Today Cisco finally had to come to terms with the fact that it fundamentally misunderstands the consumer electronics market. Like, $590 million misunderstands it. That’s how much the company paid for Pure Digital originally. Now, Cisco will kill off the brand and let go of 550 employees in an attempt to restructure.

I can’t say I understand why Cisco bought the Flip in the first place. It’s like you can almost see the guys at Pure Digital biting their lips and trying not to laugh as Cisco drops a $590 million dollar offer on the table. I imagine there had to have been one guy in that meeting who would raise his hand every now and again to say “Hey, don’t you think this tech will be in every smartphone ever soon?” He was also probably getting kicked every time he got to, “Hey don’t you think…ow!”

Since Apple announced the iPod Nano 5G on Wednesday, there has been a lot of talk about whether or not the included video camera will be enough to kill off Pure Digital’s Flip line of video cameras. The editors at NewTeeVee set out to answer that question, and came up with a pretty clear winner: the Flip.

Now I can’t say I’m surprised. The camera in the new Nano is so bad that Apple doesn’t even want you taking pictures. But words don’t really do the two cameras justice. In order to understand the differences – just how bad the Nano camera looks, and just how good the Flip (which is not an HD model) looks by comparison – you need to see the NewTeeVee video, which I’ve conveniently embedded here.

As you can see, the Nano looks truly terrible. The picture is overexposed most of the time, does not handle any sort of lighting transition very well, and the resolution is terrible. The videos will look decent on the Nano screen, but anything bigger and you will be hugely disappointed. By comparison, the Flip SD looks great – it handles different lighting well for a cheap camera and the picture is crisp and maintains decent color.

I’ll be curious to see Apple’s response to this situation. I think we can safely assume we’ll see more and more of these videos around the web in the near future, with more and more of the same reaction: Apple really dropped the ball on this one.