Pure Digital Technologies, the creator of the Flip Video line of digital video recorders, got their payday today: $590 million in Cisco stock, a deal we first reported may be happening a couple of weeks ago.
The San Francisco-based company is well known today for creating extremely small, well designed and inexpensive video cameras that take exceptional video. And the software that comes with the devices provides easy to use tools to edit that video and upload it to the web. But Pure Digital wasn’t always selling hit products – it took seven years for the company to get it right. In the meantime, they launched products that just weren’t quite the right thing at the right time.
The company isn’t young by startup standards – it took its first round of funding in April 2002 from Mike Moritz at Sequoia Capital with a plan of creating $20 disposable digital cameras that people brought back to the store for processing. The camera’s memory would then be wiped and the device resold.
Those cameras weren’t a commercial success because of the unexpectedly quick shift towards cell phone cameras. The Pure Digital Camera, at $20, just wasn’t appealing to enough people.
Next up was a disposable camcorder, with a similar model. You bought the device for $30, shot video, and returned to a store for processing to a DVD (the cameras were then wiped and resold). But the video cameras got atrocious reviews, and it was time to move on to something else. By this time the company had raised and presumably spent more than $28 million in capital.
Then, the seed of something great. Pure Digital still wanted to build a cheap video camera for the masses, but forget the in store processing and hope of reselling the same camera over and over to multiple people. The first “Pure Digital Point & Shoot” video camcorder was released in March 2006 and immediately had some success.
But not enough success. The camera couldn’t take still photos, and the video quality wasn’t as good as what you get from normal point and shoot cameras. They also didn’t play nicely with Macs or most video editing software. The cameras were great for low quality YouTube type videos, but they weren’t going to get the company a half billion dollar liquidity event. Most people just bought a high end video camera, or took quick videos with a point and shoot camera. In June 2008 we compared the Flip to a cheap Canon camera, and the Flip lost the battle.
Still, the camera was selling. $50 million in revenue in 2007, and $150 million in 2008. They created a new category of video camera, priced between $100 – $200, which is now being copied by just about everyone.
And then, nirvana. In November 2008, just a few months ago, Pure Digital released the Mino HD, and it is a perfect device. It weighs just 3.3 oz and takes stunning 1280 x 720 high definition video. It handles low light well and sound quality is great. It works with Macs. The editing software that comes embedded on the camera is easy to use. And best of all, there are no cords at all. Recharge the internal battery and access video via a USB connection.
Today Flip says they have 20% or so of the total camcorder market (which doesn’t include point and shoot cameras with a video feature). All product design is done in house in San Francisco, they don’t even outsource industrial design of the beautiful little gadgets.
The Company That Shouldn’t Have Happened
I spoke with Sequoia Capital partner Mike Moritz earlier today about his decision to invest in Pure Digital way back in 2002. It wasn’t easy, he said, to invest in a company that intended to “drive straight into the radiator grill of huge Japanese and Korean electronics companies,” but added that Sequoia like to invest in things that no one else would consider prudent. In later funding rounds Benchmark Capital, Crescendo Ventures and others joined the party, but even then it wasn’t clear that Pure Digital would eventually find success. Consumer electronics is a tough business.
Moritz says serious conversations with Cisco started last Fall. Earlier discussions with Sony had flatlined over price, but he says the company was willing to continue to fight independently, too. They would have had to raise another round of financing, perhaps as much as $50 million, to expand sales significantly outside of the U.S. Whether that was a bluff or not we’ll never know. But Cisco took the bait, and now owns the company. And with their distribution assets, getting Flip cameras into new markets won’t be a problem. Let’s just hope that having a huge corporate parent won’t stop Flip from innovating.
Good post.
I just don’t really see why Cisco would acquire PD for $590M. I have a PD device, but would rather use a mobile device loaded with video technology.
The only thing I see is some how seeing these PD devices bundled with Linkys routers at Best Buy etc.
Cool good luck to Cisco, I just wonder how they are going to use this technology for and how it is going to fit their existing business? But these guys must have a vision of where they want to take this and I look forward to what comes out of this merger.
Now this is one thing I have been forced to think about and eventually learn, in all these months (maybe over a year) of the startup world – the “Happy Suit” story is for real. The product you make now here is probably not going to sell or solve problems.
