• by Thom Forbes  @tforbes, April 13, 2011

What the Flip happened? Last I knew, the palm-sized video camera was the hottest thing since the iPod, or at least the Ped Egg. Why, didn't we see Cisco acquiring Pure Digital Technologies, its maker, for a tidy $590 million just two years ago? Now the formerly-unsexy-but-vastly-profitable networking company is shutting the doors and throwing away the key on its most visible foray into consumer products.

The Flip was the top-selling video camera in the U.S. last year, with market share of 23%, according to NPD. Take a look at the reviews and you see it in the exalted four- to five-star range across the board at sites where users rate products (scroll down the page).

Well, says a team of Reuters reporters led by By Jim Finkle and Paul Thomasch, "the surprise decision to shut down Flip rather than sell it underscores pressure on [CEO John] Chambers to whittle down a money-losing consumer division that also includes Scientific Atlanta set-top boxes and Linksys home routers." It's evidently Chambers' first move to restructure the company following an "unusually candid" memo to employees last week in which he admitted that Cisco had "lost its way" and warned that "targeted moves" were forthcoming.

Cisco also announced yesterday that it will fold its Umi home videoconference business into its TelePresence division for corporate customers. About 550 jobs will be lost overall.

The closures are part of an effort to "restore lost credibility and sharpen the company's focus," Ville Heiskanen and Katie Hoffmann write in Bloomberg. But Miller Tabak & Co. analyst Alex Henderson tells them the moves are "just a drop in the bucket" in light of what it needs to do. "You're in a business that has extremely low margins and you don't have a competitive edge," he told them, presumably talking about the consumer electronics business and not the media game.

So what exactly happened to a thriving business? How come Cisco didn't just sell it? "The writing was on the wall," writes Leena Rao in TechCrunch. "In a world where consumers can now record and stream video directly from their iPhone, Android or BlackBerry, Flip's video camera business is no longer novel or useful."

"The best acquisitions seem to be those where the acquired company is left alone," Erick Schonfeld and Chris Dixon conclude in a TechCruch video discussion. "But it is easier to adapt to a changing market if you are a standalone startup than if you are part of a larger company." Could Flip have survived on its own? What would it be worth? We'll never know. It appears it's worth more as a tax write-off than it is as a viable de-acquisition.

Cisco will still support its FlipShare video-sharing services with a transition plan it does not spell out, the Los Angeles Times reports. The company, based in San Jose, now will focus on four "key company priorities": core routing, switching and services; collaboration; data center architectures; and video for business customers, writes Nathan Olivarez-Giles.

In a video report, the Wall Street Journal's Lauren Goode observes that the "Flip hasn't exactly flopped." WSJ's "Heard on the Street" columnist Rolfe Winkler points out, however, that the decision is an admission that Cisco's campaign to build a consumer brand has largely failed. Calling the Flip a "videojournalist's best friend" and saying that he bought one of the first models, he almost ruefully admits that his iPhone can now do everything the Flip does. Cisco has a lot more work in front of it in terms of getting its balance sheet in shape, he also says.

The New York Times goes so far as to call the device "obsolete" in its headline, which also points out that the Flip is a mere four years old. Ay chihuahua! Is there no resting on one's laurels as a "mature" product these days?

The Flip was "conceived by a few entrepreneurs in an office above Gump's department store in San Francisco, went on sale in 2007, and quickly dominated the camcorder market," write Sam Grobart and Evelyn M. Rusli in a classic creation story.

While the reporters report that its demise is "a vivid illustration of the ferocious metabolism of the consumer marketplace," they also quote a reassuring Jonathan Kaplan, a co-founder and former CEO of the start-up that invented the Flip. Young entrepreneurs should not lose heart, he avers.

"The demise of Flip has nothing to do with how great a product it is. Companies have to make decisions that sometimes people like you and I don't always understand." Mere re-reporters that we are.