Seagate Technology (NYSE: STX) has begun shipping the first of its hybrid hard drives for notebook computers and smaller computing devices needing high-performance storage at reasonable cost. Hard drives are inside almost every desktop and laptop PC these days, and although they have advanced technologically with processor speeds and other performance metrics, they are still the performance bottlenecks in almost every computer. Why? At the root, hard drives are still where they were decades ago -- reading and writing data from spinning magnetic platters. Many tricks have upped performance since 2001 or so, but hard drives still look to be aging for the computing needs which always require more performance year after year.

Now, for pure storage needs, like for iPods or TiVo boxes, hard drives are fine. As laptop computers replace desktops, more performance is becoming crucial to these systems. As a result, the hybrid hard drive was born. Newer units from Seagate contain 256 Megabytes of RAM (solid-state storage) to augment those spinning magnetic platters. Here's the only wrinkle: there is a cost premium to that. Will consumers accept that? Highly doubtful, and so we have a conundrum.

Seagate's newer hybrid hard drive products may make their way to higher-end laptop computers soon, and the early adopter consumer and technologically minded will pay the expected 30% premium just to get the added performance (well, hopefully added performance). After a while, volume and economics will drive that premium down to where there is none. If Seagate really wants to become the premier supplier of new-generation hybrid drives above where it already sits with existing market share, that premium needs to come down to 10% to 15% at the most. That may crimp margin a little, but competitive laurels won't ever rest when it comes to the hard drive industry.

In the hard drive industry, the price of the product seems to go down in an inversely proportionate way with the amount of storage capacity offered as time goes by. That is, every half-year or so, the amount of storage offered at a certain price goes up, or the price per product goes down. Call it Moore's Law, but in this case, it has accelerated even more than PC processors if you can believe that.

I mean, come on -- half a terabyte (500 gigabytes) for under $160 right now? Only two years ago, that amount of storage would have cost three times that or even more. With the cost of hard drive storage continuing to plummet with no end in sight, will that kind of data recording technology be around for a while? When looking at the equally-plummeting cost of flash-based storage, some have predicted the demise of the hard drive. Hogwash, I say -- data centers and even high-end PCs and home entertainment DVRs (like TiVo boxes) will be using hard drives for quite some time, even as lower-capacity needs like laptop hard drives and digital music players adopt more flash memory than traditional hard drives.

Reason? Cost per amount of storage. Even with flash memory having no moving parts and being quite a bit faster than hard drives, neither of those drives the transition from one storage technology to another like price does. In fact, aren't hard drives pretty darn reliable right now? For the technology inside them (which could rival the best engineering on earth in some cases), hard drives are amazingly resilient. Sure there are failures due to moving parts inside. But, as long as huge capacities are demanded by the market and the lowest price is required, hard drives aren't going anywhere fast.

When it comes to the hard drive industry, there has rarely been an example of more cutthroat competition, price drops, mergers and hard-toothed business practices in a single industry. There were over 70 hard drive companies in the late 70s and 80s -- and now you can count the number of companies on a couple of hands. Good reading on this subject is The Innovator's Dilemma.

With industry leader Seagate Technology (NYSE:STX) buying competitor Maxtor in 2004, there are now just a few companies in this space -- Seagate, Hitachi, Western Digital, Samsung, Toshiba and some smaller players. What the market forgets sometimes is that the Internet, DVRs, iPods, and a myriad of other things could not exist without the hard drive -- it has the cost, speed and flexibility to meet these products' demands.

But hold your applause -- while Seagate CEO Bill Watkins says that traditional hard drive technology may be co-existing with Flash technology (chips, not spinning disks), Sandisk Corp. (NASDAQ:SNDK) has released a flash-based hard drive for use in laptops and other similar devices. Will flash-based storage technology ever be as cheap and flexible as those spinning drives inside the PC you're reading this post on? Who knows -- except maybe Sandisk and memory leaders like Hynix and Samsung. By 2010, we'll probably see if co-existence or replacement of one technology with another happens. Place your bets.

[Disclosure: I own STX shares as of 1-4-06]