Earlier this month, networking giant Cisco made a couple of surprising announcements. First, they were going to shut down their Flip camcorder business, one for which they paid nearly $600 million just two years ago.
Second, Cisco rolled back the price on their umi home teleconferencing system, which has been a complete non-starter. Perhaps the $599 purchase price and $25-per-month subscription service had something to do with it?
For the past couple of years, Cisco has looked like a company that wanted to dominate the worldwide market for teleconferencing. Their high-end TelePresence product is costly and affordable only by customers with deep pockets, such as cable news network MSNBC, which features the product on shows such as The Rachel Maddow Show and The Last Word with Lawrence O’Donnell.
HD videoconferencing may be fine for Fortune 100 corporations, but why in the world would Mr. and Mrs. Middle America want to buy and use an expensive teleconferencing system in their home, particularly when they can access the free Skype service from their laptop, smart phone, tablet, or via LG or Panasonic’s new HDTVs?
The price of a umi system has dropped to $399 now, and the monthly subscription fee has also been discounted to $9.95. Guess what? That’s still too expensive for consumers, who are overwhelmingly voting for price and convenience over quality these days. How do you sell high-quality H.264 1080p videoconferencing systems to people who think Netflix Watch It Now movies over broadband are hot stuff?
Last summer, Cisco demonstrated umi at one of the many New York City line shows. While I was impressed with the demo, I told the booth personnel that umi was ‘dead on arrival’ for the very reasons enumerated above. They insisted I was quite wrong, and that Americans would be hauling these things out of Best Buy with hand trucks.
Ironically, when I asked individual booth personnel (who appeared to be mostly Gen Y ‘connected’ types) if they would be interested in buying umi systems for their own use, the responses were indifferent or negative because of the cost. But, I was assured; ‘high-end’ customers would embrace the product enthusiastically. Well, we all know what happens when CE companies try to make money by focusing exclusively on high-end customers. (Think Pioneer)
As for the Flip camera, that business strategy never made sense to me. There’s nothing in a Flip camera that you can’t find anywhere else. (Check out the latest Samsung digital cameras with WiFi connectivity, or some of Kodak’s slim pocket camcorders.) According to a Wall Street Journal article, Cisco spent oodles of money on TV commercials to promote Flip and umi, even commissioning rapper Sean Combs to design his own Flip camera.
So what happened along the way? Consumers started using their smart phones to shoot Flip-style videos, resulting in a decline of 20% in Flip sales over the 2010 holiday shopping season. (Gee, who could have seen that coming?)
The upshot of all this news is that Cisco will lay off 500+ employees, take a big $300M charge against earnings, and push the marketing and promotion of umi back into the group that sells the TelePresence product. This also means less direct marketing to consumers from ‘Big C’ in the future.
It’s refreshing to know that even the smartest guys get it wrong some times…