Sandisk's Digital "Shoe-Box Paradigm"


The market for digital cameras is booming. The total number shipped worldwide should grow by 40%, to 68 million units, in 2004, according to tech researcher IDC. As the largest maker of flash memory for digital cameras and camera phones, Sandisk (SNDK) has tapped this market and posted soaring revenues over the past three years.

CEO Eli Harari thinks he can goose revenues even more by opening up a new market for low-end, low-capacity flash cards meant to store pictures permanently. He believes it's possible for such inexpensive flash cards to become the equivalent to film (see BW Online, 7/13/04, "Kodak, Fuji...Sandisk?"). Consumers will use them to keep their images on, he figures, and will buy five or six such cards each year to use for snapping pictures at special occasions.

Harari believes the convenience and security of storing precious images on flash cards will help his "Shoot & Store" brand of 32- and 64-megabyte flash memory cards sell well in supermarkets and drugstores around the world.

Should his strategy take off, it could provide billions in additional sales to Sandisk over the next five years. BusinessWeek Online Technology Editor Alex Salkever spoke with Harari on July 12. Here are edited excerpts of their conversation:

Q: Where did the idea for Shoot & Store come from?

A: We'd been thinking for the last 10 years about a consumable card -- one where you wouldn't download images and erase and reuse the card but where you would permanently store the images. But we couldn't achieve the right price point. Technology has allowed us to get there.

Q: How do you define a consumable card?

A: Today, when people buy a camera they get a low-capacity card of 32 megabytes, which is really only adequate for 30 to 50 images. Then they buy a 256- or 512-MB card in the same store for another $100. The consumable card is a market we think will come about where people will go on a vacation, go into a store in Hawaii or go into a Safeway (SWY) and buy four or five consumable cards for $10 a piece. They'll keep these cards forever and not erase the images.

Q: It's counterintuitive because the benefit of digital is that you can download and upload, no?

A: A lot of people don't have a computer, aren't connected to the Internet, and really don't want to bother with storing images on a disk. They would rather have the shoe-box paradigm, where they store their images on flash cards that they can label and put in a shoe box. That's a lot safer than in a computer file or on a disk drive. And it's easy to label.

I have over 10,000 pictures in my computer, and I have difficulty finding the ones I want to look at. That's not the case with Shoot & Store.

Q: You're about to drop the price, right?

A: We've said that we wanted to get the price below $10 as quickly as possible, and we aren't going to stop there, either. We think over the next five years we can get close to 1 billion consumable flash cards sold globally. That's totally driven by our ability to bring the price of those cards below $10 so that people never bother reusing the cards and look at it as an archive medium.

Q: What happens when the market upgrades so 2-megapixel cameras become 3- and 4-megapixel cameras, and even the low end has high-image quality? Don't 64- and 32-MB versions of the card become too small?

A: The 100-picture card (64 MB) will carry us for a while. Then there's nothing to stop us from going to a 128-MB card. Also, we believe there will be a very large market for these cards in camera phones.

Q: Why? Won't camera-phone people be tech savvy and into downloading?

A: Yes, they'll be connected wirelessly. But downloading a 64-MB file even with broadband is time-consuming. And we're seeing more camera phones [that] have a slot with a place for a flash memory card.

Q: How low do you think the prices for your products will go?

A: A roll of film today is $3.99, so eventually in five years we should definitely get to the $6.99 range.

Q: What about costs? How are you doing there?

A: We're using leading-edge flash technology called multilevel cell. We're manufacturing the cards at a very high volume in China. And the logistics of supplying them to a Safeway or a Rite Aid (RAD) is very different than supplying them to a big box electronics retailer like Best Buy (BBY). You really have to look at packaging, logistics, freight, controller costs, and memory costs to achieve the right price point and still generate a profit margin.

Q: How do you transition to a larger retail presence? It won't be easy, will it?

A: We're selling to most of the traditional channels that sell digital cameras. But you're right. We have to grow to 300,000 to 400,000 stores worldwide. Any place you can find a Kodak or a Fuji roll of film, we have to be there. Clearly, we have a big job ahead of us.


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