Flipped out. Why? They are killing the Flip video. Networking powerhouse Cisco is basically killing innovation. I liked the simple device.
Here's what Cisco is doing: On Tuesday (April 12), the company announced that it will exit aspects of its consumer businesses and realign the remaining consumer business to support four of its five key company priorities – core routing, switching and services; collaboration; architectures; and video.
As part of its plan, Cisco will close down its Flip business and support current FlipShare customers and partners with a transition plan. Additionally, the company expects this will result in a reduction of approximately 550 employees in the fourth quarter of fiscal 2011.
In 2009, Cisco completed its purchase of Pure Digital Technologies Inc. San Francisco-based Pure Digital, creator of the best-selling Flip Video brand, was a pioneer in developing consumer-friendly video solutions with mass-market appeal.
''The acquisition of Pure Digital is key to Cisco's strategy to expand its momentum in the media-enabled home and capture the consumer market transition to visual networking. The acquisition will take Cisco's consumer business to the next level as the company develops new video capabilities and drives the next generation of entertainment and communication experiences,'' according to Cisco at the time of the deal.
Now, Flip is gone. Dead. Maybe the Flip video device has some bugs. It was not a professional camcorder. But it was easy to use-and fun. I use mine all the time.
Perhaps Cisco should not have bought them in the first place. My guess: John Chambers has been under pressure to shake-up Cisco. Cisco is turning into a old, stodgy company. Killing Flip wasn't the solution. My solution: Spin it out and back the darn thing!
Here's what else is going on the company:
•''Refocus Cisco's Home Networking business for greater profitability and connection to the company's core networking infrastructure as the network expands into a video platform in the home. These industry-leading products will continue to be available through retail channels.''
•''Integrate Cisco umi into the company's Business TelePresence product line and operate through an enterprise and service provider go-to-market model, consistent with existing business TelePresence efforts.''
•''Assess core video technology integration of Cisco's Eos media solutions business or other market opportunities for this business.''
"We are making key, targeted moves as we align operations in support of our network-centric platform strategy," said Chambers, Cisco chairman and CEO, in a statement. "As we move forward, our consumer efforts will focus on how we help our enterprise and service provider customers optimize and expand their offerings for consumers, and help ensure the network's ability to deliver on those offerings."
In connection with the changes to the consumer business, it is anticipated that Cisco will recognize restructuring charges to its GAAP financial results, with an aggregate pre-tax impact not expected to exceed $300 million during the third and fourth quarters of fiscal 2011.
I'm sorry people are getting laid off. I had to wonder why Cisco even bought Flip in the first place. Compare the Flip and Kodak Zi8. The Zi8 is a no-brainer. It does everything the Flip does, extra HD cables, lower purchase price and Kodak has already improved their HD product to newer sport and touchscreen models.
Closing the flip video section isn't too big given the competition of smartphone. People can now share photos and video through facebook or twister apps on any smartphone device. Business of flip video is inevitably going down hill if it is not already. I am sure, as big as Cisco, John Chamber is making the decision based on various factors that would include annual sales. I don't see closing flip video is parallel to stop innovation.
Why in the world did they pay 590m$ and buy the company then?
IIRC the logic was FLIP increases the video traffic in various networks and hence CISCO can sell more Routers. Silly logic for buying the company. No wonder it ended up like this.
When will John Chambers (and a lot of other CEOs) learn that companies are not chewing gums that you chew when it's sweet and just spit out after sucking the juice out? People's lives depend on those companies.
- We will buy Flip video camera - part of our core "video" strategy
- Oopsy, made a mistake, but easy one to fix, let's just get rid of it and fire all the employees.
I was worried from the start that something like this might happen. Flip is a consumer electronics company, and consumer electronics company usually do not offer the kind of margin that a public sector driven communications equipment company can handle.
I couldn't agree more Mark. I use the Flip all the time at work. For people in communications/media the Flip has been a dream. There's no other way to get such good quality video so easliy. I'm a big Apple fan but I don't see the iPhone 4 video as the best replacement. They should have spun the Flip division out.
Most of us engineers take things at face value. By nature we look for the logic behind an event. As they say, follow the money. The founders of Flip were likely not only flattered by the offer, but realized they could not refuse the money. We'll see what they do with their new wealth. Like the phoenix, let's hope they do something nice.
Ok, lets look at the use. Lets drop our $400 cell phone in the bay or lake. Lets loose our $300 cell phone hiking and running around in wild sports.
Yes - take the cell phone, but keep it safe. Use the low cost unit and if you drop it or smash it - just say rats. Take your cell phone home. Your X-game / sport item is replaceable. And the cell phone up save and secure is there for emergencies.
