A hard pivot: Fitbit repositioning from wearables to healthcare platform

Fitbit announced last week it is planning a transition into becoming an integrated healthcare platform. What does that mean for the wearables company and will it succeed?

Fitbit’s post-IPO days have been more than a rollercoaster. Since the company raised $4.1B in its IPO in 2015 and selling millions of devices since, its stock has plummeted from a high of $47.6 down to $6.1 as of today. Still, Fitbit is one of the most successful wearables companies with extremely high brand recognition, a Silicon-Valley aura of innovation, and numerous enterprise and direct customers. Even though a leader in connected fitness wearables, Fitbit has had trouble gaining wider adoption, sustaining the user engagement with its devices, and living up to the hype.

So it decided to change direction. In a very significant way.

Only a couple of days ago (last Thursday, Feb.23rd) Fitbit’s CEO James Park announced in an earnings call:

“Our 2015 growth in the U.S. and in 62 other countries around the world, demonstrated that people desire for data, inspiration, and guidance in pursuing their fitness journeys is a worldwide movement.While Fitbit is known as a consumer brand, the real potential of our brand and technology is to become a digital health platform that improves people’s health and integrates into the healthcare ecosystem.

 

What does that mean for Fitbit?

Fitbit wants to not only be a hardware supplier but also to be able to integrate with your healthcare provider, give you personalized coaching, improve your health through preventive care, and even decrease your insurance premium.

Value Creation / Value Capture:

Currently the value creation for the user lies in the tracking capabilities and insights that Fitbit provides. As the company transitions into a platform business, it expands the value creation to provide that data to healthcare providers and third parties such as insurance companies. Healthcare data is currently highly fragmented, feedback loops on actionable items are rare – so Fitbit will have a long way to go. As a repository of health data, Fitbit will be able to not only sell more devices but also charge subscription fees to health providers and employers.

As a platform, Fitbit will aggregate, analyze, and enable action. In its current state as a wearables company, network effects are weak – user data is not widely shared and users benefit from analyzing their own data. While they can share their data with friends who also have Fitbit, the information loop does not go much further.

Indirect network effects will play a strong role both in Fitbit’s transition to a platform. As it collects more user data, the company improves its understanding of behavior patterns. Healthcare providers will be able to benchmark physical activity across different populations and analyze how people respond to different incentives. And that is only the beginning.

 

Scaling Up:

Reaching critical mass as a healthcare platform will depend on integrating with key players in the healthcare space and developing new capabilities.

First, Fitbit will have to partner with either (1) healthcare providers or (2) insurance companies. In January, Fitbit already took the first step in that direction by integrating with Qualcomm’s Life’s 2Net Platform, which in turn runs the United Healthcare Motion wellness program. What does that mean? United Healthcare members can sign up for this wellness program and track their physical activity with the Fitbit Charge 2 bracelet, thereby receiving up to $1,500 per year in savings or reimbursement credits.

Fitbit’s current capabilities lie in hardware manufacturing and data tracking. It is increasingly getting better at accuracy and analytics. Investing heavily in R&D, Fitbit will have to move beyond the data metrics realm and improve not only its API, but figure out how to drive behavior change and create its own platform on which healthcare companies can obtain data and analytics.

Fitbit might as well have plans to acquire the Qualcomm Life platform or build its own.

 

Multihoming:

Even though the market is flooded with other wearables besides Fitbit, integration and data sharing between devices is rare if not impossible. Each wearables company such as Nike+ Fuelband or Jawbone Up include pedometers, sleep tracking, and compute calories burn, but devices use different APIs and typically use their proprietary app to display and analyze data.

As Fitbit transitions to a platform, multihoming might still be unlikely. Healthcare data is highly private. Trust is key and users might only post their data to the platform they trust the most or the platform their healthcare provider / insurance company has entrusted.

Competitors: The battle is real.

Fitbit is not alone in chasing the digital health market. Aplhabet and Apple are already on its toes.

