Cisco Flip-flops on consumer market plans

CEO Chambers had touted consumer theme just last year

Cisco's exit from its Flip business and other consumer technologies comes less than 16 months after CEO John Chambers proudly announced the company's move into consumer electronics and video products at CES 2010.

Cisco's exit from its Flip business and other consumer technologies , announced Tuesday, comes less than 16 months after CEO John Chambers proudly announced Cisco's ascendency into consumer electronics and video products at the Consumer Electronics show in Las Vegas.

"Who would have thought a decade ago that Cisco would be be here talking about consumer products and video?" Chambers asked an audience of reporters and analysts at the January 2010, event. "It is video that changes everything."

The juxtaposition of those remarks and the Flip decision speaks to how video might indeed "change everything" -- though clearly not enough to keep Cisco invested in consumer video lines such as Flip and Umi, the home telepresence system that Cisco will now draw into its business telepresence unit.

Cisco's newly narrowed priorities and the decision to drop some consumer lines means 550 fewer jobs at the networking giant. In February, it said sales of its consumer products were off 15%, while overall company profit was down 18%. A management shakeup later that month included the departure of the consumer products head, Jonathan Kaplan. He had arrived at Cisco in 2009 from Pure Digital, the maker of the Flip, which Cisco purchased for $590 million.

Chambers and Cisco executives in 2010 talked often about the potential for enormous growth in video traffic over private and public networks. Now, it appears as though Cisco will focus more on the network traffic and less on the consumer endpoints. A Cisco spokeswoman, Karen Tillman, said Tuesday that Cisco aim to sell future consumer products through service providers and business partners, not directly.

In that 2010 CES demonstration, Chambers showed off the Umi in-home telepresence with his wife, Elaine, on the other end. Then, he showed a clip taken from his personal Flip video camera of a family vacation, including his wife rocketing down a zip line in a jungle in Costa Rica. It was a trip made for Chambers' 60th birthday, and he was proud to reveal personal details, partly to show that the value of video is about sharing experiences.

Consumers relate to video of family and friends because of "the experience, and not the technology," Chambers said then. He even pulled out a Flip camera and recorded video of the reporters in the audience. In subsequent appearances, Cisco executives talked about filming video blogs with the devices to keep their employees informed about their whereabouts.

That personal value from video and the way it contributes to network traffic may still be viable, but Cisco, simply put, has not made money with that premise. Analysts noted that there are many Flip competitors on the market, including smartphones such as the iPhone 4 that actually provide live videoconferencing the Flip did not. Even Skype video from a home computer is seen as a viable alternative to a more expensive Umi home telepresence experience, analysts said.

Some have suggested that Umi might be sold to businesses for use by home telecommuters. Cisco's spokeswoman Tillman wouldn't comment on that possibility, but said Umi could be sold by service providers and other partners.

Cisco will still sell its home networking products, which includes the Linksys Wi-Fi router. As for why it's shuttering the Flip business instead of trying sell it off, Cisco offered little insight. Tillman said only that a thorough analysis showed closure to be the best solution.

Whether Cisco should have moved into consumer areas, or simply should have done a better job at it, remains open to debate.

"Cisco had a grandiose plan several years ago of not abandoning its traditional infrastructure and business roots but of becoming consumer-facing as well," said Jack Gold, an analyst at J. Gold Associates. "But Cisco really doesn't know how to be a consumer-facing company, since its always been in infrastructure selling routers and switches. Even the cable TV box they sell after purchasing Scientific Atlanta is sold to consumers through the cable companies, not directly by Cisco."

Gold said that consumer products also need constant upgrades Cisco could not keep up with. For the Flip to survive, it needed to be Wi-Fi enabled, as many predicted it would be. That would have helped Cisco sell its line of newer Wi-Fi routers working at faster 802.11n speeds inside of homes, Gold said.

"Flip was a niche product anyway, and everybody can shoot video on a cell phone now, or videoconference with it," Gold added. "People who want quality video didn't buy a Flip.

"The idea that Flip would increase video bandwidth on networks that Cisco sells into didn't work out," he said, estimating that Cisco only recouped 40% of its original Pure Digital purchase cost with Flip sales -- if that.

Repeating what many analysts have said for months -- something Chambers himself has echoed of late -- Gold said: "Cisco's lost focus and needs to refocus on key things and build on the markets [it is] already in."

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed . His e-mail address is .

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This story, "Cisco Flip-flops on consumer market plans" was originally published by Computerworld.

Copyright © 2011 IDG Communications, Inc.

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