Well, it was a questionable acquisition to begin with and Chambers should pay the price. But kill it rather than sell it? Maybe the entire subspecies of simple handheld camcorders is dead. Just the same even my mother can use the blasted thing, a true testament to its simplicity of use due to sophisticated design.
I agree...the Flip needed 1080p back when they came out with the Slide...Update it with 1080p, wifi-n and expand on the instant movie format...allow users to upload templates that they designed for other users to use. I have enough digital content devices that are too difficult to use...I want to be able to take some quick videos, put some spit shine polish on it and send it out to the relatives.
Well, I never bought one. So I suppose that is a bias. However, I never considered one anyway. Having had Sony video cameras since the 90's, I fully expect 10 optical zooms and reasonable low light behavior. Otherwise, why bother. With phones covereing the low end video capability and integrated sharing, I think Cisco made a good move. If they weren't bleeding money already, it was only a matter of time.
I never tried the flip video but it sounds like something my dad would have used (+70) and really enjoyed it! I do not have a high end camcorder anymore and would welcome a simple, low cost, high resolution device. Well, maybe someone else will fill that market niche.
Back in 2000, Cisco bought PixStream (Waterloo, Ontario, Canada) for $700 million then promptly shut it down. Why? PixStream sold an inexpensive "video over ATM" solution which was in direct competition with Cisco's "Gigabit Ethernet" vision for the future. This may have been a tactical victory for Cisco shareholders but not the best solution for networking customers.
"Cisco will close down its Flip business and support current FlipShare customers and partners with a transition plan."
Maybe they want to transition to something that's more profitable for Cisco. What telecom provider are they partners with?
Cynically speaking, some acquisitions are a way to line the pockets of executives and investment bankers with money from a public company that can't be otherwise paid directly. Buying something in 2009, only to completely close it down in 2011, reeks of a payout. If they sold Flip to someone else, someone else would be going through the books and may find what the executives at Cisco don't want to be found. It would be interesting to run a related party audit on Cisco and Pure and see what shakes out. One other point, in 2009, in the context of single-use-still-cameras being crushed by smart phones, who in their right mind would buy a single use portable video camera, particularly with iPhone, iPad and Android smart phones on the horizon: only someone very stupid or very invested. A little cynical, a bit paranoid, but totally plausible. Follow the money and you will find answers to the seemingly inscrutable. If Confucius didn't say that, he should have.
More likely though, given there are no margins in consumer business and the onslaught of Smartphones, nobody in their right mind would buy a single use video camera company without a Smartphone play. Probably paying $500M+ for Pure was just an act incompetent hubris on the part of Cisco that's being buried.
The issue is not so much Smartphones x single use, there is room for both.
The problem is they'd be facing competition from iPhones and Androids on the Smartphone side, and also from Canon, Nikon, Sony, Panasonic, Casio etc on the camera side.
What were they thinking?
Not a good news for the market or users of Flip but maybe what's needed for Cisco.
Flip was immensely popular for it's ease use and quality of videos for it's price. It probably would have continued to sell for a couple more years with some bells and whistles. Cisco was born as a networking company and succeeded as a networking company and innovated as a networking company, why in the world did they buy PureDigital? Ans-Shortsightedness, every company suffers from this malady one time or the other.
It is said that smartphones are displacing the Flip but ... really? Are the newest ones (Evo, Droid, iPhone 4, etc.) at that level? My impression is that they're still a couple of years off, enough time to transform Flip into a patent portfolio.
Smartphones are certainly displacing some of the low-end single function video cameras and digital still cameras, but I don't buy the hype that smartphones will eventually obsolete those other products.
Will the day ever come when a smartphone matches a high-end DSC or video camera in all respects? In optics, in resolution, frame rate, DSP enhancements, form factor and UI? I don't think so, unless you imagine a product category that is primarily a high quality camera, and oh by the way, it's also a phone.
FRank, I have to agree with you on this one. What I don't understand is, Cisco, which touts Telepresence so much, couldn't get its engineers to put their heads together to make more innovations on how they can leverage Flip as a platform to take it to a level that can beat the performance of mobiles, tablets and other handhelds.
With their much publicized holy grail of connecting every one, it seems to me that Cisco is calling it quits too soon.
Dr. MP Divakar
Do you foresee any possibility of all the 550 employees laid out, being regathered by a "moral video company" and continue similar product avoiding patent problems? This would be a fitting reply to all high handed CEOs who dislodge companies in the same way like pushing out a copassenger from a running train?
The market would continue having this nice product.
Mark, Good story and lots of comments. Good show!
