Cisco Systems, most commonly associated with business technology infrastructure and networking hardware, is using a chunk of its massive cash reserves to buy Pure Digital Technologies–creators of the highly popular Flip range of cheap digital video camcorders.
If it sounds like the two make strange bedfellows, then think again: Cisco’s reasoning is sound. Pure Digital’s Flip range was a surprising “revolution” in the photography market–representing a simple, low-end re-think of video tech in light of the popularity of online videos through YouTube and its ilk. The company sold 1.5 million of the “one-button” camcorders in just 18 months, earning a 2008 revenue of 150 million, and that pushed it to the number seven slot on our list of the 50 most innovative companies.
Cisco, which jumped from #37 to #5 on our list of the 50 Most Innovative Companies this year, says Pure Digital has now sold over two million of its cameras in the U.S. and that success is why the company is today ponying-up $590 million to purchase all of Pure Digital’s privately-held shares. A further $15 million is being spent on “retention-based incentives” to employees who stay at Pure–a clear indication that Cisco appreciates the company’s success, and a hint of some remaining autonomy. After all, Cisco is new in the digital camera market. Which is why Pure is a clever purchase: The main product is novel and doing well in a cluttered marketplace, and it gives Cisco direct access to a bigger share of the consumer electronics arena.
And that’s exactly the plan it seems. As Cisco’s senior VP of Corporate Development and Consumer groups, Ned Hooper, said in a stunning example of corp-speak: “This acquisition will take Cisco’s consumer business to the next level…” And Pure is likely to be just one of a number of acquisitions as Cisco’s reported to have $29 billion in cash on its books, which is a powerful fighting fund Cisco says it’s keen to spend on expansion. Expect to see more of the company’s stick-like Golden Gate logo on your consumer electronics in the coming year or two.
Today’s deal is another notch in the belt of journalist-turned-venture capitalist Michael Moritz, the Sequoia Capital investor whose portfolio includes Google, Yahoo! and Zappos.com. He’s also notorious for having invested in Cisco two months after the stock market crash of 1987.