case analysis

As you will see upon reading Fibit, this case provides considerable detail about the external environment in which this company operates. It will be important for you to read this case carefully and in depth, as well as to refer back to it as you construct your analysis.
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For the exclusive use of J. Zhang, 2018.
W16264
FITBIT: THE BUSINESS ABOUT WRIST1
Xiaoke (Coco) Xu and Professor Xin (Shane) Wang wrote this case solely to provide material for class discussion. The authors do
not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain
names and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2016, Richard Ivey School of Business Foundation
Version: 2016-06-03
On August 3, 2015, two days before its second-quarter earnings report came out, Fitbit, Inc.’s stock price
hit an all-time high of $50.99. 2 A few months earlier, when Fitbit went public on June 18, it opened on its
first day of trading at a price of $30.40, 52 per cent higher than its initial public offering (IPO) price. As
what appeared to be the most successful IPO so far in 2015, Fitbit attracted significant attention and
inevitably drew controversy as well. Investors with favourable impressions of the new public company
anticipated great potential and a promising future for Fitbit. Others were less positive, calling it a fad
without any real opportunity for future development. What was Fitbit, and what could it become? The
question concerned not only potential investors but also James Park, chief executive officer (CEO) of the
high-tech company. 3
FITBIT
Fitbit was founded as Healthy Metrics Research, Inc. in the U.S. state of Delaware in March 2007, and
later adopted its current name. In 2015, the company started to appear frequently in mainstream news due
to its eye-catching IPO, but Fitbit had made its name among consumers before that as a wearable fitnesstracking device maker. It started with clip-on activity trackers that were able to record the number of steps
taken and calories burned on a daily basis, before graduating to its well-known wristband-style fitness
tracker, which integrated more features and functions.
By August 2015, Fitbit had seven products in the market: two clippable activity trackers, four wristbandstyle trackers, and a smart scale. The collection of wristband trackers was designed to serve users with
different levels of demand. The basic model, Fitbit Flex, was aimed at those with simple needs —
tracking only steps, calories, and sleeping cycles. The high-end model, Fitbit Surge, covered a much
broader range of functions typically found on smartwatches and similar devices, such as text notification
and music control. Fitbit grouped its wristband products into three categories by level of “smartness” and
available functions. The manufacturer’s suggested retail price of these wristbands ranged from $99.95 to
$249.95 (see Exhibit 1). The Fitbit scale, Aria, priced at $129.95, was a smart device that tracked weight,
body mass index, and body fat percentage. It synced wirelessly with Fitbit trackers and apps to record
weight stats to help users monitor workout progress.
This document is authorized for use only by Junyao Zhang in ADMN400_Spring2018 taught by Harvey, University of New Hampshire from February 2018 to May 2018.
For the exclusive use of J. Zhang, 2018.
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In an effort to add a sense of fashion to its tracking products, Fitbit worked with American fashion
designer Tory Burch to offer an exclusive accessory collection that Fitbit hoped would “transform Fitbit
Flex tracker into a super chic accessory.” 4 The tracker part of the Fitbit Flex could be removed from the
wristband and inserted into a Tory Burch bracelet or pendant so the tracker had a fashionable appearance
that fit better with the wearer’s clothes. Depending on the material used (leather, metal, or silicon), the
bracelet accessories cost $175, $195, and $38, respectively. Pendant necklaces cost $175.
Park saw his company not merely as a hardware manufacturer, but as an integrated wellness platform that
provided information and assistance to help users achieve their fitness and health goals. “While press and
analysts focus on Fitbit as a wearables company, the mission of the company is actually a lot broader,” he
said. 5 The Fitbit app was introduced for users to easily access the data recorded on their trackers in order
to review their workout progress. The app also connected all users to an online community, so they could
create their fitness social network by sharing and comparing fitness goals and achievements with friends
via the app. For $49.99 per year, an upgrade option, Fitbit Premium, was offered to registered users to
provide digital training and health consulting services. The upgraded service explored fitness data and
produced activity reports, which could be used to develop or modify fitness plans for its users.
