Why Cisco's Buying Pure Digital for $590M

mino_250x200_031809UPDATED: As expected, Cisco (s CSCO) today said it would buy Pure Digital, the maker of the Flip handheld video camera, for $590 million in stock. The deal will move Cisco deeper in the consumer market and give it control of a device that produces video, which it hopes will drive the sale of its Internet routing and switching equipment. Pure Digital has raised $68 million in its seven-year history.

Cisco has recently announced products that will control video delivery from the content provider all the way down to the home consumer. With Pure Digital it can control the content flowing the other way — from the home to content aggregation sites like YouTube or personalized channels offered by cable and telco TV providers. More details coming soon. Update:

It’s easy to draw a line between the Flip camcorder and bandwidth consuming video that Cisco (s CSCO) hopes to encourage in order to sell more networking gear. However, there are other factors at play. The Pure Digital acquisition brings Cisco deeper into the consumer home, a journey Cisco began with its acquisition of Linksys and its home routers, and continued with its acquisitions of set-top box maker Scientific Atlanta and entertainment networking company KISS in 2005.

If Cisco can integrate or transfer the dead-simple Flip software and camcorder into its Scientific Atlanta boxes, and tie the Flip camcorder to its Linksys router, it can offer PC-free telepresence to consumers. This combines Cisco’s hope of wresting control of the digital home from the PC and putting it in the network with its love of video conferencing.

Telepresence, even more than the 2 million Flip cameras out there shooting short videos, would drive the amount of video content on networks sky high. Cisco estimates that a good HD telepresence experience requires speeds of 24 Mbps and requires quality of service guarantees — both of which Cisco equipment could help ensure. Cisco has already indicated its plans to add $20 billion to its bottom line with a focus on video, and it has launched products around the what it calls the “medianet,” to deliver video from the content provider to the consumer. Driving content in the other direction — from the user back up to a content provider — also makes sense, and the Flip cameras offer Cisco control of the consumer video-producing endpoint.

Ned Hooper, senior VP of corporate development and consumer group, agrees that the purchase can be tied to telepresence, but he stressed that this buy signified Cisco’s ongoing transformation from a backend infrastructure provider to a company known for making the consumer device experience easier. He emphasized that the combination of the network and Flip cameras could allow a person’s video content to be viewed anywhere.

“Historically content is locked to a device, and is not open to move around,” Hooper said. This deal helps change that paradigm for video, in the same way Cisco is trying to do with music in its latest Linksys music router, announced earlier this year.

To help make moving content around the home and to the web easier, Cisco purchased Pure Networks last year for its software that helps network devices easily and is pushing the HNAP home networking protocol . Hooper said Cisco would integrate HNAP into the Flip camera and would add features to make it easy to operate the Flip on a network based on Cisco gear. Think about how Apple (s aapl) gear all works well together as an example of such integration.  However, Hooper stressed that HNAP was open for anyone to license, meaning Cisco isn’t pursuing a closed system.

So, while this takes Cisco into a new market and forces it to compete with consumer electronics makers like Sony (s SNE), Cisco will likely tie the Flip camcorders back into the network in a way that drives both consumer-oriented Cisco purchases and the need for advanced Cisco gear on the carrier side.