The Flap over Cisco's Flip: Why the Company Killed off a Popular Product: Knowledge@Wharton (http://knowledge

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The Flap over Cisco's Flip: Why the Company Killed off a Popular Product
Published : April 27, 2011 in Knowledge@Wharton

The Flip, a quick and easy video recorder that captures spontaneous moments for instant uploading to YouTube, is about to fold. Cisco Systems, which bought the Flip just two years ago, is closing the business in a move that illustrates how rapidly evolving technology and business strategies can force major corporate flip-flops. Cisco's abrupt decision in April to kill off a successful product that is still the top-selling camcorder on Amazon.com has angered Flip enthusiasts. Some analysts suggest that the $40 billion networking company, which has been struggling in recent quarters, made the move in order to shift its focus back to its enterprise roots after a flirtation with consumers triggered, in part, by Apple-envy. "It seemed like a great marriage at the time," says Kartik Hosanagar, Wharton professor of information and operations management. Cisco -which paid $590 million to acquire Flip from Pure Play Technologies, the startup that launched the one-trick device in 2006 -- "was going after the consumer. It bet big that this would be a good opportunity."
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According to Wharton management professor David Hsu, the enormous success of Apple has led many technology companies to look to the consumer market for growth. These companies hope that by focusing on consumer-oriented products, they can acquire the knowledge and experience necessary to produce huge hits like the iPod and iPhone. Cisco's acquisition of Flip in 2009 was puzzling at the time, Hsu says, because the product -- even though it was very good at what it did -- seemed to run counter to the momentum building up for gadgets with many functions. "Cisco was trying to have more of a consumer-based strategy, maybe for corporate diversification," Hsu notes, adding that the company's other major consumer product is the Linksys home router which, like the Flip, is positioned as a simple product for the less technologically inclined. Perhaps Cisco, in trying to diversify away from networking, went after a product niche focused on "the consumer side in the easy-to-use segment." Instead, rapid adoption of smartphones equipped with video and photo capabilities challenged the self-contained Flip. Disappearing Market "Cisco decided there really is no market in the stand-alone video device today," says Eric Clemons, Wharton professor of operations and information management, noting that consumers who want to record video will use a high-quality digital model or catch spur-of-the moment videos on their smartphones. Consumers do not want to carry numerous single-purpose gadgets and are choosing devices with more functions, such as the iPad 2 with front and back cameras and the ability to Skype. "Honestly, I don't even know where my iPod is," Clemons notes. As another example of changing times, he points to the days when computers had fax modems built into them. Now, documents are sent electronically via email. "Sometimes devices really do disappear in the face of convergence. My guess is that when the iPhone and [other] smartphones became universal, the Flip became irrelevant." Meanwhile, Cisco is struggling in its much larger enterprise business. In addition to Flip and Linksys, the
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targeted moves as we align operations in support of our network-centric platform strategy. the company acted prematurely in killing off a product that is still viable and could generate revenue for at least several more years." DelPrete notes. Cisco needs to be applauded for experimentation. "I suspect in a couple of years that [Cisco] will regret this and will probably get beaten up by Wall Street for not having a consumer presence again.edu/article. however. YouTube and consumer video capability were generating tremendous excitement. "is a unique beast.the 1990s -. and today they are doing quite well. and it was driven not by product or marketing concerns. he says." says DelPrete. understands why Flip might not be the best fit for Cisco. for his part." Apple. In a statement released earlier this year Cisco CEO John Chambers said the company faces "air pockets" due to big declines in orders by government agencies and cable operators. and we can help differentiate the experience. it's an unfathomable bad decision. Baker. and Cisco.The Flap over Cisco's Flip: Why the Company Killed off a Popular Product: Knowledge@Wharton (http://knowledge. including Sony. Even so. N. In announcing the Flip's demise. adding that "at some level. it probably would have been a pass. "It is short-sighted." The company has provided no additional elaboration about its decision to kill the Flip. therefore.the latest and greatest hot technologies all came through enterprise. but by financial engineering.cfm?articleid=2757) company's consumer strategy included acquiring set-top box manufacturer Scientific-Atlanta and Umi. Mass. recalls that when Cisco acquired the Flip." But. "history has shown that these things move in cycles. Without consumer distribution channels.." These days. and those sales dropped 15% in the second quarter." Hosanagar. If Cisco hadn't gotten so caught up in YouTube and viral video at the time. says that the Flip represents less than 1% of Cisco's sales and 1% of the company's employees.upenn. "I think it was a dumb decision. chief research officer for IDC. Viral videos were exploding. a market research firm based in Framingham. "Back in those days.                    Page 2 of 3  . HP and even Acer.'" Ultimately. "There was not natural synergy there for Cisco. Chambers said in another statement: "We are making key. it was a bit of a renaissance time as consumer-connected devices were taking off.wharton." DelPrete acknowledges that many tech companies are captivated by the Apple model. Even if the Flip did not fit into Cisco's long-term plans. Building close contact with consumers is critical for technology companies going forward. New product acceptance now flows from the home back into the workplace." he continues. The company's decision drew some complaints from the tech community that Cisco acted too hastily in putting an end to a beloved consumer product. a market research company based in Port Washington. he adds. but the comparison to Apple is often "like apples and oranges. according to Baker. Today it goes through the consumer. Baker notes." states Stephen Baker. "What Cisco saw was that Flip would continue to load the network. Cisco would never build mindshare through Flip. "In the old days -. as a leading manufacturer of Internet equipment." Baker argues that the Flip was sacrificed in order to build new credibility with analysts and investors by convincing them that the company was moving toward a stronger focus on its main business. a move which also meant the layoff of 550 workers.Y. but he is "shocked" that   All materials copyright of the Wharton School of the University of Pennsylvania. consumers use so much technology in their personal lives that the home is becoming the place where innovation takes place. he warns. Overall. consumer products account for only 2% to 4% of Cisco's overall revenues. [Acquiring] Flip was a little impulsive. 'We want to make sure we get this out in the market so that people can use it. a digital teleconferencing system. We will see where the next part of the cycle goes. But there is a mix between controlled experimentation and just making more of an impulsive move. "They were thinking. and that would be good for Cisco's business overall. They have a plan and are executing on that plan. stood to gain from increased traffic. All the way around. vice president of industry analysis at NPD Group. closing the business will not save a significant amount of cash. the strategy was flawed because Cisco does not have much of a presence on retail shelves like other consumer-focused technology companies do. net income in the quarter was down 18% from the same period in 2010." Flawed Strategy Carmen DelPrete. he says.

