Cisco's foray into the low-margin world of consumer electronics didn't really help anyone, as the company now faces the fight of its life in its core data center business.
Cisco's announcement that it is exiting the consumer
electronics business and, as a result, shutting down its Flip
while consolidating Linksys into its larger home-video
business is probably a good move for a company focusing on data centers.
The Flip acquisition was always kind of a mystery, since
those pocket-size camcorders didn't really fit into anything else the company
did. While they were a very hot commodity for a couple of years, it has become
apparent that they were a rapidly passing fad.
The problem with the Flip camera and the other similar
camcorders is that they were what that great kitchen philosopher Alton Brown
calls a "uni-tasker." They really only do one thing. That one thing is to take
shaky video with lousy sound that you can use to upload your silly cat videos
Considering that every smartphone on the planet can do
the same thing-while also handling your e-mail, allowing you to waste time with
video games and, if you try hard enough, making phone calls-it's kind of easy
to see why the Flip would have ultimately flopped.
Worse, nearly every still camera currently on the
market-whether it's a high-end Nikon DSLR or a Canon point -n shoot-can also
record video; most even sport built-in image stabilization and decent optics.
I'm only surprised that Cisco waited until now to edit Flip out of its business
The reason for the demise of Linksys is a little less
clear. Cisco began as a company that made switches and routers before it ever
became part of the data center. The Linksys routers and switches meant for
homes and small offices were usually excellent devices that brought Cisco's
networking skills to the masses. While not every Linksys product was a success
(I have a Linksys 11n router that I'm ready to hurl into the recycle bin as
soon as I find a replacement), they were still a class leader.
Fortunately, Linksys won't actually disappear, but will
become more video-oriented, although Cisco has yet to say what that actually
means. My guess is that it has something to do with doing a better job of
interfacing with the rapidly growing market for 802.11n-equipped Blu-Ray players
and HDTVs. This is good if you want to listen to Pandora Radio or watch YouTube
videos on your television; it may not be so good if you need a small-business
router in your office.
But the fact remains, the consumer products that Cisco
was selling had remarkably little margin. This segment of the technology
business is so competitive that it's hard to see how any of the principal
manufacturers can make a buck at all. I continue to marvel at how cheap these
devices when I peruse Micro Center's
advertisements each week. So, unless Cisco can find a way to create more
reasonable margins, I'd be surprised if Linksys stays around-at least as a part
of Cisco-for very long.
Cisco, meanwhile, is
suffering for other reasons.
HP has amped up data-center product line,
perhaps because Cisco's UCS series of data
tried to cut HP out of the business despite
long-standing partnership arrangements. There's every indication that HP, when
faced with a really big challenge such as this, fell back on its roots and
chose to take its "Invent" motto seriously. The result was a series of
world-class data center products presented in ways that were more approachable
Worse yet, from Cisco's perspective: Not only is HP
easier to integrate into a data center, the company's products are also less
expensive. Basically, by trying to cut HP out of the data center, Cisco created
a monster. HP revitalized its data center product line by making it less
proprietary and less expensive. Now they're eating Cisco's lunch. As a result,
HP is doing very well in terms of market share while Cisco is struggling.
Part of the reason HP was able to sort of sneak up on
Cisco is that product lines such as Linksys and Flip were distracting Cisco's
management. Of course, HP has a vast array of consumer products, too, but HP's
consumer divisions operate as nearly autonomous companies. They may share a
common look and feel, and of course, the same logo. But the activities of the
people who make Palm devices and consumer inkjet printers don't really have an
impact on the data center business.
In a way, HP's approach to consumer products helps the
company while Cisco's approach didn't. HP uses its name and logo on all of its
products, which increases the company's visibility. It's hard to walk into any
office of any size and not see an HP logo somewhere.
Cisco, on the other hand, pretended its consumer products
belonged to someone else. So you might see a Linksys router, but unless you
already knew that Cisco owned the company, it didn't contribute to Cisco's
mindshare. So it's no surprise that Cisco is cutting off the consumer business.
It's in the fight of its life against a very well equipped opponent.