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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

Published: March 19, 2009-- SAN FRANCISCO, Calif. -- Pure Digital Technologies thought small and simple, and it paid off big time.

The tiny, eight-year-old start-up famed for its inexpensive and easy to use Flip video cameras has defeated a down economy. On Thursday, the 100-person company was bought by Cisco Systems, a technology infrastructure giant, for $590 million in stock. The deal caps off a bumpy and unpredictable rise for Pure Digital, which bested the Asian companies that dominate the camera industry from an office located above the Gump's department store in the heart of San Francisco.

"At a time when everybody has just been hammered with stories of misery, this is a really fabulous tale of what is possible against all odds," said Michael Moritz, a venture capitalist at Sequoia Capital, which invested in Pure Digital.

Over the last couple of years, Cisco has expanded beyond selling networking equipment for large computing centers, making inroads into the home via set-top boxes, routers and - most recently - digital stereos. The company has been clear about building upon these efforts by aiming much of its nearly $34 billion in cash at future acquisitions.

In Pure Digital, Cisco found a local talent to complement its consumer ambitions and extend its business videoconferencing technology to mobile devices.

Pure Digital started selling the Flip line of products in 2007 and has since shipped more than two million units, which cost $150 to $230, depending on the model. The device's claim to fame has been its minimalism.

The Flip recorders have just a few buttons, weigh a few ounces and have 1.5-inch screens. In addition, they arrive without cables, relying on a built-in connector that plugs into a computer's U.S.B. port for both recharging and transferring video files.

Along with the device, Pure Digital offers software that helps shift videos from a personal computer to online services like YouTube and Facebook with the click of a couple of buttons. The simple software, simple design and low cost opened digital camcorders to people put off by more complex devices but still hungry to pass around their videos.

"They were able to capitalize on an opportunity to reach consumers that had traditionally shied away from camcorders," said Ross Rubin, an analyst for NPD Group.

Over the last few years, the sales of digital camcorders have either stayed flat or declined, according to Mr. Rubin. Meanwhile, Pure Digital tripled its sales of the Flip products over the last year and now holds close to one-fifth of the market. Sony, the market leader, has since mimicked Pure Digital's products, as have a host of smaller competitors.

The no-nonsense Flip design set Pure Digital's path on a new trajectory. "We became a profitable business from the day we launched Flip," said Jonathan Kaplan, the company's chief.

The company started off selling single-use digital still cameras at drugstores. Customers would rent the cameras and bring them to make prints.

The business worked, at first. But as nondisposable cameras became increasingly affordable, Pure Digital's sales tumbled.

"The market demand for that product just melted away," Mr. Moritz said. "We found ourselves selling disposable cameras into a market that was shrinking by the hour."

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