The idea of a fitness app was not exclusive to Fitbit and the company sought to embrace this fact. To
promote a better user experience, Fitbit made its trackers compatible with other fitness apps. Users could
upload their data to certain widely used apps like Lose It! and Microsoft HealthVault (though Fitbit had
not allowed its trackers to be linked to Apple Health so far). Apart from fitness apps, Fitbit also made it
possible for users to turn their daily activity records into reward points. Furthermore, the trackers could be
linked to retailers’ apps like Walgreens’ Balance Rewards, which allotted 20 points for every mile walked
or run, and 20 points for a daily weigh-in. 6
Meanwhile, Fitbit had not stopped enhancing its core technology to make the device smarter and more
useful. A major update was introduced to Charge HR and Surge users in November 2015. The new system,
called SmartTrack, enabled the devices to identify a variety of fitness activities through continuous body
movements, which meant that users no longer needed to manually log in what exercises they were engaged
in. The update also delivered more accurate heart-rate tracking during high-intensity workouts. 7
In many ways, Fitbit’s performance had been outstanding. As of 2014, it led the U.S. fitness-tracker
market with a share of 68 per cent. 8 The company’s revenue had shown continual growth since 2011 (see
Exhibit 2), and a tremendous surge in revenue in the fourth quarter of 2014 (see Exhibit 3). In the first
two quarters of 2015, Fitbit generated revenue of $737 million — nearly as much as its entire year’s
revenue in 2014 ($745 million). 9 Indeed, Fitbit had sold 8.3 million of its devices during the first two
quarters of 2015, compared to 10.9 million for the whole year of 2014 (see Exhibit 4). The total amount
of units sold in 2015 was expected to reach 16 million according to one analysis. 10 More than 80 per cent
of Fitbit orders were placed on Amazon or Fitbit’s official online shop (see Exhibit 5). Fitbit Flex and
Charge HR were reported to be the two best-selling wrist-worn devices sold online by Amazon, Bestbuy,
Target, and Walmart.11
Despite this dramatic growth, the quarterly gross margin had remained above 40 per cent since 2013. The
exception was the fourth quarter of 2013 when Fitbit recalled Fitbit Force due to a number of complaints
about skin irritation. Further good news came from research indicating that overseas sales contributed to
only one-quarter of Fitbit’s total revenue in 2014; this implied plenty of potential for international
expansion. 12
This document is authorized for use only by Junyao Zhang in ADMN400_Spring2018 taught by Harvey, University of New Hampshire from February 2018 to May 2018.
For the exclusive use of J. Zhang, 2018.
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9B16A012
WEARABLE DEVICE MARKET
Technological development enabled the emergence of various wearable devices like Google Glass and
smartwatches. Although Apple was not the first company to introduce a smartwatch product, it brought
the wearable device market into the spotlight with the release of its Apple Watch. As of 2015, almost all
of the major companies in the consumer electronics industry had launched smartwatch products, including
Samsung, Motorola, and LG, further suggesting that the market for wearable devices was growing.
According to global market research company Ipsos, eight out of 10 American adults had at least heard of
wearable devices, while more than four out of 10 were very familiar with or owned a wearable device. 13
One study into purchase intentions for electronic devices showed that about 18 per cent of Americans
planned to buy a wearable device in the next 12 months (although the number planning to buy wearable
devices was still far below those planning to buy a smartphone, tablet, or laptop). 14
American market research firm International Data Corporation (IDC) reported that the wearable devices
market was growing faster than any other consumer electronics segment between 2010 and 2014. Sales in
the wearable devices market tripled from 2013 to 2014,15 and analysts predicted that they would grow at a
compound rate of 35 per cent from 2015 to 2020. 16 By 2018, the number of wearable devices shipped
would reach 114 million units, representing a $33.7 billion revenue opportunity globally. 17
While “wearable device” (or “wearable”) was a general term that could be applied to many gadgets such
as eyewear or smart clothing, the market was predominantly fueled by wrist-worn devices like wristband
trackers and smartwatches. In fact, wrist-worn devices accounted for 90 per cent of wearable products
shipped in 2015. 18 IDC revealed that the number of wrist-worn devices shipped jumped from 17.7 million
units in 2013, to 40.7 million units in 2014, and was expected to reach 101.4 million by 2019, when the
units sold in the entire wearable market would reach 126.1 million.19 Within the wrist-worn device sector,
smartwatches represented a significant share of the market. Smartwatch shipments were expected to rise
at an annual rate of 41 per cent and to account for over 70 per cent of wearables shipped by 2019. 20 As an
example, the newly-released Apple Watch was projected to account for 40 per cent of smartwatches
shipped in 2015, and to reach a peak at 48 per cent of smartwatches shipped in 2017. 21
The booming market in wearables could be attributed to consumers’ desire for mobile devices, growing
attention to personal well-being, and technological advances in hardware development. More consumers
were turning to mobile devices as their preferred platform for accessing information. Changing
behaviours were also evident in the way that individuals seemed to be increasingly concerned about
health and fitness issues. In 2014, consumers spent over $200 billion on health and fitness services. 22
More people were tracking and managing their health directly on mobile devices, with more than 25 per
cent of U.S. consumers using a fitness app on a smartphone. 23 Moreover, more accurate sensors and
efficient batteries made it possible for wearable devices to recognize a broader range of biometric signals
and stay powered for a longer time compared to the first generation of step-counting devices. All of these
factors worked together to push the industry forward and ensure it gathered more attention.
