Working Wider

Cisco’s Flip Video Error:
Mistaking an Edgy Product for a Disruptive Technology

flipThis week, Cisco Systems announced they were shutting down Flip Video.  Introduced in 2006 as a single use video camera for CVS Pharmacy, it was re-launched in 2007 as Flip Video: an elegantly simple video camera with a built-in USB connector. Flip sales rocketed and the company was bought by Cisco Systems in 2009.

Flip passed away this week from acute convergence.   Today’s smartphone with integrated camera, GPS and constant connectivity does the Flip’s job better than Flip.  Some have argued that had Flip remained independent it might have adjusted better – perhaps, but not enough to thrive.

On the one hand, this is high tech’s familiar predator and prey cycle of change and obsolescence.  On the other, just two years ago Cisco paid nearly $600 million for Flip.  For that price, it’s reasonable to assume Cisco had bigger expectations.  Now they’re writing off $300 million and laying off 550 employees.  What did they miss?

This piece argues that Cisco confused a product on the leading edge with a disruptive technology.  First, I’ll outline the differences between edgy and disruptive.  Then I’ll describe the innovation advantage leaders can rightfully expect to gain from the edge.

The Edge vs. Disruption

I can’t think of many companies or leaders that don’t talk about being on the leading edge.  The leading edge defines a point of differentiation – critical for any competitor.  The “edge” defines current boundaries: competitive, market, knowledge, style, etc.  The edge is where the familiar ends and new begins

At the edge, there are two primary views.  Looking forward reveals what’s coming next.  Turn around and you’ll see where you’ve been.  For customers and employees, the combination makes the edge exciting yet safe.  Things are new but not so new that people can’t immediately recognize or use them.  Lady GaGa is today’s Madonna.  Wide ties give way to narrow and back again.  The edge is new but not revolutionary.  Customers don’t have to give up anything to get value on the edge.

In essence, the Flip was smart more than new.  When it came out, most of us had used heavier, Beta or VHS camcorders.  Flip didn’t require users to learn anything.  In fact the beauty of the flip was that it reduced video to “point and shoot” simplicity.  Just like the iPad, no one had to explain the Flip to you.

Like clouds, the edge evolves slowly at the macro level but is in constant flux at the micro level.  For example, just as Flip was rebranding itself in 2006, half the world’s mobile phones already had built-in still cameras.  By 2008, Nokia sold more camera phones than Kodak sold film cameras.  Moving from stills to video was the smartphone’s next obvious step at the micro level that ultimately led to Flip’s demise.  That’s evolution; not disruption.

But if there’s one thing that uniquely distinguishes the edge, it’s the fact that it’s defined by popular consensus.  For example, the latest fad, hip word or fashion craze among teenagers may emerge spontaneously but it’s not on the edge until it’s broadly sponsored and endorsed.  Teenagers seek conformity and hipness at the same time. More broadly, fashion doesn’t take off until it’s widely adopted.  Fashion designers, publishers and modeling agencies conspire each season to define what’s in and edgy.  To be confirmed as edgy, the style has to be popular.

This duality applies to technology as well.  Netbooks represented the edge of portable computing a year or so ago.  Using low power, less expensive processors combined with solid state disk drives, netbooks became an inexpensive alternative to laptops.  Today, lower priced laptops and most recently the iPad tablet has usurped netbook sales.  While new in form factor, the netbook lacked dramatic new functionality or technology yet was immediately usable and popular.

Disruption is vastly different.  A disruptor’s initial appeal is to a small segment outside the mainstream market.  When 3.5 inch disk drives were introduced, they were lighter and smaller than the existing 5.25 inch standard but more expensive and held less data.  Their appeal was limited to portable computer manufacturers who sought every size and weight advantage possible.

A disruptive technology’s early volumes and visibility keep it below the radar because few customers are willing to pay the price/performance premium.  It takes time for a truly disruptive technology to evolve into a price/performance package that appeals to mainstream consumers.

A disruptive technology sets in motion enduring structural change across industries.  Digital cameras disrupted not only film cameras, they eliminated the photo finishing industry, spurred sales of home ink jet printers and as foreshadowed in Paul Simon’s famous song, Kodak took our Kodachrome away in June, 2009.  Once integrated into the cell phone, digital cameras changed photo journalism.  If you want the latest pictures from a Middle East political demonstration, you’ll find them more quickly on Facebook or Twitter than from UPI or AP’s photographers.

