Today’s news that Cisco will shutter Flip Video is a bad decision on so many levels that it is difficult to fit them all into one discussion. But for the sake of this blog, let’s focus on two. When Cisco first purchased Flip, many analysts, including me, questioned whether the buy was a good fit. But abandoning it now seems a cowardly act, and one that flies in the face of common sense.
Today’s biggest corporate trend, even bigger than clouds, is the consumerization of IT. As one of the largest corporate IT companies, Cisco has always suffered due to its relative lack of exposure to consumer trends. Cutting more and more of its ties to the consumer in the long term will only further remove the company from the cutting edge of the marketplace, while leaving it more vulnerable to the changes sweeping over the IT landscape.
The second reason this is a bad decision is that there is no compelling evidence that Flip was failing. It remains far and away the leading consumer video camera company. Flip’s unit volume growth for 2010, as measured by NPD’s Retail Tracking Service, was basically flat versus 2009. ASPs had actually risen $5 to $158, and despite the predictions that the consumer camcorder market was collapsing in the face of mobile-phone video, unit sales of camcorders increased 5 percent in 2010 and remained flat in the fourth quarter (Q4) of 2010. Of course Flip under-performed the market during the 2010 holiday season, as sales fell 19 percent versus the prior year, but most of that decline was the result of strategic marketing missteps, and more aggressive competition, as opposed to any evidence of an underlying fall in demand.
Unfortunately this announcement (without even the option for a sale) shows how difficult it is to show Wall Street analysts the value of consumer businesses - especially in inherently challenging markets, like CE and IT, where margins are inevitably going to be under pressure. But as the trends towards consumerization of the marketplace continues, companies like Cisco that abandon their opportunity to participate in the growth and insight into future trends that the consumer markets provide will inevitably fall behind their competitors.