Hot flashes

At one point, there seemed to be no reason why the IT industry wouldn’t spit out Sony’s Memory Stick like the piece of gum it resembles.

The company spent a lot of time and money marketing the flash memory format at Comdex Fall three years ago, stringing up giant replicas and demonstrating the wealth of products in which it might be used. It certainly had some attractive features: it stored up to 8MB; it only weighed four grams; it was purple (this was the year of the iMac, when such things mattered). The problem was that Sony was trying to offer memory to the same device companies with which it competed for market share — companies that make digital cameras, smart phones or Internet music players. How could Sony, with such a notoriously proprietary attitude, hope to surpass SmartMedia or CompactFlash in such a competitive market?

Despite the odds, it’s getting there. Today Sandisk joins the growing community of more than 150 Memory Stick licencees, which also includes Motorola, Sharp and — perhaps most significantly — Samsung. As a result, the Memory Stick has managed to boost its share by 18 per cent this year according to NPD Intelect, capturing a quarter of the U.S. market (NPD, which recently set up a technology practice here, hasn’t released any Canadian figures as far as I know).

Sony’s success stems in part from changes it has made to its licensing structure — it has dropped royalties in favour of a one-time fee — and the massive upheaval we’ve seen in flash memory supply over the last year. In late 1999, when everyone and their dog was preparing some sort of Internet appliance, demand for flash memory products soared. As usual, no one in the industry seemed to anticipate this scenario, and available product was priced, in some cases, ridiculously high.

By the time consumers failed to show much interest in the appliance market beyond handhelds, MP3 devices and cameras, production had obviously ramped up considerably. Instead of the constraints predicted by some analysts that was supposed to last throughout this year, the memory makers have been stuck with too much inventory. As far as consumers are concerned, it’s all good: CompactFlash and SmartMedia have all seen massive price reductions, and in early August 128MB Memory Stick were dropped from US$240 to $150.

This is when the competition can get really interesting. Flash memory will no doubt become increasingly important as the mobile devices become more sophisticated and, in some cases, more consolidated. PDA/phone combinations, for example, will be hungry for memory alternatives.

There’s no real “standard” here yet, and given the relative long-term sustainability of the consumer electronics segment, there should be enough room for everybody in the short term. Over time, however, the pricing pressures may force some innovation that could boost the mobile market as a whole. We’re already seeing that with Secure Digital, the postage stamp-sized flash product co-developed by SanDisk and Toshiba unveiled earlier this summer. Though it prohibits any unauthorized replication of copyrighted material (a factor which will severely limit its potential), it also helps the devices it supports connect to Bluetooth and Global Positioning System technologies.

This is how other memory manufacturers should be thinking. Instead of trying to populate as many devices as possible, they need to bring new value to their formats. Those who succeed will lead the industry; the rest will be dimly remembered as — you guessed it — flashes in the pan.

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Shane Schick
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