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A Tiny Camcorder Has a Big Payday
source: New York Times

imaginginfo/flip video and jonathan Kaplan CEO of Pure Digital
Jonathan Kaplan, chief executive of Pure Digital, with one of the company's video cameras.
Noah Berger for The New York Times

The company next moved to single-use digital camcorders, also distributed through drugstores, where the videos could be burned onto DVDs.

Despite trying various approaches, Pure Digital remained in search of a big hit. Luckily, the company's partners - and, somewhat surprisingly, computer hackers - helped to nudge it in the right direction.

For example, hackers were removing the memory chips from the single-use recorders so they could put videos onto their PCs. In addition, the drugstores asked Pure Digital to limit the accessories it shipped with its cameras, a demand that gave rise to the built-in U.S.B. connector.

With such prodding, Pure Digital's staff hit upon the idea of a cheap, easy-to-use digital camera that could funnel videos between the device, PCs and Web sites. Ever since, the company maintained its simple approach while working to make products more attractive via colorful designs and better-quality video.

Cisco's deep pockets could help Flip, financed by close to $70 million, succeed outside of the United States and Britain, according to Mr. Moritz. "You have to scale up your inventory to satisfy demand in lots of different countries, and that is a very expensive proposition," he said.

Such a consumer play is still a curious one for Cisco. The company tends to operate in the background, providing products that companies use to link phones and computers to the Internet. But Cisco has also made large investments in videoconferencing. The more the Flip encourages consumers to videoconference, the more money the company looks to make selling the routers and switches needed to process the large video files flying off Flip devices and onto YouTube.

Less than 5 percent of Cisco's $40 billion in annual sales comes from consumer products, said Brent Bracelin, an analyst with Pacific Crest Securities.

Cisco is already familiar with Pure Digital's product. The family of John T. Chambers, the chief executive at Cisco, owns eight of the Flip devices, and executives at the company often post their own videos to an internal version of YouTube.

In the future, it is expected that Cisco will release versions of the Flip recorders that can connect to wireless networks. There are other surprises in store as well, said Mr. Kaplan.

"The Flip will find its way into some very obvious places and maybe some not-so-obvious ones," he said.