The sad end of the FLIP camera — and why this is a warning for open innovation

Life sometimes if faster than me (often, indeed): I just was giving another company presentation last week on successful innovation management, using the case of the FLIP camcorder as a striking example of successful innovation (I have written here why I love the Flip and why it is such a great example of innovation).

And at this day, during my presentation actually, Cisco, who acquired the FLIP company (called Pure Digital Technologies) two years ago for about $560 millions, decided to kill this product line and close its operations. This looks like a puzzle, as the flip still is the number one camcorder sold on Amazon.com, and has many loyal fans. Also, a new model just has been announced. No official reasons have been given but that the Flip BU does not fit to the company's core product lines.

At the first glimpse, the acquisition of Flip by Cisco seemed a perfect example of managing the exploration-exploitation paradox: Small companies innovate, and large companies later acquire their technologies and scale these products or services up. Cisco has been in large needs to reinvent its business in the last years. Buying a consumer product that (with uploading videa and sharing online content) could even drive the need for more and better networking equipment seemed like a bold move.

But probably Flip was never a good fit for Cisco. They make networking devices for business users and network operations. "It’s as though your local salon added side-bagging lawn mowers to their line of hair and skin products," one analyst commented. Chunka Mui of FORBES magazine had a great blog posting that showed that what happened at Flip indeed is the standard pattern when a company moves into an adjacent market:

Cisco’s acquisition of Flip was an example of a misjudged adjacency, one of the most common strategy failure patterns … A move into adjacent markets generally seems quite sensible when organic growth in existing markets slows. According to legendary General Electric CEO Jack Welch, “Expanding into adjacent markets is the easiest way to grow.” But the “easiest way to grow,” it turns out, is not easy at all.

A recent study by Bain & Company of 1,850 companies concluded that most sustained profitable growth does come when a company pushes the boundaries of its core business into an adjacent space. But there’s a catch. The catch is that 75 percent of companies saw their moves into adjacent markets fail. Only 13 percent achieved what Bain called “even a modest level of sustained and profitable growth.”

Like the sirens in ancient Greek mythology that lured sailors onto deadly rocks with their beautiful music, the lures of adjacency growth have brought down many otherwise-well-seasoned captains of industry.

This also may be an interesting field of research on inbound open innovation. When using the open innovation approach to acquire extenal technologies, what is the optimal fit of the technology acquired with the existing capabilities? In the case of Cisco, there clearly was a large gap (which, of course, was part of the attraction to do this more). In others, the technology acquired is much closer fitting to the company's previous technology and capability stock.

So for my lectures and talks on successful innovation, I now have a new facet to close the Flip story. But as a loyal and happy consumer using the Flip, I am just sad.

UPDATE: Great post in NYT on comments of Flip's founder on the end.