Pure Digital, the maker of the popular Flip digital video cameras, has sold itself to Cisco (CSCO) for $590 million in stock.

The deal, which had been rumored last week by TechCrunch, was announced this morning by Cisco.

The innovative San Francisco-based start-up has made it big from its modest roots as a white-label digital video camera shrink-wrapped for themes parks and drug stores.

But the simplicity of its line of relatively inexpensive cameras, including the recently released Mino HD, has made it a huge consumer success, which is no easy task in the devices arena.

Using its own software, a user can plug the Flip into a USB port of computer to upload digital video easily. Flip models cost anywhere from $100 to $299.

Cisco has been trying to turbocharge its consumer-focused business, especially in home networking, and the move is a clear step in that direction. It is better known for its business making hardware and software that powers the plumbing of the Web.

Although it used stock in buying Pure Digital, Cisco has a $29 billion pile of cash. Recently, I wrote a piece about how a lot of tech companies, with big hordes of money, will soon be buying up a lot of the most promising tech start-ups.

The first commercially-branded Flips were, in fact, introduced at the third D: All Things Digital conference in 2005 by CEO Jonathan Kaplan (pictured here at D3.)

In an email to BoomTown this morning, Kaplan was happy with the outcome, because no matter its success, taking Flip to the next level is not easy:

“We’re thrilled by the partnership. Cisco shares my vision for capturing and sharing simple, accessible, and high-quality video to the mass-market consumer. Now we can deliver that ideal on a global basis.”

Cisco said that “upon the close of the acquisition, the Pure Digital team will become part of Cisco’s Consumer Business Group, which includes Linksys® by Cisco® home networking, audio and media-storage products. Kaplan will become general manager of the combined organization,” reporting to Ned Hooper, SVP of Corporate Development and Consumer Groups.

He and his team will also get a $15 million in retention-based equity incentives.

The sale to Cisco is a big win financially overall. Pure Digital got another $40 million in additional funding in mid-2007, from investors Morgan Stanley Principal Investment, Heights Capital Management and AllianceBernstein, who joined initial investors Sequoia Capital and Benchmark Capital.

It had previously gotten $28 million in 2004 from Sequoia and Benchmark, as well as Crescendo Ventures, Steamboat Ventures and Focus Ventures. It was founded with $200,000 in seed funding in 2001.

And, more to the point, Flip cameras have been used by me for nefarious interviewing of scared Web execs since our site’s launch. In fact, I have been so bizarrely enamored with the Flip that I even did a video of my many old Flips meeting the new high-definition Mino last November.

Here is that Felliniesque effort:

And here’s the full press release from Cisco about the deal:

Cisco Announces Intent to Acquire Pure Digital Technologies, Makers of Flip VideoTM Networking Leader Adds Popular Flip Video Solutions to Consumer Portfolio Photos

SAN JOSE, Calif.–March. 19, 2009–Cisco today announced its intent to acquire privately held Pure Digital Technologies Inc. San Francisco-based Pure Digital, creator of the best-selling Flip VideoTM brand, is a pioneer in developing consumer-friendly video solutions with mass-market appeal.

“The acquisition of Pure Digital is key to Cisco’s strategy to expand our momentum in the media-enabled home and to capture the consumer market transition to visual networking,” said Ned Hooper, senior vice president of Cisco’s Corporate Development and Consumer Groups. “Pure Digital has revolutionized the way people capture and share video with Flip Video. This acquisition will take Cisco’s consumer business to the next level as the company develops new video capabilities and drives the next generation of entertainment and communication experiences.”

Pure Digital’s Flip Video has sold more than 2 million units and quickly demonstrated market appeal in the United States by making video simple, accessible and fun. All Flip Video products come equipped with FlipShare, a best-in-class software that allows users to easily organize and edit videos and then share them instantly on YouTube, MySpace and other popular sharing Web sites.

“Flip Video puts the power to instantly capture, edit and share video into the hands of everyday consumers,” said Jonathan Kaplan, chairman and CEO of Pure Digital. “By combining forces with Cisco, we join a company that shares our passion for video and whose global scale and tremendous technology expertise we expect will enable us to quickly expand and enrich the Flip Video experience.”

Upon the close of the acquisition, the Pure Digital team will become part of Cisco’s Consumer Business Group, which includes Linksys® by Cisco® home networking, audio and media-storage products. Kaplan will become general manager of the combined organization, reporting to Hooper.

