Is Cisco/Flip the US Robotics/PalmPilot of 2009? Hope Not!

By  |  Thursday, March 19, 2009 at 11:38 am

Cisco Flip A great big domineering company that’s synonymous with communications equipment. A spunky little company with a cool, pocketable gadget that brings new technology to the masses. Today’s news that Cisco is spending $590 million in stock to buy Pure Digital, makers of the Flip line of low-cost, easy-to-use camcorders, reminded me of another acquisition that happened so long ago that I’d almost forgotten about it: The buyout of PalmPilot creator Palm Computing by one-time modem kingpin US Robotics back in 1995.

But once I started thinking about the Palm/US Robotics marriage, I remembered a historical tidbit that’s worth recording. I met with Palm executives in 1995, months before the first Palm PDA was announced. (At the time, they told me it was going to be called Taxi, but that’s another story for another time.)

I was already familiar with Palm the company–it sold the Graffiti handwriting-recognition utility for Apple’s Newton PDA–but the fact that it was getting into the hardware business was big news. And so was something else the Palm folks told me during our meeting: The company had just been bought by US Robotics.

That startled me in part because I didn’t see an obvious connection between PDAs and modems. So I asked what the logic of the merger was. The Palm people told me that US Robotics had a vision of digital homes with docking cradles everywhere. You’d tote around a PalmPilot (er, a Taxi) as a personal communicator, and dock it to perform different tasks in different rooms.

It was a forward-looking vision, I guess, albeit one that bore no resemblance to the direction that PDAs or the digital home eventually took. Actually, I don’t know if US Robotics even attempted to make it a reality: The PalmPilot established itself almost immediately as a mobile business tool, not a home networking peripheral. And it wasn’t all that long until full-blown wireless networking hit the home, doing the work that US Robotics apparently thought would be achieved by using PDAs as sneakernet devices. Ultimately, USR’s greatest contribution to the PDA industry was providing the resources tiny Palm Computing needed to bring its gadget to market.

(Side note: I thought the Taxi looked exceptionally good, but if I’d seen the Palm Pre back in 1995, I’m not sure if my brain could have handled the experience.)

In 1997, US Robotics itself was bought by 3Com, the company that dominated the networking business before the rise of Cisco. The history of 3Com/Palm (which ended when Palm became an independent company again) was checkered in the extreme; you might be able to find someone who’s willing to defend 3Com’s stewardship of Palm, but I can’t imagine anyone would maintain that there was any particular logic to Palm being part of a networking company. Some of the challenges that today’s Palm faces stem from decisions made years ago in the 3Com era, such as divvying Palm up into separate hardware and software companies. In fact, there may be some alternate universe in which Palm was never bought by US Robotics in the first place, and turned out to be a more consistently robust enterprise as a result from a business standpoint.

Anyhow, the parallels with Cisco/Flip are far from exact. The Palm Taxi was an unproven product in a nascent category; the Flip is already a hit. Cisco knows more about buying startups and benefiting from them than any other technology megacompany. Having acquired Linksys in 2003, it knows a lot about selling products to consumers. And its rationale for buying Pure Digital–that networked video will be a big deal in the home, and Pure’s technologies can help–sounds a lot more sensible than US Robotics’ house-full-of-cradles concept.

But I’m still curious to see whether the combination of Cisco and Pure amounts to any of the things that Cisco thinks it will…


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6 Comments For This Post

  1. Jay Neely: Boston entrepreneur Says:

    I think Cisco is more interested in helping high-bandwidth media technologies become as widespread as possible, since their growth fuels Cisco’s core business. Portable video recorders have been around for a while, but Flip’s products are specifically intended for people who want to upload their content to the web.

  2. Steve Wildstrom Says:

    There are some additional key differences between the two cases.

    Palm had to sell itself to get the Pilot to market because it had failed to raise the needed capital by any other means. If was the first of many misfortunes that have plagued Palm throughout its existence.

    Second, we’ll never really know how Palm-USR would have turned out because USR almost immediately turned around and sold itself to 3Com. It’s not clear that 3Com knew quite what it was buying and it certainly never knew quite what to do with Palm. Given all that has befallen Palm, its survival as a company is one of the true miracles of the tech industry.

  3. Stephen Foskett Says:

    As someone who was there (at US Robotics) at the time of both the Palm and 3COM purchases, I do see some parallels. Palm needed resources, and USR had a (now forgotten) expansive vision similar to Cisco’s current one. At the same time as the Palm acquisition, USR was moving into datacenter-grade Ethernet switches, cable modems and headends, and was creating a router (code-name Pilgrim) to rival Cisco’s IOS. Without the 3COM buyout, USR might have done some great things in the home and corporate markets.

    As for Palm, they indeed did introduce networked docks for Pilots. And they were indeed working on wireless Pilot devices right from the start. We got an aborted peek at what USR/Palm might have done with the Audrey concept. But 3COM in the end wasn’t ready to deliver on that vision.

  4. DZ Says:

    I think you give Cisco too much credit in the consumer (as opposed to enterprise) market. Linksys commodity products (wireless routers) have largely been coasting and their line of digital media stuff hasn’t really gained much of a toehold. Maybe Flip is a springboard. Or their death. Either way, the concept isn’t patentable and Kodaks hot on their heels.

  5. Phil Given Says:

    Cannot understand who is responsible for such stupid acquistions without looking at where the market is going! We already have cell/mobile handset manufacturers bringing in HD video capability into phones. Samsung for example.

    Why would Cisco pay $590 mil. when we hear that Avaya are offering $500 million for Nortel’s enterprise business!

    2 million total Flip video units since the product first went on sale? Where does Csico think its going to get its money from? Are they trying to re-create YouTube 2.0?

    This product will die and leave Cisco with a big big shortfall and a very red face…..

    And they try to save money by stopping the free sodas and company paid cell phones & broadband?!

    With over 400 VPs in Cisco you would think there is enough MBA brain power to get an understanding of the market dynamics!

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