Barely two years after first announcing its intention to buy Pure Digital Technologies, makers of the Flip camcorder, Cisco is closing the division, making 550 people redundant. The move is part of a series of steps intended to drive Cisco’s business towards “greater operational excellence”.

As well as closing Flip, Cisco will “re-align” other elements of its consumer business in line with its core strategic objectives. Specifically, that will mean that Umi, the consumer telepresence business, will be folded into Cisco’s Business TelePresence unit; and the Linksys home networking group will be refocused towards the core networking infrastructure activity at Cisco.

Video remains a core strategic objective for Cisco, and its vision remains that the network will expand into a video platform in the home. But the company has accepted that retail consumer electronics is, for the most part, outside of its competency, and will now focus its efforts on helping its service provider customers to maximise the potential of the dramatic changes in consumer media and technology markets expected over the next 5 to 10 years.

We have tracked Cisco closely over the years, and have noted on many occasions the challenges associated with a dual service provider-retail strategy. Not just because of the potential customer conflicts this entails, but also because of the highly contrasting economic and business challenges of retail and service provider models. If Cisco had been serious about consumer electronics, its overall results would inevitably have been impacted by lower margins: the only major player which has managed to avoid this golden rule is Apple. The real disappointment with Flip was that its famed ease of use and software strengths could not be transferred to other Cisco units in the consumer space.

Cisco's announcement includes a review of the Eos Media Solutions products in terms of its integration with core video technologies. Eos is a key element in the Videoscape strategy announced at the end of last year, so its future is particularly important. If Eos capabilities can be repositioned towards the needs of video service providers in over-the-top video and television services, this can only be a good thing.

Cisco may be pulling out of consumer markets, but they remain vital to the company’s interests. How and how fast consumers switch to IP-based video services and devices over the coming years will have a major impact on the company’s core technology and network businesses.

David Mercer

Client Reading: CES 2011: Connected TV Growing Up and Tablets Join the Ecosystem

Based on most of the games press coverage, which frequently focuses on the US market alone, you might be surprised to hear it; but Sony's PlayStation 3 has passed Microsoft's Xbox 360 in one key respect: the global active installed base of consoles.

Our ownership models apply assumptions about device retirement life cycles to console sales data on a regional and global basis. We published updated, in-depth analysis on games console market and ownership dynamics to our clients in our March 2010 report, Taming the Waves: Games Console Life Cycles and Platform Competition.

According to our newly revised model, the global active installed base of PS3s reached 43.4M at the end of 2010. This exceeded the equivalent number of Xbox 360s by 43.9M. We estimate that the overtaking maneouvre happened during December 2010 as the holiday season reached its peak.

As we have predicted previously, we remain confident that the current Sony system is on course to become the largest global TV console platform by 2013. In fact, PS3 sales globally slightly exceeded our early 2010 forecast, and with expectations growing for a PS3 price cut this year, the console’s sales trajectory is likely to continue in line with our predictions.

At the same time we have also revised upwards our forecasts for the Xbox 360. At 12.1M, sales in 2010 were very close to our High scenario, and our model has been adjusted to reflect the improved outlook driven by the success of Kinect.

So what of Nintendo’s Wii? As we predicted more than a year ago, sales fell significantly to 17.2 million in 2010, just 3% away from our forecast. We have therefore made only minor revisions to our model, which predicts that the peak in the active installed base of Wii is going to occur at some point during 2011, probably around the middle of the year. In terms of annual sales, both Sony and Microsoft will exceed the Wii this year, although in terms of active ownership, the Wii will not be passed by the PS3 until 2013 and by the Xbox 360 in 2014.

As we predicted more than a year ago, we still believe that Nintendo may have a surprise up its sleeve for E3. Much of the attention will inevitably be on the 3DS and the games and applications developed for it. But Nintendo cannot afford to rely on the handheld market alone for its future success. In the TV space it will be planning the Wii’s successor and may well discuss this by mid-year. If the company had planned correctly in our view, it would be ready to launch Wii2 by end 2011, at least for the Japanese domestic market. This timing would take some of sting out of the tail of its two rivals’ continued strength.

However we will not be surprised if Nintendo’s many fans now have to wait until 2012 for the Wii2, even if announcements are made at E3. The actual launch will  not come a moment too soon, because the Wii is now looking very tired and sales will decline rapidly over the next 12 months.

David Mercer

Client Reading: Global TV Games Console Forecast: Will Sensor Technology Revive Demand?