The Flip video camera, conceived by a few entrepreneurs in an office above Gump’s department store in San Francisco, went on sale in 2007, and quickly dominated the camcorder market. The start-up sold two million of the pocket-size, easy-to-use cameras in the first two years. Then, in 2009, the founders cashed out and sold to Cisco Systems, the computer networking giant, for $590 million.
On Tuesday, Cisco announced it was shutting down its Flip video camera division.
Even in the life cycle of the tech world, this is fast.
From the outset, the acquisition was an odd fit for Cisco, which is known for its enterprise networking services. To some analysts, the decision to shutter Flip was an admission by Cisco that it made a mistake.
“Cisco was swayed by the sexiness of selling to the consumer,” said Mo Koyfman, a principal at Spark Capital, a Boston venture capital firm. “They’re not wired to do it themselves, so they do it by acquisition. Flip was one of the most visible targets out there. But it’s really hard to turn an elephant into a horse. Cisco’s an elephant.”
But the rapid rise, and now demise, of Flip is also a vivid illustration of the ferocious metabolism of the consumer marketplace and of the smartphone’s power to destroy other gadgets.
“It was unusually fast,” said Brent Bracelin, an analyst with Pacific Crest Securities. “It’s a testament to the pace of innovation in consumer electronics and smartphone technology. More and more functionality is being integrated into smartphones.”
The rapid innovation of smartphones, he said, is “one of the most disruptive trends we’ve seen.”
As newer and faster technologies beget newer and faster technologies, consumers move on to the next big thing with alacrity. In four years, Flip has gone from start-up, to dominant camcorder maker, to defunct. It took I.B.M. about four years just to reach dominance with its PC in the early 1980s. The iPad is only one year old.
Just as the Flip was reaching its zenith, the smartphone was gaining traction among consumers. With its versatility in recording video and still images, as well as its ability to perform myriad other functions, the smartphone has since proved to be a far more desirable product than a single-function device like the Flip.
At the same time, the smartphone has crushed the market for GPS devices, put a serious dent in the point-and-shoot camera industry and threatens the existence of many other everyday devices — the wristwatch, the alarm clock and the portable music player.
For technology entrepreneurs, the Flip story may be a cautionary tale of another sort. Many entrepreneurs look at Facebook’s ability to rebuff suitors as a inspiration to stay independent. But Flip’s founders were paid more than half a billion dollars for their invention from one of the most deep-pocketed companies in Silicon Valley, offering an alternate lesson in the fine art of cashing out at the right time.
“There are a lot of young entrepreneurs who look at Flip as a huge success, and they should continue to,” said Jonathan Kaplan, a co-founder and former chief executive of the start-up that invented the Flip. “The demise of Flip has nothing to do with how great a product it is. Companies have to make decisions that sometimes people like you and I don’t always understand.”
Cisco said its decision to shut down the Flip division was part of an overall restructuring plan of its consumer business. “We are making key, targeted moves as we align operations in support of our network-centric platform strategy,” said John T. Chambers, Cisco’s chief executive, in a statement.
Cisco had made inroads into the consumer market over the last decade by purchasing Pure Digital Technologies, maker of the Flip, as well as Linksys, the home-network router manufacturer. Mr. Chambers embodied the exuberance for consumer products, saying he owned eight Flip devices.
The company declined to elaborate on its reasons for shutting the Flip division, but it has faced mounting pressure to shore up its profit margins. It remains the top-selling camcorder on Amazon today, and inspired many imitators. Existing camera heavyweights like Sony and Kodak rushed to release their own Flip-like camcorders, trying to chase Flip’s runaway sales.
Still, Flip’s luster began to fade, as a spate of smartphones with built-in cameras and editing applications hit the market. The unit, which sells cameras for $100 to $200, also struggled to match the rich margins of Cisco’s enterprise services, Mr. Bracelin said. In another sign of trouble, Mr. Kaplan, who became Cisco’s general manager of consumer products after Cisco acquired Pure Digital, left the company in February.
Several analysts saw the decision as an inevitable consequence of a mistake.
“I don’t think there’s an analyst on the planet who thought that Flip was a good acquisition,” said Alex Henderson, an analyst with Miller Tabak Company. “Cisco had this idea that they wanted to be in the consumer’s home network, but they had a grand vision that was not grounded in reality.”
Stephen Baker, an analyst with NPD Group, “Cisco was never really committed to the product.”
Although the company never disclosed specific numbers on Flip, analysts estimated it accounted for just a fraction of the Cisco’s overall business. Simon Leopold, an analyst with Morgan, Keegan Company, said Flip probably had about $400 million in annual revenue, compared with roughly $40 billion for Cisco over all.
Cisco said that the changes would result in 550 layoffs and a pretax charge of less than $300 million in the third and fourth quarter of the fiscal year.
Verne G. Kopytoff contributed reporting.
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