Cisco announced late last week that it was discontinue the FLIP video cameraas part of the company’s restructuring of its consumer oriented businesses. The announcement generated numerous blog posts and articles around what the demise of the FLIP means to the state of tech.
I think that there is more to this story than just a simple tale of tech start-up’s rise, maturity and fall. This is a tale of disruption that involves more than one company or one product. It is a story that may portend the continued reshaping of the industry.
So without taking sides, here are a few thoughts and observations.
- Design Matters, but good design can be disrupted by good enough design and convenience (Prior post)
- Consumer technology margins are a disruptive force that will reshape High Tech Strategy and market choices (This post)
- The bar for dedicated devices is higher than many anticipated (The next post)
These thoughts are my own and based on nothing more than thinking about the implications that may be foreshadowed by this announcement.
Consumer Technology Margins are disruptive
A number of market analysts looking at Cisco’s announcement pointed to the difference in consumer and corporate margins as a factor in the FLIP decision. In general, the margin on consumer technology products is about half that of commercially oriented products. John Chambers, Cisco chairman and CEO was quoted as providing the following reason for the re-alignment of the company’s consumer businesses.
“We are making key, targeted moves as we align operations in support of our network-centric platform strategy. As we move forward, our consumer efforts will focus on how we help our enterprise and service provider customers optimize and expand their offerings for consumers, and help ensure the network’s ability to deliver on those offerings.”
I can envision more high tech companies seeking to stay out of the consumer device business in order to preserve higher margins in the commercial market space. That makes sense, so long as defined and defendable boundaries remain between commercial and consumer technologies. That is something I would not be so sure about, as the FLIP’s success was based on their being a defined difference between purpose and multipurpose devices. Given the transformation of consumer electronics into consumer technologies, the barriers between the two are temporary at best.
This could set up a cycle of innovation and disruption where incumbent tech companies move up-market in pursuit of higher margins and letting other players take over the functionality, value and consumer oriented market. This is the classic Innovators Dilemma explained by Clayton Christensen as incumbents move up market in pursuit of margin, while others take over previously profitable product lines. In this case its consumer oriented high tech companies with their consumer devices disrupt commercial revenues and margins from the bottom up.
This might sound silly given the relative performance of a commercial grade device and a consumer model. After all an individual is never going to own their own high capacity switch- right? Just like no one was going to need a terabyte of storage on the desktop even five years ago.
To date, the consumerization of technology has largely been defined as a sourcing issue, where consumers buy their own versions of corporate technologies – PC’s, Mac’s, Smartphones and then ask them to be integrated into IT. Those are important but largely tactical issues.
While consumization as a form of provisioning will continue, imagine if consumer technologies begin to move on their own trajectory – rather than following corporate based computing models.
What happens then?
Well you get an iPad/Tablet that defines a new class of devices. Its not a PC, its not s smart phone, its more consumer but it has many corporate applications. When first announced people thought it was a toy, all because it was new.
I can imagine a future where rather that replicating corporate technology, consumer devices, software, computing metaphors take on their own language and approaches.
You already see this to some extent in the gaming world and the emerging concept of gamification, but I think that there may be more behind that. The simple reason is this, what consumer devices lack individually they make up for in terms of large numbers — massively parallel peer-to-peer consumer networking services anyone?
Margin and Market Disruption
Disparate margin structures have a funny way of worming their way into markets and changing the way we all work. The demise of the FLIP, in part due to the disparate margins, represents an interesting data point to watch as the consumer and corporate technology markets continue to collide and the distinction between the technologies evaporates.