But that does _not_ mean that around the world there is no market, no problem that your device or software or service solves. Be assured that your market _does_ _exist_ out there. There is someone out there who needs _exactly_ what you are building.
But those guys don’t know you exist or your world. And you don’t know they exist or need that solution so badly. The internet and mainly, web search (now Google, essentially) have bridged many such chasms.
But many times more remain. It would be a great thing if TechCrunch also (Mike, i think you need to get some more guys on board ;) ) started identifying markets as much as companies. er… marketcrunch.com ?
Or would that be a (allegedly arrogant ;) ) monopoly in the buzzword world?
This makes perfect sense. Cisco is looking to diversify out of its core networking business, and the technology in the PD cameras fit nicely with their teleconferencing products. They can build smaller teleconference devices and sell to small to medium size businesses.
The Mino HD is truly amazing, I’m surprised every time I load the video how incredible it looks for being such a tiny thing. And I’m amazed at how much more video I shoot because I don’t have to pull out the big Sony miniDV…
Great post
Seconded. It’s nice to have retrospectives like this.
The CEO, Kaplan, is a [deleted]. Maybe that’s what it takes to win.
edited comment. take it easy.
I love this camera. We take it everywhere and use it for interviews, casting, news, location scouting – you name it. The quality is awesome and now that Facebook and YouTube upload and display HD, our videos look amazing. We dump the footage into Adobe Premiere and output as flash for incredible quality that we can edit professionally with sound. This is the best tech toy to come around in ages.
…. Mike, I want to write my opinions for TC. What is the best way to contact you?
Anjali Sen
From India
These Anjali “jokes” are getting pretty lame. They are about as creative as stealing napkins from McDonalds, and invoke no laughter. Please learn to distinguish between having a sense of humor and having a GOOD sense of humor. The former is tedious. The latter invokes, more precisely compels, laughter. If you don’t have anything funny to say, don’t joke.
You see guys: *Ubewe IS Anjali From India* –
Same authoritarian attitude, telling people what to do and what not to do. Cannot tolerate comments that question her “profound wisdom” –
Atop spamming TC you retard!
@ Josh,
Thanks for reinforcing my comment. I knew some idiot WOULD eventually accuse me of being Anjali. PREDICTABILITY is also a trait that is synonymous with lack of creativity. Both these traits, sadly, point to marginal IQ. Don’t blame yourself for something as profound as IQ though Josh. It is a trait that is genetically derived from your parents, and it is excusable that you did not pick the right parents.
Ubewe/Anjali you are a lame. pathetic and ignorant moron – trying to impress [yourself] by using so many words… to say what? Something most of us already know: you are a *shameless, clueless spammer* — You are not fooling anyone….
The content of your reply speaks for itself, and again, reinforces my point. I rest my case.
“The editing software that comes embedded on the phone is easy to use.”
SWEET! I didn’t know the Mino HD doubled as a cell phone!
I’ve been using The Kodak Zi6 instead of the Flip Mino. It’s not quite as sexy but it uses AA batteries (so you don’t have to wait for it to charge) and SD expandable memory.
Thanks for destroying the earth with your disposable battery fetish.
News flash, asshole: You can now buy AA batteries that are…rechargeable!
“(so you don’t have to wait for it to charge)”
News flash.
I really… really dislike anything that has to do with AA batteries
Type-o: “The editing software that comes embedded on the phone is easy to use…”
I think you meant ‘device’ not ‘phone’…
See , I have bought about 14 flips and they were all great for the models to use. Then they came out with the mino and the damn thing would go off in your pocket, you can rub the “iphone” style buttons and delete your content and you cant swap out the battery when it goes flat. So we tried Kodaks(5), see above, wierd and difficult mov format and LARGE case. Then some Enova’s (7), no battery life, and now Mino HD(2) but now am back to second hand flips(4) and creative Vado’s (12).
It’s just a classic of coming out with a fantastic product albiet a little too large and then letting lose a load of (most likely Mac) product designers on it and spoiling it so it loses all its great features and gains a load of useless ones.
Enjoyed reading this and how it shows persistence and belief in your ideas/work pays off!
