Flipping Out Over Consumers

Cisco Systems is a company in transition. And like many others that are trying to distinguish which elements of their business work and which don't, Cisco has opted to cut its popular Flip venture. But business owners, who use the cameras for work, are wondering why.

 

Once-mighty Cisco Systems has hit a rough patch, and it's about to Flip out.

While the San Jose, California-based tech titan is still impressive—producing $40 billion in revenues last year and ranking No. 58 on the Fortune 500 and No. 27 on the FT Global 500 list, the company has lost its way. CEO John Chambers took to his company blog on April 4, to let employees know about the state of the business. "Today we face a simple truth: We have disappointed our investors, and we have confused our employees…. It's time for focus."

In his outline of what's to come in fiscal 2012, Chambers pointed out that Cisco "will not fix what's not broken," though the company will "take bold steps and we will make tough decisions." Among those tough decisions is a shifting away from consumer products—which means pink slips for 550 workers, a $300 million pretax charge, and the shuttering of the Flip video company that Cisco bought in March of 2009 for nearly $600 million.

Killing the Flip operation caught analysts, consumers, and businesses off guard. "They announced they are shutting it down, so that implies that they were unable to sell it," Philip Alling, an analyst with Atlantic Equities told Reuters. "It's disappointing they wouldn't be able to generate any proceeds from a sale of the business."

And business sectors—who saw past the Flip camera's consumer appeal—are wondering why Cisco is doing away with a product that's integral to their daily operations. Real estate agents, journalists, and bloggers, casting agents, and virtually any company that's involved in generating multimedia are surprised.

One reason could lie in the proliferation of smartphones and tablets, which have better technology and are already a daily part of business owners' gadget arsenal. "This is one step in concentrating the focus of Cisco on the enterprise," Tim Ghriskey, chief investment officer of the Solaris Group, explained. "This came faster than we would have expected. But perhaps Cisco has been studying this for a while."

The company refused to comment about whether it had been trying to sell off the Flip unit. But some analysts said that when Jonathan Kaplan—who headed up Cisco's consumer division and was hired by Cisco when it bought Flip's parent company Pure Digital—left, the writing was on the wall. Kaplan departed one day after February consumer sales posted a 15 percent decline and led margins to slide by 18 percent overall for the fourth consecutive quarter, the Wall Street Journal reports.

Still, other tech companies—like Apple, for example—owe their brand strength and bottom lines to developing and innovating consumer products that are further embraced by the business community. Keeping in mind that every business owner and employee is a consumer first and a businessperson second, Apple, Google, and Amazon excel in creating products and services that can grow along the two multiples.

So what's Cisco doing wrong? It hasn't found a simple way to align the needs of its consumer clients and its business clients. The company is perceived as a serious tech player who lacks the cool factor. And while some may try to laugh that aspect away, branding experts say it can make the difference between success and failure in today's rapidly changing marketing landscape. "Apple has a cool factor. Competitors fail when they have to say they're cool—and often they're not," Bill Shelton, president and principal of Left Field Creative, a boutique marketing and branding agency in St. Louis, Missouri, told Portfolio.com. "They didn't go too crazy in marketing their products to the business crowd to risk alienating their primary consumer customer base. Instead, they trusted that their brand messaging will carry over."

It's not just Cisco that can learn a thing or two from Apple. The tech networking company's competitors, like Hewlett Packard and Alcatel-Lucent, are far from being regarded now as industry innovators. And there could lie the ultimate problem. When a company has been successful and growing for years, the urge to innovate, to stay ahead of the curve, and to resist becoming a follower can wear off. "The challenge is to maintain that position with brand consistency," Shelton said. Companies "can't lose their messaging, style, forward thinking, or innovation" because there's always someone out there looking to knock you off that pedestal and become the next big thing."

Thanks to Romy Ribitzky / Portfolio