In mid 1994 the Kittyhawk development team was in an uncomfortable position.

The key issue was that sales into the targeted PDA market were not materializing as expected. The few markets in which the drive was making headway were fairly specialized and would likely produce only modest sales volumes, often following a long sales cycle.

The project team had made some admirable technical accomplishments. They succeeded in their goal of producing a drive that was a generation ahead of its competition in terms of its size and power consumption. They met their one-year development goal. They made a drive that could withstand a drop to the floor. However, it was evident that the products feature set, market positioning and pricing was not resonating with enough customers to hit their financial targets. Meanwhile, competitors continued to make progress on ever smaller drives.

HPs original strategy was to leapfrog the 1.8 drive size and be the first to market with a 1.3 drive. Their goal in doing this was to gain a period of competitive advantage where they were the only seller of 1.3 drives in a burgeoning market for miniaturized devices. This would afford them significant pricing power and provide the benefits of learning effects and economies of scale by the time their competitors arrived on the scene.

The project team was comprised of individuals with a history of accomplishment. They were afforded every reasonable resource and given great autonomy. Their charter clearly called for development of the drive in one year, $100m sales in two years, BET in 3 years, and 35% revenue growth. As put by the R&D manager a small, dumb, cheap drive!

The first dilemma came in their choice of whether to target the drive to the mobile computing market or a take a more cost focused approach. By choosing the mobile focus they made their first departure from the charter of small, cheap, dumb. The next such misstep was the decision to include the accelerometer and ruggedization as a standard feature, significantly increasing costs. And finally they hired a reputable market research firm who simply affirmed the opinions of insiders rather than talk to customers.

In the midst of making all of these design and target-market decisions no less than 10 unheeded customers reiterated the need for a $50 price point. Some of them represented projects with potential unit sales in the millions. Nintendo had even gone so far as to design a console with a slot for the drive. Ignoring these customers was their primary downfall.

At the decision point in mid-1994 the team considered three courses of action: 1. Continue to pursue ruggedization, despite slow development and low sales volumes. 2. Leverage the ruggedized technologies for the production of a 2.5 laptop drive. 3. Develop a design and manufacturing technique capable of producing a $50 drive.

The first option (ruggedization) is essentially complete. The ruggedized market is on its way to becoming a modest source of revenue, but does not have the potential for sustaining the volume needed to meet the required sales targets.

The option of creating a 2.5 ruggedized drive would also be playing to a specialized market, having a narrow focus and attendant small sales potential.

I would find the option of pursuing the $50 drive as having the best potential for significant long term sales volume and profitability. The customer base has already voiced its demand for this product, so the market uncertainty is greatly reduced. Seymour characterized the difficulty of its design as being on par with the drive capable of a three-foot fall. At a $50 price point many additional uses for the drive would appear that did not previously seem practical. By eliminating the ruggedization features on the drive and targeting customers with high sales volumes HP can benefit from reduced parts costs, simplified assembly and economies of scale in manufacturing. Once cost leadership is established with significant economies of scale, HP could consider some integrated options or future strategies such as:

1. Offer a ruggedized 1.3 drive as a customization step using the same base drive mechanism plus the accelerometer and shock absorption components. 2. Offer a 2.5 ruggedized form-factor which contains two 1.3 drives in tandem for applications where a main drive and backup drive are needed for reliability. 3. Constantly reevaluate HPs ability to compete in the intermediate disk sizes. 4. Constantly seek feedback from customers and potential customers about their wants. 5. In the longer term, flash memory will play an increasing part in the mass storage of consumer electronics and mobile devices. HP may have been wise to consider the acquisition of flash memory producer Micron technologies, also in Boise. This would give them the opportunity to produce hybrid flash and magnetic drive products, and eventually pure flash based memory products as economies of scale are realized for the production of flash memory. 6. Hindsight is 20/20. However, it is interesting to note that mp3 became an audio standard in 1991, with the first mp3 players appearing in 1996. When it was designing the iPod in the year 2000 how much would Apple have preferred to use a tiny 1.3 drive instead of the bulkier 1.8 drive they ended up using in the original 2001 iPod?