Last, a truly disruptive change requires significant personal adaptation.  Look at the challenges senior citizens face using a personal computer or social networking.  If you want a brain teaser tougher than Google uses with new hires, try explaining where you’d use Twitter versus Facebook to someone over 90.

Cisco mistakenly confused the potential of Flip, an edgy product, with a fundamental disruptive technology.  Whereas a true disruption struggles to scale, as the Flip demonstrates, an edgy product struggles to remain airborne after it first soars.

Capturing the Value of the Edge vs. Aiming for Disruption

Clay Christensen introduced the concept of disruptive technologies in The Innovator’s Dilemma. Since then, companies have lusted to lead the next disruption. Successful disruption has huge economic value but it is a low percentage shot.  It’s far tougher to identify a disruption before it’s been successful than in retrospect.  And as the Flip example illustrates, an edgy success can mimic disruption.

At the same time, the edge offers significant value, at far lower risk, than swinging for the disruptive fences. Pushing the edge encourages innovation that may become disruptive eventually but even if it doesn’t, there are many advantages on the edge.

First, being on the edge puts a firm and its people at the boundary between what they know and what they might discover.  It’s where learning happens.  That’s what makes TED talks inviting and compelling.  TED speakers guide us safely along the perimeter of our knowledge for thirty minutes at a time.

Next, being on the edge forces interactions between people, ideas and technologies, that in the most positive sense, they’re not sure how to manage.  This creates space for small, serendipitous discoveries. Innovation rarely comes from an explosive burst of totally new knowledge.  Most profitable innovation comes from the edge by combining technologies, users and markets in a slightly new way.

Third, the edge provides a safer setting than disrupters enjoy.  Speculative or even scary conversations are easier because you can always step back from the edge to the familiar.  This allows even the most nervous person to catch a glimpse of amazing possibilities.

Imagine being in a foreign country where you speak the language versus one where you don’t.  When you speak the language, you’ve got a foothold that translates what you see and hear to your experience. When you don’t, you’re thrown into a world of difference so extreme that even navigating basic survival issues becomes a challenge.

Disruption forces a company and its customers to release their connection with what they know and use.  A photographer who transitions from film to digital has to give up the darkroom, learn about color printer profiles, and Adobe Photoshop.  Consumers making plane and hotel reservations through the Internet have to learn the esoteric world of fare rules, cancellation charges and change restrictions.

The edge is also where the gravitational pull of the center is the weakest yet still provides a lifeline.  Centers are built around familiar routines, business models and assumptions.  This familiarity creates what sociologists refer to as the “garden path” problem.  People go down the same garden path without thinking, even though new circumstances call for a different route.  In the center, we make the problem fit our experience.  At the edge, we challenge our experience.

If this just sounds like an argument for incremental innovation, you’re not wrong but the edge is more important than that.  As organizations grow, they harden from the center outward.  The culturally-induced cries of “You don’t understand.  We don’t do it that way,” start in the center.  Without intervention, the percentage of resources in or serving the center expands with time.

In business where efficient execution, high standards of control or research dominates, strong centers offer value.  But the more a business requires nimble adaptation, strong centers pin companies to the past.  Disruption can be an emotionally appealing alternative but the low odds of success argue for selective, cost-effective experiments on the edge

Shifting resources from the center to the edge structurally enlarges the contact area with new ideas and markets.  For these reasons, I’ve advocated organization designs and strategies that shift resources and distribute power from the center to the edge.  (see Center-Edge Organization and New Citizenship Model Replaces Heroic Leadership).

The Cisco Error

Starting with the purchase of Linksys, followed by Flip Video, Cisco entered consumer products.  It appeared they were trying to add a new edge their existing infrastructure business.  Looking at Apple’s influence and market cap growth, it’s easy to see that consumers influence over the future of computing has risen rapidly over the last ten years.

But while consumers have made more demands on the plumbing of computer networks, Cisco’s sweet spot, they haven’t driven innovations in the plumbing itself.  Linksys and Flip drove down Cisco’s margins without adding any disruptive technologies or providing synergy to their core infrastructure businesses.  Instead, both acquisitions provided edgy, hot products that over time, has actually blunted Cisco’s competitive edge.

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