Cisco Systems’ decision this past week to shut down its Flip video camera business generated plenty of attention because of its implications on multiple levels for the networking company and the IT industry. Here are a few of my perspectives on the meaning of this event and the lessons to be learned.
Cisco deserves credit for the boldness of its acquisition of Pure Digital, the maker of the Flip camera, in 2009 and its equally brave decision to walk away from the over $590 million investment (acquisition, development and marketing costs) in a two year span. It had hoped to use the Flip camera and other home entertainment products as catalysts for additional consumer demand for its network connectivity capabilities and its service providers’ transmission services. Although Cisco didn’t sell as many Flip cameras as it hoped, it certainly can be credited to contributing the rise in video transmission volume during the past two years and growing expectations for more video services going forward.
Few could anticipate that the popularity of simple and economical video camcorders would quickly be give way to a new generation of smartphones with built-in video recording capabilities in such a short time after Cisco’s Pure Digital acquisition. In the same way digital cameras were made nearly obsolete by embedded cameras within smartphones, the video camcorder is becoming a thing of the past as a result of a similar bundling process. It is truly amazing to consider how many formerly standalone functions of a decade ago are now merely assumed features of today’s cellphones.
The power of the smartphone has grown so strong that Cisco didn’t even publicly offer its scuttled Flip camera unit to a potential buyer. In hindsight, Cisco may have been better off buying a smartphone developer, like Motorola (NYSE:MMI), rather than a videocam manufacturer to better compete in today’s increasingly competitive market.
Cisco made this move because it recognized that it had to refocus on its core networking business to fend off escalating challenges from Juniper Networks and a wave of new, offshore clone manufacturers who are threatening to commoditize its market.
But, Cisco’s mistake shouldn’t dissuade it, or others, from continuing to bridge the gap between the consumer and corporate worlds. The consumerization of IT continues to reshape the tech industry as ‘prosumers’ become more of the norm and the enpowered end-user wields greater influence over IT corporate decision-maker. As more corporations encourage their end-users to work from home or the road, these end-users are making their own decisions about the network, storage and other IT gear, as well as the service providers, that will best support their needs.
Cisco succeeded in bridging the gap between enterprise and service provider (SP) markets in the 1990s when others like 3com and Lucent (ALU) abandoned this dual market strategy. By selling to both, Cisco has persuaded xSPs that it was an essential supplier to their customers. The same value proposition holds in the consumer market which is increasingly an extension of the corporate world.
But, Cisco also recognized that it was at risk of attacking too many markets and allowing its core business to be undercut. Over 25 years ago, Novell’s (NASDAQ:NOVL) demise made a series of acquisitions, including WordPerfect and Borland, to spread into new markets only to have its core business attacked by Microsoft (NASDAQ:MSFT), which led to its eventual demise.
Cisco’s failure to capitalize on the Flip camera is the most obvious example of the company’s recent acquisitions falling short of expectations. Cisco has also failed to leverage its WebEx acquisition to accelerate the adoption of its videoconferencing solutions and collaboration software. Now, WebEx is being threatened by a myriad of cheaper and easier to deploy web conferencing services.
Cisco hopes to refocus its resources on selling its Unified Computing products, which promise to transform the way data centers operate to meet the growing demand for Cloud Computing services. But, Cisco’s push in this direction has only helped to galvanize HP’s (NYSE:HPQ) efforts to strengthen its own server and system sales. Ironically, despite its own leadership problems HP continues to benefit from its growing presence in the consumer market. Meanwhile, not only is Cisco trying to determine how to gain a foothold in this market, but IBM is probably lamenting its decision to relinquish its PC business which removed it from the consumer market as well.
So, Cisco’s move doesn’t mean that there isn’t a synergy to be found between the consumer and corporate worlds. It just means that you need to focus on the right set of products and services to exploit.