Cisco should have gone with mobile video devices ready to integrate into cameras. That would have been more interesting.!! paying $590 Mil for a camera maker that just hit the HD vid market, just does not cut it. Hopefully they have plans of integrating Flip with Linksys routers/Wi-Fi, iphone (cisco version, dunno if it still exists).
Great to hear a success story that wasn’t supposed to be.
Think logic behind this acquisition is to pump money in, scale it, and get zillions of people uploading HD video files. Ideally, Sony and other consumer electronics mfgs panic and flood the market w/ their own cheap HD video products. Viola, Cisco’s shifted the demand curve for their core infrastructure products.
The challenges are three-fold. Fist, Cisco doesn’t really have consumer marketing chops or distribution channels to be additive. Sure, they bought Linksys, but Flip targets a very different segment w/ very different support needs and very different competitors. Second, the derived demand for hardware from a fringe investment like this often leaks to competitors. Third, Cisco could have achieved the same end by simply investing in Pure. That would leave them $540M to do this again and again. Sure, they’ll argue they don’t have time for $50M deals, but this one begs the question of why they’re doing any.
Cisco is better served focus on expanding their corporate services, innovating around their core products and defending themselves from price competition from the HP’s, IBM/Sun’s & Huawei’s. If they want a fringe investment, double down in wireless (infrastructure, not iPhones).
They don’t do the product design in-house anymore. They outsourced the design of the Mino to a local R&D firm:
http://mindtrib...e_Portfolio.pdf
Nice article. I have yet to try one of these out, but I’d certainly like to – despite the fact that my Nokia N95 does pretty good video (though not HD at that res.)
With this new parent, I can see a future networked camera coming, sending video over wifi to a cisco usb dongle – rather like the Skype Cisco ‘iPhone’.
Now – who says technology is not awesome. Who would have believed technology will get to this point. I bet my granddad would be amazed at the wonder of technology if he was alive today. Way to go, Flip video.
At first glance it didn’t make sense to me either. But I can now see at least a few upsides that might be worth this kind of money to Cisco.
1) They’re probably pretty confident they can make the investment pay off just on Flip cameras, i.e. letting PD do its thing.
2) It gives them a pretty intimate look at the consumer electronics market, and with all the convergence going on that’s valuable knowledge for a networking giant.
3) As Michael Downs pointed out, increasing the popularity of high-bandwidth habits can only be good for Cisco.
4) They’re also buying a very, very strong brand, and they’d be idiots to not use that in some way for videoconferencing.
That last point makes extra sense when you consider how popular the Flip is with tech-savvy parents, a demographic that significantly overlaps the IT decision makers Cisco is trying to sell their core products to.
My bet is they’re confident the numbers will work even without other synergies, and that we’ll see some kind of Flip-branded (or Mino-branded) videoconferencing product in the next year.
Inspiring story Michael and strong case for giving a business time to find it’s model (tweaking the dials). Joel Spolsky’s article in the march issue of INC magazine, “How Hard Could It Be?: Start-up Static” touches on this very point. Given the current market conditions, I wonder how many VC’s will have that much patience (cash to burn)?
http://www.inc....-up-static.html
Speaking from experience (IronPort/Cisco), Cisco is an amazing company to be acquired by. Still encourages innovation and knows when to let companies operate as independent businesses to help that flourish.
I used the Flip to do my TC elevator pitch about an hour ago under less than ideal conditions. I thought it worked beautifully.
Good post. while in the abstract, I like this deal, I still can not figure out if Cisco’s strategy in consumer space amounts to buying a bunch of disparate chicken parts (albeit with channel, brand, marketing leverage) or truly is a more than the sum of the parts strategy to assemble a living, breathing chicken (metaphorically speaking).
That said, my litmus test for products like these are if my kids take to it naturally (e.g., my three year old is addicted to my iPod touch).
Along these lines, I bought my six year old a Flip Mino, and he took to it like a fish to water. Software works great, brain dead simple and quality is in the “good enough” bucket.
Btw, totally different angle on Flip Video, but check out my post:
Flip Video News – Crowd Sourcing meets CNN. (http://bit.ly/foo0)
Harnesses the legions of Robert Scobles out there.
