Reference no: EM131030060

Business- Operation Management Case

You've probably seen them at weddings or graduations, and maybe even at parties. No, they're not “crashers,” they’re the handheld Flip video camcorder. Flip was the brainchild of some San Francisco entrepreneurs whose idea was to create a pocket-sized, inexpensive, and easy-to-use video camera. Considering that most video cameras were big, bulky, complicated, and expensive, that idea seemed right on target. And it was! When Flip went on sale in 2007, it quickly dominated the camcorder market as some 2 million were sold in the first 2 years. “Then, in 2009, the founders cashed out and sold to Cisco Systems, the computer networking giant, for $590 million.” Not a bad payday, huh! For Cisco, the acquisition was a key to its strategy of expanding in the consumer market, especially as homes became more media-enabled. However, two years later, in April 2011, Cisco announced it was “killing” Flip and laying off 550 employees. As one analyst said “It’s a testament to the pace of innovation in consumer electronics and smartphone technology. More and more functionality is being integrated into smartphones.” Four years. That’s all it took for the Flip video camera, the most popular video camera in the United States, to go from hot start-up to obsolete. But even in the life cycle of tech products where things happen fast, this flip-flop seemed to be in the blink of an eye---unusually fast, as one analyst said, especially for a “hot” product. What happened? The Flip camera broke new ground when it was introduced. Customers loved that it was pocketable, inexpensive, and easy to use.

Flip’s name came from the arm that flips out of the camera body and lets the user connect it directly to a computer. The camera also had video-editing software that opened when it was connected to the computer. Although the actual video camera seemed tiny, it recorded remarkably good footage for a camera of its size. In addition, unlike other video cameras, the Flip could be held comfortably in front of you so you didn’t feel “removed” from the event being recorded. The product was exactly what the founders envisioned---a practical pocket-sized, inexpensive, and easy-to-use video camera. When Cisco Systems decided to acquire Flip, one of the hottest consumer products to hit store shelves in a while, many industry analysts questioned that decision, believing it was an “odd fit” for the company that’s best known for its business enterprise networking services. The Flip camera was the first true consumer product under Cisco umbrella. In its announcement, Cisco said that the acquisition was a key to its strategy to expand momentum in the media-enabled home. There was no doubt that Cisco was serious about the company’s desire to expand its market from technical components into true consumer electronics. And there was another variable at work here, as well. The acquisition of Pure Digital Technologies (the actual company behind the Flip camera) was another sign that Cisco was making a statement by aggressively pushing into new markets when many of its competitors were floundering during the economic downturn. Pure Digital became a part of Cisco’s Consumer Business Group, which also included Linksys home networking, audio, and media-storage products. When Cisco acquired Pure Digital is also named Jonathan Kaplan, Pure Digital’s CEO, s Cisco’s senior vice president and general manager in charge of consumer products, Kaplan was to help set Cisco’s strategy in this area. And Cisco did what it thought was necessary to compete in the consumer market using Flip as a key focus.

It spent heavily on consumer branding, hiring celebrities such as Ellen Page to star in its television commercials and paying for product placement in shows such as 24. Even Cisco’s CEO, John Chambers (who owned eight Flips), shot videos on a Flip a constantly had it in view during television interviews. It even had Sean “Diddy” Combs design a custom Flip Camera. Flip sales during fiscal 2010 were $317 million. However, it must not have been enough. Cisco suffered several quarters of disappointing financial results and challenges in its core businesses. Analysts said that the company had been trying to do too many different things and losing its focus on what made it great. In retrospect, it was easy to see that major strategic changes were looming. First, Cisco announced in February that Jonathan Kaplan was leaving Cisco to pursue ‘other career opportunities.” Then, CEO Chambers said in an interview that “revenue from consumer products over the holiday season fell short of the company’s hopes.” Then came the announcement in mid-April 2011 that Cisco was restructuring and shutting down its Flip video-camera unit. Chambers said, “We are making key, targeted moves as we align operations in support of our network-centric platform strategy.” In addition, analysts pointed to the rapid innovation of smartphones as one of the most disruptive trends ever seen. As phones with built-in cameras and editing apps hit the market, it was only a matter of time Flip became obsolete.

1. Could Cisco have done anything else to build up its consumer products including the Flip? What were Flip's strengths? What external threats were happening during this time period?

2. Why do you think Cisco decided to shut down the Flip business rather than try to sell it?