Last week Cisco Systems announced that they were shutting down production of The Flip video cameras and taking a charge of some $300 million to shutter the business. To refresh your memory, Pure Digital launched The Flip, a single purpose, one-click video camera in 2007. They quickly raced to over $300 million in sales. Cisco acquired Pure Digital in May 2009 for close to $600 million. So the entire life-cycle of the business – 4 years — $0 to $600 million and back to $0 again. I wrote about The Flip when Cisco acquired the business. As an aside, I still think The Flip is a great product and the opportunity to evolve its tribe into the next stage was entirely possible — at least as much as NetFlix has done with streaming video service to complement its DVD memberships.
The Flip’s social media presence was (and is) impressive – more than 350,000 followers on Twitter and Facebook. There are more than two million Flips in the market. That Cisco did not know how to embrace and fully use The Flip tribe is a statement everyone should follow and understand. Here is a terrific article from The San Francisco Chronicle on the subject. Social media is a conversation not a presentation, engagement not marketing, relationships not platitudes. Cisco did not and does not get it. Then again, Cisco’s clientele are businesses not consumers. Cisco bought Pure Digital to help their efforts in the consumer business. This, despite generating $40 Billion (yes, Billion) revenue per year focusing on businesses and their connectivity needs. Cisco’s core business operates at between sixty and seventy percent gross margins. Seventy cents of every dollar Cisco generates goes into its pocket before overhead. This compared with The Flip’s thirty percent gross margins.
The lessons for creative businesses are myriad. The biggest, of course, is do what you do. Sexy may not be salable or scalable. Just because a business or product is a good business does not mean it is a good business for you. Dipping your toe does make sure that you know the temperature, but then again you will never know what the water feels like unless you jump in. In the end, The Flip did not matter to Cisco. It did not represent the future Cisco wanted to embrace in a meaningful way. And, relative to Cisco’s core, it was a bad business – tons of competition, relatively low margins and virtually no chance to scale without a VERY big commitment to The Flip’s culture. Not going to happen with 99% of the business going the other way. An ant will not make a herd of buffalo change direction.
So for those of you who have or are considering multi-level service – full, medium and partial service, ask yourself if all of them fit. My guess is that the answer is no. If you are in the lower end business (i.e., partial service), you will be making less money. That’s ok if you are building to something other – surprising and delighting those who use the service so that they will spend a lot more money with you in the future – see Apple, Zappos, and NetFlix. However, if you are just doing it to “keep the lights on”, you are making one step forward to take three backwards. You will not be able to provide value at each level of service unless your core can be front and center at each level. Keeping the lights on is not your core. Then there are those of you who are old guard. You have a website, Facebook and Twitter account just because. Who cares. If it is boring and unengaged, your creative business will be too. Better to stick with all that has served you well and use the tools available to you to improve those techniques rather than jumping on a whole new bandwagon.
The corporate line is that The Flip’s business was doomed and unsellable. The truth is that it just did not fit with what Cisco is all about. It was too small to matter. I am certainly not advising that you bet the farm on the next evolution of your creative business. What I am advising is that you fully embrace what that evolution is and be fully committed to the seed from which it is borne. The new new thing matters only if you can draw a straight line from the tried and true. If you cannot draw the line, take a hard look at why you are bothering to take the walk.
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Fantastic post Sean. I love how you compare this to creative business.
Sounds like the right product for the wrong company.
A sad end for an awesome product. I’m always amazed by how much large companies can lose touch with the identity that served so well for so long.
Another great post. You’d think women, in particular, would be sensitive to fit within their businesses. I say this because like just about every woman out there, I have made the mistake of buying that perfect shoe–the one I have to have–despite the fact that it sort of pinches here or squishes there or how about the shoes I bought to save money? Sure, they were half the price of the others, but they my feet were so miserable in them that they lived out their life in the back of my closet.
When I was little, my mom would take me to the Stride-Rite store, where my foot would be measured properly. Then a tall stack of boxes brought out from which I would choose some shoes or sneakers. I would put them on and after being assisted in tying them up, I would really test them out–up and down the store, over the toy bridge, checking them out from all angles in the mirror.
“Do they pinch?” Mom would ask.
“Are they too snug?”
“Do they fit?”
Here last question was always, “Is there room to grow?”
Only when I was 100% sure would my mom make the purchase.
As a woman, I ask myself all these shoe-related questions when it comes to my business (and when I’m buying heels).
Thank you, Sean.