different customers: SyQuest on the Mac, Iomega on the PC.
In 1992, SyQuest had revenue of $174 million and a commanding market position. Iftikar told an interviewer that his target was a billion dollars in annual sales. It was in this atmosphere of confidence that Fuji approached SyQuest with the flexible disc technology. SyQuest’s engineers evaluated it and recommended against it.
The drives were inferior by every metric SyQuest valued: speed, capacity, and data density. Adopting the technology would mean abandoning the Winchester expertise that had taken a decade to build. Iftikar agreed. SyQuest passed.
The decision made perfect sense in the room where it was made. SyQuest was an engineering company that competed on technical superiority, and the Fuji technology was technically inferior. What Iftikar and his engineers did not fully appreciate was that the consumer market they were about to enter did not buy technical superiority. It bought convenience and price.
The Fuji technology had both. Between 1990 and 1995, the number of personal computers in American homes roughly doubled. The home PC user was a fundamentally different customer from the pre-press professional who had built SyQuest’s empire. The pre-press user cared about speed, capacity, and SCSI compatibility.
The home user cared about price, simplicity, and whether the thing worked when you plugged it in. SyQuest had built its engineering, its pricing, its distribution, and its entire corporate identity around the first one. Iomega, by contrast, had spent years trying and failing to break out of its own niche. By the early 1990s, it had posted years of losses and was searching for a consumer product that could reverse the company’s decline.
The flexible disc technology that SyQuest had rejected was exactly the opportunity Iomega needed. In March 1995, Iomega launched the Zip Drive: 100 megabytes of capacity on a disc slightly larger than a standard floppy. The drive cost just under $200. Cartridges were $20 each.
It connected via a parallel port, the same connector every PC already used for its printer, which meant zero additional hardware. You plugged it in, you inserted a disc, and it worked. In 1993, Iomega had earned roughly $150 million. In 1995, the year the Zip launched, revenue hit $362 million.
In 1996, it was $1. 2 billion. A company that had spent 15 years struggling with niche products multiplied its revenue by eight in three years. Iomega’s stock soared past $100 a share, and the company’s market capitalization reached nearly $7 billion.
In September 1996, SyQuest had shipped over 3 million drives and more than 15 million cartridges across its lifetime. Revenue for fiscal 1995 reached $299. 5 million, the highest in the company’s history. But behind those numbers was the beginning of the collapse.
SyQuest posted a net loss of $11. 2 million that year, its first full-year loss ever. The very success of the cartridge business had created a vulnerability. In 1992, a French company called Nomai began manufacturing cartridges compatible with SyQuest drives, priced below SyQuest’s own.
In 1993, Iomega announced a distribution agreement with Nomai, meaning that SyQuest’s direct competitor was now selling cheap replacement blades for SyQuest’s own razors. SyQuest sued but failed to win an injunction. In June 1994, the dispute settled with a licensing agreement that granted SyQuest royalties but did not stop the flow of third-party cartridges. At almost exactly the same moment, fixed hard drive prices collapsed.
In the first half of 1994, hard drive prices fell by 25 percent, eroding the value proposition of any removable drive. SyQuest posted its first quarterly loss in five years. SyQuest’s response to the Zip was the EZ135, launched in 1995. On paper, it was the superior product.
It stored 135 megabytes per cartridge versus the Zip’s 100. It was faster because it was still a Winchester drive with a rigid platter. Its $20 cartridges offered more capacity per dollar. By every engineering metric SyQuest had ever cared about, the EZ135 was the better machine.
The market did not care. The EZ135’s external version required SCSI, which most home PCs lacked. It was not backward compatible with any of SyQuest’s earlier cartridges, which alienated the professional users who had been the company’s core audience. And it cost more.
Iomega cut the Zip’s price aggressively, and SyQuest matched the cuts, which meant selling the EZ135 below manufacturing cost. Every unit shipped lost money. The first quarter of fiscal 1996 delivered the verdict: a $33 million loss on $78 million in revenue. In February 1996, SyQuest eliminated 1,500 jobs and moved manufacturing to a lower-cost facility in Penang, Malaysia.
In May, the board moved against the founder. A turnaround specialist was installed as chairman. A storage industry veteran became president and chief operating officer. Syed Iftikar, the man who had co-founded Seagate, invented the removable Winchester cartridge, and built SyQuest from a five-person startup to a $300 million company, was stripped of day-to-day control.
By September 1996, Iftikar was gone from the company that bore his name. The final tally for fiscal 1996: $200 million in revenue and a $136. 7 million net loss. New management tried to fight back.
In November 1997, SyQuest launched the SparQ, a 1-gigabyte drive priced at $199. It shipped fast and was priced right, and for a moment the reviews were cautiously positive. Then the drive started failing. A few months after launch, reports surfaced of a catastrophic defect.
A damaged SparQ disc could destroy any subsequent disc inserted into the same drive, creating a chain reaction of data loss that could cascade through an entire office. One broken disc killed a drive. That drive killed every disc it touched. For a company already hemorrhaging cash, the SparQ disaster was the wound that would not close.
Fiscal 1997 brought a $69 million loss on $123 million in revenue. In the first nine months of 1998, losses accelerated to $97 million against $124 million in sales. In August, SyQuest laid off 950 employees, half its remaining workforce. On November 2, 1998, SyQuest suspended operations and filed for Chapter 11 bankruptcy.
The stock price was 34 cents. In January 1999, Iomega paid $9. 5 million for SyQuest’s patents, its tooling, its remaining inventory, and whatever institutional knowledge could be extracted from the wreckage. There were no competing bids.
A company that had generated nearly $300 million in annual revenue and set the standard for an entire American industry was liquidated for less than the cost of a modest house in the Silicon Valley zip code where its headquarters stood. Iftikar did not stop. Two years before SyQuest’s bankruptcy, he had already founded a new company called Castlewood Systems. In 1999, Castlewood shipped the Orb drive, a 2.
2-gigabyte removable disc that was faster and cheaper per gigabyte than anything Iomega made. It was, in many ways, the product SyQuest should have built. Iomega sued Castlewood over patent infringement. Castlewood filed for Chapter 7 bankruptcy in 2004.
Iomega fared only slightly better than the company it had destroyed. The Zip Drive’s own fatal flaw, a head alignment defect the internet called the click of death, triggered a class action lawsuit in 1998 and eroded the brand’s reputation. Recordable CD drives selling for under $100 made the Zip disc look expensive and small. USB flash drives finished the job.
Iomega’s stock drifted to roughly $2. EMC Corporation bought Iomega in 2008 for $213 million, a fraction of the nearly $7 billion it had been worth at its height. The Zip Drive was discontinued. The Iomega brand was retired by 2018.
The winner of the removable drive war did not survive either. It just died slower. Today, SyQuest cartridges and drives surface on vintage computing forums and collector sites. Data recovery services charge hundreds of dollars to pull files off old SyQuest media, rescuing photographs, design layouts, and documents trapped on cartridges that no currently manufactured drive can read.
At the Computer History Museum in Mountain View, California, there is a 65-page oral history transcript of Iftikar recorded in November and December 2006. In it, he talks about Memorex and Seagate and the decade he spent perfecting Winchester technology before risking everything on a removable drive. He does not dwell on the Zip drive. SyQuest did not lose the removable drive war to a better product.
SyQuest lost it to a cheaper, simpler, better-marketed one. And the part that should keep every engineer awake at night is that SyQuest had the chance to be both, in 1992, when the technology that became the Zip drive was sitting on a table in Fremont and the engineer said it was not good enough.