The Pure Digital acquisition exemplifies Cisco’s “build, buy and partner” innovation strategy to move quickly into new markets and capture key market transitions. Under the terms of the agreement, Cisco will pay approximately $590 million in stock in exchange for all shares of Pure Digital. In addition, Cisco will provide up to $15 million in retention-based equity incentives for continuing employees. The acquisition is subject to various standard closing conditions and is expected to close in the fourth quarter of Cisco’s fiscal year 2009. The acquisition will be accounted for in accordance with generally accepted accounting principles.

Here’s a joke an exec at AOL recently sent me:

Q: How many Yahoo and AOL dealmakers does it take to screw in a lightbulb?

A: None–you don’t need light if you’re never going to sign a merger agreement.

Ahahahaha. Ha.

Well, not really.

Time Warner (TWX) CEO Jeff Bewkes certainly was not laughing much Wednesday, discussing the options for the media giant’s long troubled online unit at a UBS investor conference.

Among the gems from Bewkes, according to paidContent: “I’d like to get it resolved, meaning clear…so AOL can be seen and valued…. We need to do it fairly soon and we’ve been working hard on it.”

Calling AOL what it is–a third-place player in the portal sector–Bewkes acknowledged the obvious, that it’s a tough road in all sorts of ways, especially in the all-important advertising market, “even though some excellent work is being done on cost cuts, programming and traffic.”

Indeed, especially compared to its erstwhile suitor Yahoo, AOL execs have been toiling mightily to cut while also innovating.

Earlier this week, for example, AOL unveiled interesting changes to its social-networking and communications assets.

But those efforts might be just spitting into the wind, of course, with no end in sight, as the company struggles to differentiate itself from the pack.

And while Bewkes mentioned alternatives at the UBS event–including with Google and Microsoft, as well as Yahoo and a possible spinoff of AOL–he still used a lot of mights and might-nots in his talk.

But sources close to the situation said Time Warner was actually very seriously looking at a variety of configurations to sell off pieces of AOL.

AOL’s owner, especially Bewkes, sources said, has become weary of all the uncertainty and lack of ability to complete a deal with Yahoo (YHOO), after months of trying, especially since Yahoo is still without a CEO and has just this week undergone wrenching layoffs.

“Yahoo has trouble making decisions in the good times, so you can imagine how it is now,” said one source.

So, according to people with knowledge of the situation, new ideas center around selling off the communications and advertising parts of AOL, as well as its access business (which has been long expected).

Obvious buyers for the communications unit, now called the Peoples Network, would be both Microsoft (MSFT) and Google (GOOG), which already owns five percent of the entire AOL unit.

The same is true for the advertising arm, now called Platform-A, which is perhaps AOL’s most lucrative asset.

But owning and running the lower-margin business, it is thought, is going to get increasingly hard as Microsoft and Google go for big scale.

That leaves the content properties, some of which are among the most trafficked on the Web, which could stay with Time Warner, either as a separate unit or as part of Time Inc.

The premium ad sales for the content could still be sold by using internal resources.

If that is done, it is even possible that Time Warner would retire the somewhat tired AOL brand name.

“We’re looking at all sorts of ways to make the most of this asset,” said one source. “After all, we can’t just wait for Yahoo to figure out what it wants to do.”

Indeed, it cannot.

Please see this disclosure related to me and Google.

Last night, Walt Mossberg and I hosted yet another annual “What’s Hot and What’s Not in Personal Technology” event for the Churchill Club.

A brief rundown of the Palo Alto gadgetfest show-and-tell: An animatronic singing Elvis freaked out my No. 1 son, Louie, who played an excellent Luke Skywalker/gadget boy for my presentation; our guest gadget geek was Twitter Co-Founder and CEO Evan Williams, who was a delight with a mini-helicopter, a flat-screen reader and a wry wit; Walt showed off the new Blackberry Storm from RIM (RIMM), the alleged Apple (AAPL) iPhone killer (maybe not so much), as well as a fuel cell and more; and our crazy gadget maven, Greg Harper, co-founder of Gadgetoff, went perfectly insane with everything from tiny projectors to a creepy probe to minicellphone towers to USB ties and eyepads.

It was a lot of fun with a packed crowd, even in this econalypse-impacting Silicon Valley.

Here is a rather longish video, which is well worth watching. Yes, BoomTown is–along with Louie and Elvis–wearing a Yahoo (YHOO) hat.

Here’s the video:

[Photo courtesy of Dan Farber of CNET.]