Cisco and Flip

Cisco announced that they are closing their Flip video business, acquired by Cisco for $590m in March 2009, almost exactly two years ago.

Flip of course was facing significant strategic headwinds even when Cisco acquired them – video recording was integrated into smartphones, which users always carry with them. The opinion in Silicon Valley has long been that the owners of Flip “did a number” on Cisco, taking advantage of Cisco’s apparent naiveté in the consumer space to sell a company that would otherwise have run into trouble.

The legend of how Cisco came to acquire Flip is that a very senior Cisco exec (I won’t say the name, to protect the guilty) was at a house party where all the kids were running around recording each other with Flip cameras. Cisco of course has a long standing interest in video, as the thing which is driving the next wave of growth in demand for network capacity and capability. Our Cisco-exec-hero was sure that Flip must be the next big thing in consumer electronics – the next iPhone, if you like – and made the acquisition happen.

Flip really was an excellent product, too – an exercise in minimalism that made recording and transferring video trivially easy. In many ways, it did deserve to be the next iPhone – bringing a high-end capability set to the masses.

What does this all tell us?

Firstly, from the startup perspective, if you face a strategic threat – here, Flip’s functionality was being integrated into other products – and someone offers you a great price, you should sell.

Secondly, products that are based on pure simplicity can be vulnerable to changes in fashion. Making complicated things seem simple – as the iPhone does – can be quite defensible. But making simple things seem simple – which is primarily a matter of getting the over-engineered feature-set out of the the user’s line-of-sight – may be a lot more vulnerable to competitive attack – especially if there is no platform-like element to lock the user into the product. iTunes and iTunes-music-collections arguably provide such lock-in for the iPod music player, however, despite their efforts with Flipshare, in the end Flip was just too easy for users to live without, once they had similar functionality in their smart-phones.

Thirdly, if you sell to a player who has little competence in your space – for instance, selling your consumer electronics company to a network-hardware vendor – you significantly increase the risk that the business will break down after the acquisition is done. It can happen for a whole bunch of reasons – lack of prioritization; the rejection of a “foreign”-seeming body from within the main business; management processes that don’t and can’t align – but the risk is high. Taking the money is always nice, and often the right thing to do, but any founder needs to weigh the high risk of seeing their “baby” lost at sea.

[Hat tip: ReadWiteWeb]

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