Can Seagate Make Disk Drives Sexy?

With new products and an ad blitz, it aims to climb out of the commodity bin

It took Jim Druckrey, the new head of consumer products at Seagate Technology (STX ), nearly a year, a half-dozen trips to Asia, and a thick binder's worth of research to confirm something that any PC user could have told him: Disk drives may be the dullest product on the planet. The result is that while Seagate sold nearly 120 million disk drives and other data-storage devices last year, it had no iPod or Xbox 360 in its lineup--nothing to excite consumers into paying a little more for Seagate products than for the competition's.

That's where Druckrey, former president of the digital business of Gibson Guitar Corp., comes in. On Jan. 7, Seagate plans to announce a new family of products called FreeAgent that it will sell directly to consumers as a way to ensure that the pictures, music, and other digitally stored pieces of their lives don't disappear in a blink of an eye. Druckrey, who used to rub shoulders with musicians Les Paul, José Feliciano, and Madeleine Peyroux, will then have to persuade PC users that storage is sexy--and necessary. "This has always been a low-involvement, boring category, and it's important for us to create something dynamic and tangible for people to understand," he says.

Seagate is coming to grips with an increasingly common challenge in Silicon Valley: how to turn a profit with cutting-edge technology in a world where consumers increasingly care less about whiz-bang features and more about what they actually do. The Scotts Valley (Calif.) company commands a third of the market for hard drives, but nearly 97% of those drives are sold to computer and consumer electronics makers for use inside PCs, TiVos, and other gear.

Thus, disk drives may be the ultimate tech commodity. Consumers soon will be able to store a terabyte of data on a single drive, thanks to advances rivaling those of chipmakers. But because there are so many competitors, drive margins hover near 6% as prices spiral lower. Meanwhile, Intel Corp. (INTC ), whose "Intel Inside" campaign created the impression that its microprocessor is the single most important PC component, enjoys 50% margins.

Seagate CEO William D. Watkins believes he needs a thriving consumer business if he's going to reach his goal of nearly doubling Seagate's revenues, to $20 billion, in just three years. Watkins hired Druckrey in November, 2005, after a first attempt at sprucing up consumer designs ended in failure. Seagate's Pocket Drive, a palm-size portable gadget that plugs into a PC to let you backup pictures and files, won numerous design awards for its hockey-puck look. But it was returned to stores in droves because consumers mistook it for a digital music player. "It showed us we didn't have a clue what we were doing in consumer," Watkins says. "Before [hiring] Jim, we were a bunch of people who were doing disk drives and client servers designed for performance and cost and not what the consumer would do with them."

FreeAgent aims to address those failings. Rather than emphasize external backup, Seagate will call these products "data movers" and emphasize their ability to manage content anytime, anywhere instead of just storing it. Seagate has bought or teamed up with software makers to enable users to automatically transfer files to a flash drive, copy e-mail and contacts from Microsoft (MSFT ) Outlook to an iPod, and automatically load and access favorite photos to a Shutterfly account. A high-end version of FreeAgent also will offer free online data management, similar to efforts from (AMZN ) and Google (GOOG ).

Getting to this point hasn't been easy. Druckrey practically had to beg advertising agency TBWA\Chiat\Day to take the Seagate account. "Here's an industry that worshipped the hard drive by presenting pictures of it cut open to consumers," notes Rob Klingensmith, the agency's director of strategy. Designers from San Francisco's frog design found ways to stuff new high-density storage technology into thin black casings ranging in size from a matchbox to a large stapler. By producing in China, Seagate thinks it can squeeze 25% margins out of drives selling for $130 to $420.

Next up: an ad blitz to convince people they need such a product. That might prove to be the toughest job of all. Right now, only 14% of users back up their data each week against possible crashes.

By Cliff Edwards

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