COMPETITION
By the time Fitbit went public in 2015, its market share in the U.S. wearable devices market had already
reached 76 per cent. 24 However, this leading position in the market did not guarantee the company’s longterm success; it still had to deal with considerable competition from other wearable device makers.
Competitors joined the market, including both well-known electronic manufacturers and global sports
outfit brands (e.g., Samsung, Garmin, and Nike). Each brand had a different focus and vision for the
emerging market.
This document is authorized for use only by Junyao Zhang in ADMN400_Spring2018 taught by Harvey, University of New Hampshire from February 2018 to May 2018.
For the exclusive use of J. Zhang, 2018.
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9B16A012
Apple’s major entry to the market came with the introduction of the Apple Watch. In this entry, Apple
followed its long-time rival in the smartphone industry, Samsung. Both companies had made the
smartwatch segment the focus of their wrist-oriented business. The Apple Watch and Samsung Gear
series both included activity-tracking and heart-rate-monitoring features. These devices dazzled
consumers with comprehensive apps and functions that worked like miniatures of the respective
smartphones of the two companies.
When Apple released its smartwatch in April 2015, Fitbit’s initial concern was that its sales would be
undermined by competition from the hugely popular Apple brand. Yet the sales record afterwards told
otherwise: The new Apple Watch did not have a clear negative impact on the sales of Fitbit products,
which remained at their regular level during and after the Apple release.25 In September 2015, Apple
increased competition by introducing a new Apple Watch collection in partnership with Hermes, the
world-famous luxury leather manufacturer, to appeal to consumers concerned with fashion.
Further, not everyone was competing in the same way as Apple. Withings, a consumer electronics
company based in France, concentrated most of its products on the needs of health and lifestyle
management. The company seemed to be emphasizing the “watch” part of a smartwatch: its device
appeared to be a regular watch with real analog display. The campaign slogan for the Withings watch
(“French design, Swiss made”) highlighted the product’s elegant design and careful crafting, suggesting a
very different focus from the prototypes promoted by Samsung and Apple. 26 Withings’ CEO, Cedric
Hutchings, said the company aimed to design a device that was primarily a watch, so people would want
to wear it regardless of its tracking capabilities.27 The watch did have basic tracking functions but the data
readout was available only on a smartphone that had been connected to the watch. Prompted by Apple’s
entry, Hutchings revealed a plan to introduce a pricier watch to compete in the premium market. He
stressed, “It’s not about wrapping a piece of technology with highly desirable and super expensive goldy
stuff . . . [but rather . . . about] making an honest and genuine watch that integrates these benefits and
features.” 28
Swiss firm Garmin and U.S.-based Jawbone also developed distinct positioning strategies. Garmin elected
to pursue the extreme of professionalism with its technologically-advanced devices that could track
activities other than running and set alerts for heart rate. Divergent from the major trend of packing more
features into the wristband, Jawbone was trying to keep its trackers’ appearance and functions as simple
as possible. While Garmin included screens even for its entry-level model, Jawbone’s newly released
tracker, UP3, was, like its predecessors, still screenless. Jawbone chose to position itself as a “lifestyle
tracker” that could be worn with other wearables at the same time. Aside from providing daily tracking,
Jawbone’s yet to be released new model, UP4, was expected to be the first fitness band to support nearfield communication payments in partnership with American Express. 29 Jawbone’s manager, Andrew
Rosenthal, explained that Jawbone chose to take an alternative route from the majority because building a
smartwatch “is not where we’ll win.” 30 However, this unique outlook did not seem to help Jawbone gain
