Sunday, April 17, 2011

Cisco, Flip & Gap Technologies

BERLIN - SEPTEMBER 04:  Visitors look at minia...
Cisco's recent announcement that they are discontinuing their Flip line along with other less well known products in the same general space isn’t surprising in retrospect. I have two reasons for saying this.

First of all Cisco has been receiving steadily increasing criticism from both their hard core supporters on the technology side as well as their shareholders. The gist of that criticism has been that Cisco has lost sight of their core enterprise networking business. Recent quarterly financial results lend credence to these assertions.

Cisco did not start out life as a consumer products company and trying to diversify into that space has not gone well for them. Many of their enterprise network product lines are starting to show their age and new and existing competitors are putting increasing pressure on Cisco’s bottom line. This is particularly true in the network switch space where established companies such as HP are making significant inroads and newcomers such as Aruba are bringing out intriguing products at attractive price points.

The second reason is that it looks like the Flip has turned out to be what I refer to as a short term gap technology. All technologies have what I’ll refer to as a half-life. This is the time period between when they are invented and when they start to be replaced by something new/different. Some technologies have half-lives that are measured in decades or even centuries while others are measured in years or months. Generally speaking the more specific a technology is the shorter its half-life. So for instance the half-life of the CRT based television was around fifty years while the half-life of the television in general is likely to be indefinite.

As technologies work their way through their natural lifespan they almost always start out as expensive niche products and then work their way steadily down in terms of cost and up in terms of units shipped and general acceptance. At some point a significant innovation takes place that causes a particular technology to start to be marginalized. This process can happen very rapidly as in the case Facebook versus MySpace, but the transition period is generally longer and more gradual. It took a decade plus for high definition TV’s to become standard for example.

The original Flip video recorder came out in 2006 at a time when high definition video was just starting to gain traction. Its ability to record decent quality 720p digital video and small size captured a lot of people’s attention and translated into healthy sales. Cisco acquired the company that makes the Flip in 2009.

Over the past couple of years smart phones have started to come with built in 720p video recording as a standard feature. This has meant a steadily shrinking potential market as smart phones have increased their share of the cell phone pie and while it is the case that the Flip video recorders offer additional features, Cisco apparently views the level of differentiation as being too small to keep the device viable at the current size and price points.

Being able to instantly upload video to YouTube from a smart phone is a trick that the Flip video recorders would be incapable of duplicating without significant additional costs. If Cisco had gone that route they would have essentially been creating their own cell phone.

Video recording is also a standard feature in most digital photo cameras now as well.

From a business perspective, other than brand loyalty Flip really didn’t have a lot going for them. Their technology wasn’t difficult to imitate and so larger and better established companies did. In addition, the introduction of the iPhone and Android based smart phones spurred a rapid evolution of mobile platforms that made it relatively simple to duplicate much of the Flip's functionality didn’t help either.

In Cisco’s defense, short timeline gap technologies aren’t easy to spot when they are young even if their rapid demise seems obvious in retrospect. If you’re smart/lucky enough to identify a short term gap technology you’ve also identified a potentially lucrative business opportunity.

Of course coming up with an alternative to any established product/technology is a potentially lucrative business opportunity.

Image by Getty Images via @daylife
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