Cheers,
Mark
More evidence that the design is not all done in-house.
http://www.smar...ject.php?id=161
http://www.moto...lio_c_040.shtml
CISCO into consumer business: or how a CEO and a Board of Directors can over estimate themselves.
CISCO should stay in B2B and buy where the enterprise software/solutions is heading to: Cloud Computing
CISCO should buy Amazon Web Services if CISCO want a larger part of the market.
IBM PC?
Just don’t get seduced by some William’s sweet talk
Great exit for Pure and investors, but a bad investment for Cisco. There is no sticky service that keeps me part of the Pure family (unlike iTunes). That means they are in the pure play CE space, and this product line will go the way of the Motorola Razor at some point (i.e., a hit that fades after a few years)
“All product design is done in house in San Francisco, they don’t even outsource industrial design of the beautiful little gadgets.”
Um that is 100% untrue and pretty flagrantly poor reporting/research.
just wanted to echo floatingreason’s point. a startup like pure digital cannot have an in-house design team as sophisticated as one necessary to build those innovative devices. they have been working with firms like MOTO and Smart Design for ages. not to beat a dead horse but definitely check out the Smart Design link:
http://www.smar...ject.php?id=161
They designed the Flip Mino, as well as several previous generations of pure digital products. Please try to at least pretend like you do some research next time Mike.
I can’t see there being a demand in the future for these products when syncing our mobile devices becomes much easier. (Not to mention that fact that mobile cameras will undoubtedly get better too.)
Great retrospective, Mike. A very enjoyable read.
I would like to see more posts like these, both when a company gets a successful exit and when it fails.
I’m never complimentary (ask my ex-wife) but this was an excellent post — really illuminating with fresh details, deep history and insight from the investors. This restores my faith in TC just as I was getting fatigued of the “New company does some stuff” and “Did you know twitter was big?” posts…
I hope they are able to ship in Europe now.
What a great story. This is exactly what venture investing should be all about. The company and its board knew there was a kernal of a good idea, kept refining, kept funding, and in the end produced a half a billion exit. While seven years seems long, the reality is this finding success from scratch takes longer and more money than people care to admit. The 2 year and out venture exit is an anomaly even though its what everyone focuses on. It also leads too many investors to think that if a company hasn’t found its market or business model after a couple years it should be killed.
I love this post.
This is a story of solid product development and managment. You keep trying till you get it right. I can understand why this is a momentous story for web 2.0 folks, who keep trying the same things that fail over and over again.
Smart Design has been Pure Digital’s industrial & interaction design partner for years. Heck, they’ve won some of the most high profile design awards for their work, like the BusinessWeek IDEA GOLD award -
http://www.idsa...ails.asp?ID=656
This is a great story for any aspiring entrepreneurs. Go with the flow, adapt your products to the market to see what works.
This is a substantial valuation based on the past success of basically one product, which is different than a valuation for an Internet site, for example, which can capture value from ongoing user visits, or a commodity type product, which people will buy over and over (like soda). Also, there’s not much preventing competitors from also making cheap cameras, and mobile phones will be able to make videos in the near term. Are future sales of Flip cameras really going to continue with their hockey stick growth rate, to justify a valuation based on past sales?
Convergence devices (smart phones with improved optics and HD capable processing power) will swallow this category within 2 years. Cisco needs to pray that Apple never puts a camera on the back of the touch.
Nice post! Check out my website as well http://macmaniapodcast.com.
TelePresence from the desktop. Keep Pure Digital’s model, distribute across Cisco channels, and adapt the technology to a desktop IP Phone/HD video camera. Brilliant on all levels.
nice camra,
when u ca get your Flip,
cunt u send your gadget to me ?
regards
Ganji
We liked them so much we gave them an award (although the irony is they couldn’t make an acceptance video):
http://mediasna...2/ms-awards-09/
as a point in time device it’s attractive
being a small company they were able to future guess where the market would be (going)
plenty of life left in the long tail if they are content to cruise along.
the next set will be more difficult.
wifi transfer/GPS/ better lens
the software on the dominant OS (XP/VISTA/win7? is so poor minoHD and UltraHD (just arriving in Australia this week…) will have a long life cycle
anyone with iphoneGS..and next gen touch won’t need one!