By Dov Moran
M-Systems Flash Disk Pioneers Ltd.

Fresh ideas are often born of a degree of fear. Such was the case with DiskOnKey, the first USB flash drive to disrupt the traditional way data is stored and transferred between computers.

In 1998, as CEO of a public company, I addressed a group of investors in New York. I had saved my presentation on my laptop-which refused to boot. I had no backup. With all eyes on me, I smiled, ad-libbed and frantically continued to press the start button. Eventually the laptop booted, but not before I vowed never again to be caught in a similar situation.

That was the start of an idea. Most laptops, I reasoned, have a USB port for peripherals: Why not use it for data storage? After thorough research and discussion, we filed a patent in April 1999 for the first flash drive to use the USB port. Shortly thereafter, we presented the idea to IBM and then to one of our customers.

Though IBM was interested, we faced the two problems that plague innovators: time and resources. Our new baby could not interfere with growing the company and generating revenue, so we put it on hold. Not until 2000 did we begin product definition and development.

We faced such technology challenges as the reliability of the USB connector attached to the flash media and the lack of a PC driver. Windows 98, the most popular operating system at the time, offered no USB support for data storage.

Through product and software refinements, those challenges were met. But innovators always face skeptics. One of the biggest PC vendors we approached told us, "One hundred floppies will cost much less than your device!"

The high cost of our device was a valid concern, but a lucky coincidence saved DiskOnKey from drawing-board-only status. Flash prices began to decline at a rate that would become cyclical-30 to 40 percent a year-and flash capacities began to double, a pattern that would repeat itself every 12 to 18 months. That enabled increasingly higher-capacity products at prices that were both attractive to the market and economically viable for M-Systems.

In September 2000, 14 months after our initial contact with IBM, that company introduced its MemoryKey as the first USB flash drive on the market, based on M-Systems' DiskOnKey technology. The first few thousand units cost $55 to manufacture; we sold them at a $5 loss/unit to IBM.

Our stock price dropped following the press release, but we refused to give up. We managed to trim the unit price and secure profitable margins, aided by the declining flash costs and improved manufacturing techniques. In 2001, our first full year in DiskOnKey production, sales totaled $6 million. Last year, we saw $228 million in sales. This year, sales are up.

The fear among business travelers that they may not be able to access their applications, meanwhile, bred U3, a joint development of M-Systems and SanDisk that introduced the concept of smart-drive computing. U3-enabled USB flash drives carry programs and personal preferences, launch software and let users access data on any Windows XP or 2000 PC. We believe they will change the way we all use computers.

Making disruptive ideas part of mainstream concepts is the ultimate challenge.