I had market suitability questions about Flip + Cisco early on. An alarm bell of sorts went off when they showed up en masse at Costco.
It's not that the Flip's product idea is bad [it's great!] I think that the Cisco "Fit" is what failed.
Constrained by Cisco's management the company was eclipsed by the advent of the competing Flip look-a-likes and the introduction of HD Sports Cameras which have seen remarkable growth over the last half year.
Flip was simply not capable of acclimating to the competitive market environment under Cisco House Rules...,
It's sad news for Flip employees and users, but it makes sense. Cisco is not a consumer electronics company and the acquisition of Pure never made sense in the first place. At least with their acquisitions of Linksys and Scientific-Atlanta, there were logical affiliations with Cisco's core networking business.
Like most acquisitions these days done over game of gulf or dinner fall short and like many readers indicated are slowly killing innovation. Flip was a low cost camcorder and served the market well in the early years but more recently did not expand out to include recent wireless and other sensor technologies. Nor did they venture into smart cameras that could have ended as security camera that are now highly popular as nanny watch.
Biz mode now days suck as everyone wants profit without putting in the innovation and time to add value that differentiates a product from the rest…a recipe to disaster. I would think and Flip is another casualty out of the silicon valley that larger company’s only like to see a Biz as black or white. I think it’s time to innovate and add color to the way we think, design and use retail channels to sell a product.
Back in 2009 when they made the acquisition, I have a vague recollection of one of the Founders of Pure Digital at Tiecon 2009 (May); he was gloating over the Mega Deal ; Their VC backers were all googo...gaagaa and how it was a big big win being able to sell to Cisco for close to $ 600 M;
there was some discussion that perhaps Cisco was thinking of getting into the mobile play maybe an acquisition of Nokia or even a Smartphone play - PALM ; But this is 2 years ago. We have since seen Nokia go downhill and Palm into the HP domain;
Now i get the impression that CISCO is all CHAOS. Most of their Star performers are at Start-ups or at competitors or even transitioned into Social media....as these companies have grown their own Hardware divisions;
I am hopeful that in the next 6-12 months Cisco may re-emerge a little nimbler, a lot leaner and maybe the Street will have to be OK with 55-60% Gross margins as opposed to the 70-75%;
Also Chambers should just pay the Corporate Tax due to IRS and Repatriate money back to USA;
It absolutely didn't make any sense for Cisco to acquire Flip in the first place. What surprises me is that it took them so long to realize their mistake.
I never owned a Flip and never thought it would make much sense to own one anyway. If you don't think the iPhone does as good a job as a Flip, how much gap is there between the iPhone and a regular Sony or Canon to justify a product such as this in the middle? What was their competitive advantage anyway? having thought of some form factor no one else had thought before?
But, I'm sure some people made some dough...
I totally agree with AliNS. While a "cool" product to own as a get-me-by quickly for video recording and playback and plaster to my computer thru USB port, the hand-held device made no sense in the Cisco tent. Maybe their consumer strategy had backfired: you can't get into high-volume consumer electronics with the mentality of capital equipment (enterprise routers) sales model. The IPhone and Android video capabilities did Flip in. In Consumer Electronics its the successful integration of many functions in one hand-carried unit that counts, not just a simpler user model of a video function.
I have worked for several start ups, and from what I can tell, modern start ups do not expect to grow their companies into the ranks of the market leaders. They expect, from the beginning, to grow their business until they garner the attention of the market leaders and are bought out. A company I currently work with is developing a melanoma drug that is having spectacular success and entering phase 3 human trials. Their goal is to be bought by a large pharma company. Have you noticed that the pharma companies have all but ditched their entire R&D operations? This is because their own drug discoveries have been costly failures. Beurocracy kills innovation. They are instead buying startups that have a drug already close to approval. It is a valid model. The small startup consists of experts in a particular field who are focused on one or two indications.
So it is a matter of target acquisition. It would make sense for Pfizer to target a start up with a new melanoma drig. It would likely be a dumb move for Microsoft to target them. So why did Cisco target a video camera company? Were they expecting to go head to head with Sony and Kodak? I think not. It reeks of insiders lining their pockets at shareholder expense.
Can anyone provide a back of the envelope analysis of why it makes financial sense that "Cisco will close down its Flip business and support current FlipShare customers and partners with a transition plan."? Does "a transition plan" mean that the business is being sold / spun off? If not, it would certainly seem that somebody would find it economically advantageous to buy the business for $1 plus the support commitment and get it off Cisco's hands. (However, I must admit that I cannot offer to do so.)
Maybe they want to transition to something that's more profitable for Cisco. What telecom provider are they partners with?