Google Fit also released its API on which developers can build apps. It is already working with big names in activity tracking such as running app Strava, or fitness app Daily Burn, and many others including Adidas, Intel, and Xiaomi. Apple Health is already gaining momentum as a pre-installed platform to aggregate health data. Apple recently acquired Gliimpse, which collects and integrates patient data and allows patients to share it via a private online portal.

 

So: 

Fitbit will have to find its own niche and figure out a way to both aggregate user data and provide meaningful integrations with third parties. The company’s digital platform ambitions will require significant long-term investment, which will be even more difficult considering its plummeting stock price.

Indeed, connected health has great potential. But will Fitbit succeed in it?

 

Works Cited:

https://investor.fitbit.com/press/press-releases/press-release-details/2017/Fitbit-Announces-Integration-with-Qualcomm-Lifes-2net-Platform-to-Help-UnitedHealthcare-Motion-Program-Participants-Earn-Up-to-1500-in-Annual-Rewards/default.aspx

https://www.thestreet.com/story/13681690/1/apple-s-latest-acquisition-could-give-its-health-platform-an-edge-on-alphabet-s.html

https://www.mobilestrategies360.com/2016/02/24/fitbit-goes-corporate-its-digital-healthcare-strategy

http://smartstocknews.com/21222-fitbit-inc-fit-merill-lynch-updates-stance-after-healthcare-platform-integration/

http://www.zdnet.com/article/fitbits-grand-digital-healthcare-transformation-plan-big-ambition-risk/

 

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5 thoughts on “A hard pivot: Fitbit repositioning from wearables to healthcare platform

  1. Nice piece Lidiya – I worked at Fitbit this past summer so it’s exciting to hear James finally revealing the ‘grand plan’ to the street!

    You mentioned there are many players in this space including Nike, etc. Fitbit’s major differentiating factor is its social ecosystem – many consumers ultimately decide to purchase Fitbit because they can engage in competition and other social + gamification elements on the software platform. Do you think Fitbit can leverage this existing unique asset (social components + data) to win in healthcare, and if so, what do you think are some ways to do so?

    1. Thank you for the comment, Chun – and apologies for the late response. I agree with you that Nike is well-positioned with the gamification of health data. If you look at Strava, you can see how much people care about comparing their results to their peers – this has helped Strava gain a lot of traction. So I am completely with you – the social aspect is completely necessary for Fitbit to remain the industry leader in health tracking. It crosses a fine like between data privacy and gamification, so I am not sure if people will be widely willing to share their health data with their peers. The more data the wearable gathers, the more that data becomes valuable and many businesses will also be interested in taking it. And there is always the risk of hacking the device as well.

  2. Great post, Lidiya! What troubles me, as you nicely highlighted, is that there is so much competition in this space! Not only are the tech players involved but retailers also view it as a growth avenue. Under Armour, for example, bought three digital fitness products in the past couple of years and appears to be hyper-focused on building out its platform and extending the “wearables” label beyond wristbands to performance gear embedding with tracking technology. It seems to me that consolidation has to occur to some degree but I don’t know who will emerge as the power player. Do you have a view on whether healthcare, tech, or sports/fitness companies are best positioned to succeed?

  3. Beyond just competition in the space, I wonder about widespread sustainability of usage with these apps. How great is the data if you only have disparate pieces of usage? I think the fitbit still has a far reach to establishing credibilty accuracy to be used in the healthcare community (e.g. clinical trials). I think with everyone moving into the healthcare space – the company that is able to show the type of scientific evidence and outcomes that clinical stakeholders are akin to will be the winner in the healthcare market.

  4. Thanks for the post Lidya – I use Fitbit as well since I prefer the style and functionality to some of the others in the market. Do you think aligning themselves as a health care brand vs a fitness brand may negatively impact the amount current customers share online (which seems to be their main attractive factor)? I imagine people to be more competitive and willing to share on social when they know they are comparing “fitness” parameters vs “health” (as a perception)? Also as you pointed out there is a lot of competition coming up in this space so they may need to spend a substantial amount of marketing dollars to gain customers if they are unable to create a platform that has really strong network effects.

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