Wednesday, April 13, 2011

Mobile Opportunity: The Real Lesson of Cisco's Billion-Dollar Flip Debacle

Mobile Opportunity: The Real Lesson of Cisco's Billion-Dollar Flip Debacle:
Cisco is an outstanding company, and an excellent place to work. But it screams respectable enterprise hardware supplier. To someone from a funky consumer company, going there would feel like having your heart ripped out and replaced with a brick.

Then there were the business practices to contend with. As an enterprise company, Cisco is used to long product development cycles, direct sales, and high margins to support all of its infrastructure. A consumer business thrives on fast product cycles, sales through retailers, and low margins used to drive volume. Almost nothing in Cisco's existing business practices maps well to a consumer company. But it's not clear that Cisco understood any of that.

The transition to Cisco management happened at a terrible time for Flip. Just when the company's best people should have been focused obsessively on their next generation of camera goodness, their management was given new responsibilities, and Cisco started "helping out" with ideas like using Flip cameras for videoconferencing -- something that had nothing to do with Flip's original customers and mission.

If Pure Digital had remained independent, would it have innovated quickly enough? Maybe not; it's very hard for a young company to think beyond the product that made it successful. But merging with Cisco, and going through all of the associated disruptions, probably made the task almost impossible.

I'm sure that as the Flip team members get their layoff notices, we'll start to hear a lot more inside scoop. But in the meantime, this announcement by Cisco looks like a classic case of an enterprise company that thought it knew how to make consumer products, and turned out to be utterly wrong.

That's not an unusual story. It's almost impossible for any enterprise company to be successful in consumer, just as successful consumer companies usually fail in enterprise. The habits and business practices that make them a winner in one market doom them in the other.

The lesson in all of this: If you're at an enterprise company that wants to enter the consumer market, or vice-versa, you need to wall off the new business completely from your existing company. Different management, different financial model, different HR and legal.

You might ask, if the businesses need to be separated so thoroughly, why even try to mix them? Which is the real point.

The other lesson of the Flip failure is that we should all be very skeptical when a big enterprise company says it's going consumer. Hey Intel, do you really think you can design phones? (link) Have you already forgotten Intel Play? (link)

I'll give the final word to Harry McCracken (link): "You can be one of the most successful maker of enterprise technology products the world has ever known, but that doesn’t mean your instincts will carry over to the consumer market. They’re really different, and few companies have ever been successful in both."