Cisco Flips Out

Somebody was going to buy Pure Digital, maker of the hugely popular Flip Video camera, which has become one of the most exciting consumer gadgets of the past few years. The surprise here is the buyer.

Cisco Systems (CSCO) is paying $590 million in stock for a company where the value is essentially its brand. With more than 2 million Flips sold in North America, the company dominates the field in low-cost hand-held cameras (unless you count cell phones, of course). I've got one, and completely love the tiny camera's less-is-more usability.

The deal puts Cisco in the consumer space with a product that produces a ton of bandwidth-occupying content (which is right in Cisco's wheelhouse). It also signals the latest shift of the company (its recent push into the server market was touted as a reason for IBM's (IBM) talks to buy Sun Microsystems (JAVA)).

But you have to ask: Is the Flip's marketing edge (and that's really the only edge it has) worth the price?

A camera with a built-in USB is a great design idea, but what keeps the rest of the consumer electronics world (from Sony (SNE) to Apple (AAPL)) from barging in on Flip's innovation and Cisco's future profits?

Comments

[traden4alpha:]

Nothing stops Sony, Apple, or anyone from rolling out competition for the Flip. In fact that's probably exactly what Cisco wants. By paying a high price, CSCO creates buzz and excitement in the space that wil encourage more companies to create these products. Digital video cameras will be a loss-leader for Cisco. But the more digital video that consumers record and share, the more high-end, high-margin, hard-to-copy networking equipment that CSCO will sell.

That's why I call Cisco the "Bandwidth Growers Association." They promote the internet. Cisco just wants people to use the internet and use it hard because a goodly chunk of all the spending on internet infrastructure ends up in Cisco's pockets.

(Long CSCO)

Mar 19 09:12 PM