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Consumers flip for mini camcorders

A user-generated frenzy is fueling growth at Flip maker Pure Digital Technologies.

By Jessica Shambora, reporter
January 27, 2009: 12:39 PM ET

the_flip_camera.03.jpg
Smaller than many cell phones, the Flip Mino allows users to record up to 60 minutes of video.

NEW YORK (Fortune) -- When employees at Pure Digital Technologies get caught watching user-generated videos at work, they don't have to worry. The clips come from their customers, shot on the Flip video cameras the company makes.

One man recently sent footage shot from the front of his dog sled in Alaska. Another shared video of his Lasik eye-surgery. The lead singer of a band recorded his view while crowd surfing. A congressman gave constituents a tour of his D.C. office.

Thanks to such user-generated content, upstart Pure Digital is holding its own in the competitive consumer-electronics world, which is dominated by big conglomerates such as Sony (SNE), Panasonic (PC) and Samsung.

Since launching the Flip in May 2007, the company has shipped nearly two million devices. Models range from $149 to $230 and are sold online and at retailers like Wal-Mart (WMT, Fortune 500), Costco (COST, Fortune 500) and Target (TGT, Fortune 500).

Pure Digital's edge: It is transforming the camcorder market by making it simple to shoot and share video. "The ease of use is incredibly seductive," says Amazon.com vice-president of electronics, Paul Ryder. "You take a quick video, plug the device into computer, and immediately upload to the web."

Instead of a traditional camcorder, the Flip resembles a point-and-shoot camera. It's no coincidence: Digital point-and-shoots make up 95% of the so-called still camera market. Camcorder sales still trail their traditional brethren: U.S. consumers purchased 35 million digital cameras last year, but they bought only about four million video cameras.

Pure Digital aims to make the Flip the point-and-shoot of video, expanding the market for camcorders by appealing to first-time buyers, teens and even existing camcorder users looking for a super-portable gadget to throw in a purse or backpack.

Besides its portable size, the Flip boasts other easy-to-use features. The Flip Mino, released last summer, has only one traditional button for recording. Four touch-sensitive buttons are used to zoom and navigate playback. A USB key flips (hence the name of the product) out of the camera's body to plug directly into a computer, making it simple to upload videos to Web sites such as YouTube, Facebook and other social-networking outlets.

The Flip does have some major shortcomings: Shooting time is limited to one hour, zoom and image quality aren't on par with a traditional camcorder, and editing capacity is primitive. "The Flip created a new category," says Amazon.com's Ryder. "If I want a great shot of the soccer goal for the family archive, that's a different purchase."

In this new category - call it camcorder "lite" - Pure Digital is the undisputed leader. The Flip sold out during its first holiday season in 2007, and according to market research group NPD, the Flip Ultra was the nation's best-selling camcorder in December, with the Mino and Mino HD close behind. The results also show the Flip holding back clone devices made by Sony, Kodak and Audiovoxx.

Indeed, Pure Digital is posting such impressive numbers that this small company, founded in 2001, is quickly becoming an overall leader in a $2.4 billion-a-year camcorder business. NPD's numbers - which don't include Wal-Mart and Costco - put Pure Digital's market share at 17%, rapidly closing in on Sony's 21% share of the total camcorder market.

"Reaching the No. 1 share position on a unit basis is a realistic goal for us in 2009," says Simon Fleming-Wood, Pure Digital's VP of marketing.

Analysts think Pure is responsible for injecting some life into the camcorder business, which had seen sales stall at about 3.7 million units in 2005 and 2006 each. Sales rose to 4.1 million in 2007. Pure Digital has "eaten into the category but it's also grown the category," says Chris Chute, an analyst with research firm IDC. To top of page

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