Why Cisco killed the Flip video camera: 4 theories

The Flip digital video camera has flopped. Cisco, the internet networking giant, has decided to shut down the videocam business as part of a larger restructuring that will involve cutting about 550 jobs. The move comes just two years after the company paid $590 million in stock to buy Pure Digital Technology, which made Flip. Why did Cisco pull the plug? Here, four possible reasons:

1. Improved smartphones made the Flip obsolete

The cameras on iPhones and similar devices have gotten much better over the last couple of years, so standalone cameras are on the way out. "Who needs to shell out for a pocket-sized video camera when smart phones have an HD video camera built in, with email and Angry Birds to boot?" asks Shira Ovide at The Wall Street Journal. The sad truth is "the Flip won't be missed all that much," says Rachel King at ZDNet.

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2. Cisco didn't really understand the consumer business

The purchase was part of an effort by Cisco to diversify its business and offer gear aimed directly at consumers. That's a challenging market to enter, with fast-changing designs and dominant competitors like Apple and Sony. This latest move could be "an admission by Cisco that it made a mistake and that it paid too much for a company it didn’t really need," says Evelyn M. Rusli at The New York Times. "It's simply a market they didn’t understand," says Simon Leopold, an analyst with Morgan, Keegan & Company, as quoted by The New York Times.

3. Wall Street never liked Cisco's Flip strategy

Wall Street analysts were skeptical from the start about Cisco's foray into video cameras and home videoconferencing. "The Street never fell in love with Cisco’s consumer strategy and the Flip product line was the epitome of this disdain," says Ticonderoga Securities analyst Brian White, as quoted by MarketWatch. Cisco's stock price has plummeted since late 2009.

4. Cisco knew Flip was hopeless

With its stock languishing, Cisco needed to devote more attention to its core businesses. The "only real surprise" is that Cisco didn't even bother to try to sell its Flip business before shutting it down, says Rob Pegoraro at The Washington Post. Sales of the cameras were actually up 15% over the previous year, but the company was looking for even faster growth. "I can only conclude that Cisco saw no hope" for the Flip, Pegoraro says.

Sources: The Boston Globe, BloggingStocks, MarketWatch, PCWorld, The Street, The Wall Street Journal, The Washington Post, ZDNet