Wednesday, April 13, 2011

Cisco discontinues Flip Video, but why?

Within a piece on Cisco dropping Flip Video:

It appears to be a case of a big company proving a poor custodian of a small one, even one that makes a hit product. Cisco never meaningfully integrated the Flip Video into its main business of making computer networking gear.

Flip Video users are now lamenting the demise of a camera that broke new ground. It was inexpensive, pocketable and very easy to use, from shooting to editing and online sharing. These features have been copied by many other manufacturers, but the Flip Video still outsells them.

Hmmm, where's the IP in this?

Also within the story:

"It was a brand the company had invested heavily in and could have leveraged for all kinds of consumer video experiences -- video conferencing, security applications, et cetera," Rubin said.

Cisco didn't explain why it's shutting down the Flip Video unit rather than selling it.

CNET has a story titled Why Cisco killed the Flip mini camcorder which includes

"Investors were losing confidence," Kerravala said. "I don't remember a time when what John Chambers said was not considered gospel by Wall Street. Now he must restore confidence. So it may be that desperate times, call for desperate measures."

But slowing sales momentum is not likely the main reason that Cisco decided to abandon the Flip product. The biggest problem for Cisco was likely rationalizing the thin product margins in the consumer business. Cisco is used to getting profit margins in the 60 percent to 70 percent range. But consumer electronic products are lucky to get profit margins in the low 30 percent range. Even though Flip was already an established brand, its cameras, which generally sell for between $100 and $200, were likely not profitable enough for Cisco.
Keeping intellectual property for a rainy day
Still, the Flip camera could have been an attractive and profitable business to another company, even if Cisco felt it was a drag on its earnings. While Cisco does not break out sales of individual products, Simon Leopold, an analyst with Morgan, Keegan & Company, estimates that Flip camera sales total about $400 million annually. This is small compared with Cisco's total yearly revenue of about $40 billion, but sales of this product could have been significant to a potential acquirer.
So why didn't Cisco simply sell the Flip product line? After all, NPD's Baker said that despite the rise in smartphones with similar functionality, there was still a growing market for small, mini camcorders.
A Cisco representative was unable to provide insight into the decision-making process except to say, "In theory, at a high level (selling the division) may have been possible, but Cisco's team did a detailed analysis, and it was determined that the best thing to do was to shut down the business."
Yankee Group's Kerravala suspects the company may want to hold onto the intellectual property.
"The fact that they aren't selling off the technology makes me think that the technology may wind up in other Cisco products down the road," he said. "For instance, Cisco has talked about adding recording capabilities to its telepresence products."

IPBiz notes that IP has no value in itself, but only when integrated into a viable business plan. Ask Xerox.

See also
I'm flipped out about Cisco


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