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Smartphones Didn’t Kill Flip, Cisco Did

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Today Cisco announced they’re shutting down the Flip video camera business, and the nearly unanimous reaction is that the smartphone market killed the device.
After all, when consumers have the choice between a great multipurpose device like the iPhone, why would you use a single-function device like a Flip?
But if single function devices are dying and the swiss army knives of technology are taking over, how do you explain the success of the e-reader market?  Amazon and Barnes and Noble are selling millions of units, and are easily holding their own against the iPad.
Ok then, well what about digital cameras?  After all, the iPhone and many other smartphones are great cameras, and no one would buy a digital camera when you can use your smartphone, right?
Well, again, not really. Evidence shows that despite the arrival of the cameraphone a decade ago, digital still cameras are still selling, and the market is forecasted to grow this year.
No, the real reason for the death of the Flip isn’t the iPhone. In fact, I’d argue well done single-function devices have a place in the market, particularly in a market as unsaturated as digital video capture.
Evidence supports this.  According to IDC, the Flip has actually done fairly well, leading the category and amassed 26% market share.
So if that’s the case, what’s the real reason the Flip is dead?  Simple: Cisco, despite owning the top-selling brand in pocket video cameras and one of the top brands in home connectivity, isn’t a consumer company at heart. In other word, they don’t have the stomach for the most brutal of all technology markets, consumer electronics, and all that being a true consumer electronics company entails.
What do I mean by this?
Most importantly, running a consumer hardware business means you have to be able to handle low margins. Just compare Cisco’s margins to that of a company like Logitech, Panasonic or Sony, and you’ll see one of these doesn’t belong. Cisco has historically been used to 50-60% gross margins and net profit margins in the 20% range, and selling $120 devices was always going to be a difficult balancing act for a company who has a history of keeping Wall Street impressed with their rapid growth and near-monopolistic margins.
Second, you’re either all in or all out in the consumer electronics business, and you can’t treat it as a hobby.  This means you have to innovate on the product, something Cisco didn’t do much of since they acquired the device.
Lastly, you have to a consumer brand builder.  The company advertised the Flip, but you never saw the type of committed brand-building you see from the great companies in the consumer space like Nintendo, Apple or Sony.
Cisco, as it stated today, is an enterprise and service provider company to its core, and despite the high-profile acquisition it made of Pure Digital, that’s where their focus was always going to stay.
So no, the Flip didn’t die because smartphones killed it. Sure, Cisco overpaid for the company, but the actual product would have continued to sell well, particularly if the company had innovated on the product as it had originally intended (again, being fully committed to the market would have meant creating new products at a much faster rate) and invested more heavily in the brand.
Instead, Cisco admitted today it didn’t have the stomach for the consumer electronics market and because of that, they killed the Flip.

This week Cisco announced it is shutting down the Flip video camera business, and the nearly unanimous reaction in the blogosphere was that the smartphone market killed the device. After all, when consumers have a multipurpose device like the iPhone, why would they use a single-function device like a Flip?

But if single-function devices are dying and the swiss army knives of technology are taking over, how do you explain Amazon and Barnes and Noble selling millions of e-book readers and easily holding their own against the multi-functional iPad? And what about digital cameras? The iPhone and many other smartphones contain great cameras, but evidence shows that despite this, digital cameras are still selling and the market is forecasted to grow this year.

No, the real reason for the death of the Flip isn’t the iPhone; according to IDC, the Flip has actually done fairly well, leading the category and amassing 26 percent market share. The real reason for the death of the Flip is simple: Cisco, despite owning the top-selling brand in pocket-video cameras and one of the top brands in home connectivity, isn’t a consumer company at heart. In other words, it wasn’t ready to face the most brutal of all technology markets, consumer electronics, and all that being a true consumer electronics company entails.

What do I mean by this?

Running a consumer hardware business means you have to be able to handle low margins. Just compare Cisco’s margins to that of a company like Logitech, Panasonic or Sony, and you’ll see one of these doesn’t belong. Cisco has historically been used to 50- to 60-percent gross margins and net profit margins in the 20 percent range; selling $120 devices was always going to be a difficult balancing act for a company with a history of impressing Wall Street with its rapid growth and near-monopolistic margins.

And you can’t treat the consumer electronics business as a hobby; you’re either all in our all out, and you have to innovate on the product, something Cisco didn’t do much of since it acquired the Flip.

Finally, you have to be a consumer brand builder. Cisco advertised the Flip, but we never saw the type of committed brand-building through innovative campaigns and repetitive messaging as you see from the likes of Nintendo, Apple or Microsoft.

Cisco, as it stated this week, is an enterprise and service provider company to its core, and despite the high-profile acquisition it made of Pure Digital, that’s where its focus was always going to stay.

So no, the Flip didn’t die because smartphones killed it. Sure, Cisco overpaid for the company, but the actual product would have continued to sell well, particularly if the company had innovated on it, as was originally intended, and invested more heavily in the brand.

Instead, Cisco admitted it didn’t have the stomach for the consumer electronics market and because of that, they killed the Flip.

Question of the week

What alternative strategy could Cisco have used instead of killing Flip?