Cisco Exits Consumer Market, Refocuses on Core Data Center Business

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 camera operations 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 to YouTube.  

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 picture. 

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 center products 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 to business. 

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.