In a presentation at Catalyst a few years ago, Guy Kawasaki talked about the ice market. The ice market long ago consisted of companies that cut up and shipped ice to consumers. This was big and expensive, and required a ship and a long trip to an area where there was lots of ice. As technology improved, it became possible to make ice in a giant warehouse, rather than taking a ship to a very cold climate. As you can imagine, this was vastly simpler, cheaper, and rarely involved sinking to the bottom of the ocean due to a particularly bad storm... Eventually the ice house gave way to the home refrigerator, which was again cheaper and easier. The point? Technology marches on and old ways of doing business die.
The latest casualty is the Flip video camera. For years video cameras have been getting smaller and cheaper. The Flip was an innovative camera that made cheap and "good enough" the standard for personal video. Rather than a big camera with a big zoom lens and tape, the flip was small, portable and shot "good enough" video for people to share. The flip has effectively killed off the bottom of the consumer video camera market, just like the icehouse killed off the ship ice from alaska business...
And then smartphones got video cameras, and the idea of a standalone low end video camera made about as much sense as still having your ice delivered by the local icehouse. Not only was it cheaper (included in the phone you already own or just bought) but it was better. Want to upload it to youtube while you are on the go? The phone will, but the flip? Not unless you plug it into your computer. And just like the home refrigerator killed off the icehouse, the smartphone killed off the flip.
Cisco has taken a lot of grief for this move, and at first glance I think rightly so. They paid nearly $600 Million for the Flip just a few years ago, and now they are shutting the whole business down. But I think the people who claim this is too soon are using bad math. In that article, it is claimed that the market for the flip is somehow 1 billion people. But the very fact that those 1 billion people are the same people that don't want, or cannot afford a smartphone is exactly the problem. Those are the same people that are unlikely to spend money on a brand new video camera. They might already own an older one that is "good enough" or they may find that an older flip or other camera is cheaper on ebay or they might look at it as something that they aren't interested in spending money on.
The point is this: It is a contracting market no matter how you look at it, and serving a rapidly shrinking market (these same people probably argued that not everyone had a fridge at home and there was still a need for an icehouse) is not a good business model. Cisco is making the right move by cutting their losses right now, even though it's a tough decision.
The consumer video camera market as a whole is one that I believe will go way in the face of DSLR's with interchangeable lenses that shoot HD video. For the casual crowd the smartphone meets the need. For the enthusiast crowd the DSLR offers far more than a fixed lens video camera, and the big gaping hole of audio is being remedied fast (Better audio accessories are THE hot accessory for the DSLR market right now). Even some pros are using DSLR's (mostly Canon) to do some pretty impressive projects. RIP consumer video cameras, you have become the icehouse. Viva la iPhone!