steam. On the contrary, its market share kept shrinking in the face of steep competition. In November
2015, Jawbone laid off 60 employees (15 per cent of its overall workforce). It was the second time that
year that the company had cut its labour, but this time it also shut down its New York City office and
downsized a few others. 31
Fitness giant Nike clung to a different view of the market. The firm disbanded the hardware team
responsible for its own wearable tracker, FuelBand, in 2014. The company’s CEO, Mark Parker,
explained that Nike was “focusing more on the software side of the experience,” suggesting that the
company would keep running the Nike+ fitness platform on other wearable devices. 32
This document is authorized for use only by Junyao Zhang in ADMN400_Spring2018 taught by Harvey, University of New Hampshire from February 2018 to May 2018.
For the exclusive use of J. Zhang, 2018.
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In addition, many fashion brands were attracted by the momentum of the new market and decided to join
the game on their own. In November 2015, Fossil Group, Inc., an American clothing and accessories
brand known for its leather products and fashion watches, announced its purchase of fitness-tracker
manufacturer Misfit for $260 million. 33 The latter was believed to be a direct competitor to Fitbit but had
never posed a major threat due to its small market share. It was not the first attempt made by Fossil to
enter the smartwatch market. In 2003, before smartphones had become mainstream, Fossil had tested the
market with its PDA and MSN watches. The company went on to release a water-resistant men’s watch
that could be paired with a Sony Ericsson Bluetooth phone to show caller identification on a tiny screen
near the bottom of the watch face. 34 By acquiring Misfit, Fossil planned to integrate the acquired
company’s technology into its stylish fashion watches while Misfit continued selling existing products.
Fossil was hoping to carve out a niche market by appealing to consumers who were looking for tracking
bands disguised as fashion accessories. 35
According to IDC, Fitbit was a strong leader in the global market until the Apple Watch was launched in
the second quarter of 2015, taking the second spot with 19.9 per cent of the market. After Apple’s entry,
Fitbit’s market share plunged to 24.3 per cent, down from 35 per cent the quarter before (see Exhibit 6).
Perhaps the most unheralded competition came from the Mi Band, produced by Xiaomi, a rapidly growing
consumer electronics company in China. With most of its sales based in the Chinese market, Xiaomi rapidly
grew its market share to 25 per cent in less than a year. After the launch of the Apple Watch, Xiaomi fell
back into third place, but only fell short of Apple by 2.8 per cent in the second quarter of 2015 (see Exhibit
6). Xiaomi launched online stores that made the Mi Band available in the United States and the United
Kingdom, indicating that it had decided to pursue global expansion.36 Priced at less than $20, the Mi Band
was sure to appeal to price-sensitive consumers who only needed basic activity tracking.
An RBC survey report indicated that consumers continued to prefer Fitbit products over other fitnesstracking wearable devices: 42 per cent of respondents reported that they planned to buy a Fitbit product in
the following 12 months, as opposed to only 21 per cent of consumers planning to buy an Apple Watch
(see Exhibit 7). Another survey indicated that only 14 per cent of consumers would consider buying an
Apple Watch at the price of $350, while that number went up to 41 per cent if the price were lowered to
less than $200 (see Exhibit 8). Consumers considered pricing to be an essential factor when making a
purchase decision about wearable devices; other features such as GPS tracking, social engagement, and
broader platforms also played a critical role in the decision.37
FITNESS BAND OR SMARTWATCH?
The current high-tech revolution was a battle for consumers’ wrists. Companies were using their
smartwatches and fitness bands to contend for the minim …
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