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Does the Cisco-Flip deal matter?

By April 14, 2011No Comments3 min read

There was a ton of buzz around the Internet on Monday as Cisco casually announced they were shuttering Flip, the company they had acquired only 2 years ago for a princely sum of $590 Million. By Wednesday no one seemed to be talking about it anymore. Maybe because it doesn’t matter in the grand scheme of things. Now don’t get me wrong, it sucks that 500+ people will lose their jobs at Flip, but many of them if not all will find other positions fairly quickly with Cisco on their resume.

Many of the critics thought it was a colossal waste to just shutter the division and lay everyone off, but they are failing to see that the writing was already on the wall for Flip years ago. In my opinion, the founders of Flip and early investors got out while the going was good, kudos to them. To sell Flip would have meant a ton of hassles and headaches looking for a buyer; no buyer would have paid even close to $100M for the brand (forget the hardware tech). So after legal fees, you’re talking $66M MAYBE in revenue. Remember Cisco did 10B+ in sales last quarter. 1.6B in profit for the quarter. The tax benefits of writing off the investment far outweigh the revenue they could have netted on the deal.

So when did it start going south for Flip? First the iPhone added video with the 3GS (in early 2009, less than a year after being bought by Cisco). Boom goes the dynamite. Then every phone on the market added video. Oh and the ipod touch & nano both had video. Video just as good as the flip, in many cases better. Why on earth would you need or want to carry 2 devices?

While smart-phones and digital cameras were quickly replacing the functionality of the flip, flip stood there and didn’t innovate. Others like the gopro replaced their role in rugged video recording, situations where you wouldn’t want to risk your $300 smart-phone. Flip should have OWNED this space. They could easily have pivoted, beat gopro to market, and beat gopro on manufacturing costs and distribution.

Now I get why Cisco bought Flip originally, they thought they could own the bandwidth loop from end to end (start with bandwidth hogging creation – video, run it over their routers, and display via video conferencing devices). Who knows, maybe this was overly optimistic? Ultimately it tells us what: technology is evolving, so even if you buy today’s hot stuff, it might be tomorrow’s has been if you don’t continue to invest in it. Its also a cautionary tale in expanding into markets you don’t understand (shifting from purely business/networking to consumer electronics).

So does it even matter to you that the Flip is dead?