what was going on. they have a challenge in finding new market opportunities that are big enough to make a difference." he says. Yahoo and Nokia really never fully acknowledged -. (212) 221-9595 x407. Werbach adds. "Cisco is a very large company and. but its core market remains enterprise customers. "Cisco is never going to be a consumer marketing company. It's just not in their DNA." Indeed. The company had strengths in video quality and user interface. Werbach says Cisco's openness and willingness to change direction is not necessarily a guarantee of success.The Flap over Cisco's Flip: Why the Company Killed off a Popular Product: Knowledge@Wharton (http://knowledge.to fully acknowledge the flaws that knocked them off their perch. which "certainly could be valuable to Cisco. "Cisco has to explain why they spent $590 million less than two years ago and are closing shop without doing much with it." However. please contact PARS International: reprints@parsintl. like all large companies. it often takes a long time -. and the Flip still commands significant market share. posters or plaques. admitting it and moving on swiftly. "Flip was more than just a successful brand marketing company." It made sense for Cisco to want to increase its understanding of video technology. "If you look at tech companies in recent years that have stumbled.   All materials copyright of the Wharton School of the University of Pennsylvania." he argues. according to Werbach.if ever -. For multiple copies. custom reprints. Wharton legal studies and business ethics professor Kevin Werbach has another theory: Cisco may have decided not to sell the company in order to keep some of its intellectual property and knowledge in-house." DelPrete's view is that Cisco might not have been able to find a buyer for the Flip because it straddles the space between high-end cameras and smartphones. that may be a great business for Apple.cfm?articleid=2757) the company made no attempt to sell off the Flip business.upenn. So to the extent that a business like the Flip is really about selling cool gadgets to users.before it was too late -. Cisco should get credit for recognizing a mistake.wharton.com P. but it's probably not for Cisco." This is a single/personal use copy of Knowledge@Wharton.                    Page 3 of 3  . e-prints. "There's still a large group of loyal Flip users.edu/article.