March 20, 2009 A Tiny Camcorder Has a Big Payday By ASHLEE VANCE NY Times
http://www.nytimes.com/2009/03/20/technology/companies/20flip.html?_r=1&ref=business&pagewanted=print SAN FRANCISCO, Calif. — Pure Digital Technologies thought small and simple, and it paid off big time. The tiny, eight-year-old start-up famed for its inexpensive and easy to use Flip video cameras has defeated a down economy. On Thursday, the 100-person company was bought by Cisco Systems, a technology infrastructure giant, for $590 million in stock. The deal caps off a bumpy and unpredictable rise for Pure Digital, which bested the Asian companies that dominate the camera industry from an office located above the Gump’s department store in the heart of San Francisco. “At a time when everybody has just been hammered with stories of misery, this is a really fabulous tale of what is possible against all odds,” said Michael Moritz, a venture capitalist at Sequoia Capital, which invested in Pure Digital. Over the last couple of years, Cisco has expanded beyond selling networking equipment for large computing centers, making inroads into the home via set-top boxes, routers and — most recently — digital stereos. The company has been clear about building upon these efforts by aiming much of its nearly $34 billion in cash at future acquisitions. In Pure Digital, Cisco found a local talent to complement its consumer ambitions and extend its business videoconferencing technology to mobile devices. Pure Digital started selling the Flip line of products in 2007 and has since shipped more than two million units, which cost $150 to $230, depending on the model. The device’s claim to fame has been its minimalism. The Flip recorders have just a few buttons, weigh a few ounces and have 1.5-inch screens. In addition, they arrive without cables, relying on a built-in connector that plugs into a computer’s U.S.B. port for both recharging and transferring video files. Along with the device, Pure Digital offers software that helps shift videos from a personal computer to online services like YouTube and Facebook with the click of a couple of buttons. The simple software, simple design and low cost opened digital camcorders to people put off by more complex devices but still hungry to pass around their videos. “They were able to capitalize on an opportunity to reach consumers that had traditionally shied away from camcorders,” said Ross Rubin, an analyst for NPD Group. Over the last few years, the sales of digital camcorders have either stayed flat or declined, according to Mr. Rubin. Meanwhile, Pure Digital tripled its sales of the Flip products over the last year and now holds close to one-fifth of the market. Sony, the market leader, has since mimicked Pure Digital’s products, as have a host of smaller competitors. The no-nonsense Flip design set Pure Digital’s path on a new trajectory. “We became a profitable business from the day we launched Flip,” said Jonathan Kaplan, the company’s chief. The company started off selling single-use digital still cameras at drugstores. Customers would rent the cameras and bring them to make prints. The business worked, at first. But as nondisposable cameras became increasingly affordable, Pure Digital’s sales tumbled. “The market demand for that product just melted away,” Mr. Moritz said. “We found ourselves selling disposable cameras into a market that was shrinking by the hour.” The company next moved to single-use digital camcorders, also distributed through drugstores, where the videos could be burned onto DVDs. Despite trying various approaches, Pure Digital remained in search of a big hit. Luckily, the company’s partners — and, somewhat surprisingly, computer hackers — helped to nudge it in the right direction. For example, hackers were removing the memory chips from the single-use recorders so they could put videos onto their PCs. In addition, the drugstores asked Pure Digital to limit the accessories it shipped with its cameras, a demand that gave rise to the built-in U.S.B. connector. With such prodding, Pure Digital’s staff hit upon the idea of a cheap, easy-to-use digital camera that could funnel videos between the device, PCs and Web sites. Ever since, the company maintained its simple approach while working to make products more attractive via colorful designs and better-quality video. Cisco’s deep pockets could help Flip, financed by close to $70 million, succeed outside of the United States and Britain, according to Mr. Moritz. “You have to scale up your inventory to satisfy demand in lots of different countries, and that is a very expensive proposition,” he said. Such a consumer play is still a curious one for Cisco. The company tends to operate in the background, providing products that companies use to link phones and computers to the Internet. But Cisco has also made large investments in videoconferencing. The more the Flip encourages consumers to videoconference, the more money the company looks to make selling the routers and switches needed to process the large video files flying off Flip devices and onto YouTube. Less than 5 percent of Cisco’s $40 billion in annual sales comes from consumer products, said Brent Bracelin, an analyst with Pacific Crest Securities. Cisco is already familiar with Pure Digital’s product. The family of John T. Chambers, the chief executive at Cisco, owns eight of the Flip devices, and executives at the company often post their own videos to an internal version of YouTube. In the future, it is expected that Cisco will release versions of the Flip recorders that can connect to wireless networks. There are other surprises in store as well, said Mr. Kaplan. “The Flip will find its way into some very obvious places and maybe some not-so-obvious ones,” he said. -- ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 Mail: antunes at uh dot edu *********************************** * POST TO [email protected] * *********************************** Medianews mailing list [email protected] http://lists.etskywarn.net/mailman/listinfo/medianews
