Barely two years after first announcing its intention to buy Pure Digital Technologies, makers of the Flip camcorder, Cisco is closing the division, making 550 people redundant. The move is part of a series of steps intended to drive Cisco’s business towards “greater operational excellence”.

As well as closing Flip, Cisco will “re-align” other elements of its consumer business in line with its core strategic objectives. Specifically, that will mean that Umi, the consumer telepresence business, will be folded into Cisco’s Business TelePresence unit; and the Linksys home networking group will be refocused towards the core networking infrastructure activity at Cisco.

Video remains a core strategic objective for Cisco, and its vision remains that the network will expand into a video platform in the home. But the company has accepted that retail consumer electronics is, for the most part, outside of its competency, and will now focus its efforts on helping its service provider customers to maximise the potential of the dramatic changes in consumer media and technology markets expected over the next 5 to 10 years.

We have tracked Cisco closely over the years, and have noted on many occasions the challenges associated with a dual service provider-retail strategy. Not just because of the potential customer conflicts this entails, but also because of the highly contrasting economic and business challenges of retail and service provider models. If Cisco had been serious about consumer electronics, its overall results would inevitably have been impacted by lower margins: the only major player which has managed to avoid this golden rule is Apple. The real disappointment with Flip was that its famed ease of use and software strengths could not be transferred to other Cisco units in the consumer space.

Cisco's announcement includes a review of the Eos Media Solutions products in terms of its integration with core video technologies. Eos is a key element in the Videoscape strategy announced at the end of last year, so its future is particularly important. If Eos capabilities can be repositioned towards the needs of video service providers in over-the-top video and television services, this can only be a good thing.

Cisco may be pulling out of consumer markets, but they remain vital to the company’s interests. How and how fast consumers switch to IP-based video services and devices over the coming years will have a major impact on the company’s core technology and network businesses.

David Mercer

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