As reported by Engadget:
Since shipping the first mass-market (and second altogether) digital audio player in 1998, the 32MB PMP300, Rio weathered storm after storm. After prevailing against the RIAA MP3 player backlash, Rio parent brand S3 merged with Diamond Multimedia to form SONICblue, only to be cut up and sold to D&M Holdings under the Digital Networks North America (DNNA) name, along with other withering SONICblue brands such as ReplayTV and Escient; after a brief comeback with their relatively popular line of Karma and Carbon devices, D&M once again cut up the business, selling Rio’s IP (including software and long-standing patents and patent applications) and engineering resources to chipset manufacturer SigmaTel. Today D&M announced to no great fanfare that they would be shuttering Rio’s doors permanently, though the Rio brand and trademark will not change hands as of this time. Like the orphan child with the heart of gold neglected its whole life until its premature and lonely death, we mourn the passing of Rio—loved so dearly but by so few.
This says volumes about the power that Apple holds with the iPod at this moment. There are no signs of the iPod popularity waning. But, the real thing that has given the iPod an MP3 player God status is the third party peripheral support. The shear number of accessories and targetted support from websites such as iLounge.com are astounding. The 3rd party support gives a customer illusion that the iPod is everywhere [not that it isn't].
I personally had a Diamond Rio that used Smartmedia as it's storage format. It was a nice player. At this same time I had a digital camera that used Smartmedia; so I was able to share media between devices. The problem with Rio's choice to go with Smartmedia was that it was a proprietary and dying format. It was also limited to a 128MB capacity. Compact Flash and Secure Digital were taking over and Sony had just come out with Memory Sticks. Music enthusiasts, who were the first to adopt MP3 players, demanded more storage ... Creative entered the market with a hard drive based player. Then Apple came along and surprised the world with the iPod that used even smaller hard drives. At this point, Rio had still not entered the hard drive based player market.
To me, the main reasons for the demise of the Rio was poor execution, poor roadmap, and lackluster product design.
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