On Thursday, network equipment megalith Cisco Systems announced the pending acquisition of Pure Digital, makers of the popular Flip video camera whose success is due to its one-button simplicity and built-in video management software for both PC and Mac. (See gadget gury David Pogue's video for an entertaining explanation of the Flip's appeal. A new model, the Mino, shoots HD video.)
Cisco watchers are largely unimpressed with the deal. In short, analysts and writers who cover Cisco consider the Flip's market of 2 million units too small for Cisco to bother with, and Pure Digital's selling price of $590 million too small a return for investors Benchmark Capital and Sequoia Capital.
Gartner analyst Nick Jones:
This leaves me totally puzzled. $590 million is loose change for Cisco. But why spend even loose change on a brand no-one has heard of outside the US and which has sold about 2 million units in its entire history. Last year the mobile industry shipped well over 800 million handsets with cameras, the latest models like the Samsung Omnia can already shoot HD video which is on the cusp of mainstream mobile adoption. The chips and camera modules on mid to high-end devices will all head to HD over the next couple of years. So products like Flip are going to be buried under an avalanche of HD enabled handsets. I can understand Flip wanting to sell out before the tsunami arrives but why would Cisco buy?
Network World columnist Brad Reese:
A spectacularly successful cash out for Pure Digital's venture capital investor - Michael Moritz of Sequoia Capital (keep in mind that Moritz and Sequoia were also the original venture capital backers of Cisco), [but] not be a wise acquisition for Cisco.
First, how do Cisco's valuable channel partners benefit with Cisco capital and management attention focused on products sold in mass retail outlets for between $130 and $230, and whose success has spawned a large group of copycat competitors?
Second, Cisco's expertise is in developing and supporting complex technology. I fear Cisco risks being "dumbed down" ... for example, a recent report shows Cisco gaining market share in [small to medium business] routers but losing ground in the high-end router segment to Juniper Networks.
PEHub blogger Lawrence Aragon, who writes about private equity:
It sounds like a pretty good deal, but you have to understand that the VCs put $95 million into Pure, which makes the Flip digital video camera. Assuming they own half of the company, that’s a return of just over 3x their money. For a middle-of-the road VC firm, that would be a decent return, but for big name backers Benchmark Capital and Sequoia Captial that’s pretty much a dud.
Did Pure Digital's investors push for a relatively cheap acquistion before the Flip loses its market share? Does Cisco have plans for the Flip, or for Pure Digital, that aren't obvious from outside the company? Cisco's press release suggests Cisco, an enterprise IT colossus, is trying to become a household brand as well:
"The acquisition of Pure Digital is key to Cisco's strategy to expand our momentum in the media-enabled home and to capture the consumer market transition to visual networking."
The consumer market transition to visual networking? Sounds like Cisco is looking to sell cameras to the makers of YouTube home videos. Good luck competing with Apple and Logitech.
Pffft. This is a brilliant acquisition.
In 2004, Bruce Sterling gave a keynote at Siggraph where he talked about our society coming to the end of a long period of fascination with what he called 'gizmos' -- complex, feature-packed devices with consistently-challenged user interfaces and comms channels (never enough keys, never enough screen real estate, not enough bandwidth to _quite_ do what you really want to do) -- and into an era of what he calls 'spimes': dumb devices, performing simple functions, uniformly linked to the internet and capable of commenting on their own internals, status, revision and repair histories, etc., and requiring not geek-consumers as paradigmatic users, but a class of user/manager that Sterling called a 'wrangler' -- someone capable of tweaking 'more than the sum of its parts' value from clouds of these smart devices.
Right now, the major locus of intellectual ferment around the 'spimes' concept is about what some companies (including Cisco) are calling 'the internet of things' -- sensor networks, etc. And that focus is necessary as technical details of sensor networks and related ideas get nailed down. But without detracting from that emphasis, is it not also necessary to imagine classes of net-aware device that serve as the consumer handle into the spimecloud? I would argue that the Flip camera is just such a device -- a CCD coupled to a USB stick ... the camera in your phone, but without your phone. It's "the Twitter of cameras." Taken one by one, it's just a simple box that takes pix. 25 million units later, it's a social movement -- or what Cisco rightly notes is 'key to their strategy of expanding momentum in the media-enabled home and capturing the consumer market transition to visual networking.'
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