Tuesday 7 July 2015

Why Apple Watch And Fitbit Will Not Meet Expectations

A lot of activity has taken place in the wearable devices (wearables) world in the last few weeks. Fitbit went public. Jawbone is suing Fitbit. Apple Watch went on sale (for real, this time). If you read the tech news, it might feel like the technology industry is working relentlessly to make you healthy. However, what we are seeing is a small step in a long journey toward changing people’s habits and adapting the healthcare system to new technologies before this technology can enable us to live healthier lives.
Broadly, wearables fall into two categories – medical and consumer. Medical devices  require FDA (a US government agency) approval to be used and consumer devices do not.  Non-medical devices companies and startups tend to focus on consumer wearables because it is an easier thing to do. Who wants to wait two or more years to see if what you are building will get approved by a government agency? Apple Watch and Fitbit both fall into the consumer wearables category. However, they are very different devices. Apple Watch is an accessory to the iPhone and can do a lot of things in addition to tracking your health. Fitbit’s wearable are mainly focused on tracking health although they have a few products that do other things like tell you when you get a phone call and offer the ability to read text messages on your wrist.
Apple Watch has been a disappointment. As I wrote last year, on my personal blog, Apple Watch is a triumph of function over form.  Now it is in the market,  we know that even the function is dysfunctional. Apple Watch eats up your iPhone battery and people were worried about the watch’s battery life. The digital crown is not even  close to the iPhone multi-touch interface in its intuitiveness. It is hard to see the actual time on the Apple Watch as the screen sometimes does not wake up with hand movement. The map function on the Apple Watch is difficult to use for walking directions. Having said all of this, the Apple Watch is the best smartwatch on  the market. Does that make it a useful and pleasing artifact to wear on your wrist? The most innovative thing Apple Watch offers is the bands for the watch. How they look and integrate with the watch photograph really well. Is that enough for you to buy one? Apple made the phone easier to use and now it is making the watch more difficult to use. Apple Watch will never achieve the adoption that iPhone has achieved.
Fitbit is another story. Most of the products are simple and focused on activity tracking which basically means how often you move physically. However, with six products on the market, the brand lacks clear positioning. And, sooner or later they will face inventory management issues. Is Fitbit a fashion thing or is it a fitness thing? Having Tory Burch making Fitbit bracelets and Hollywood celebrity endorsements seem like they are more inclined towards Fashion. However, the Fitbit band does not look chic or sleek or cool.

A company whose stated mission is “Fitbit helps people lead healthier, more active lives by empowering them with data, inspiration, and guidance to reach their goals”. It defines a paid active user (see S1 page 57) as someone who has taken 100 steps in three months. How ironic?  If I am reading the S1 correctly, 39% (4.2M) of people  who bought a Fitbit in 2014 did not use it in last three months of the year. People buy the product and more than one third stop using it within a year or less. Given these data points, at $8.7B, the company is way overvalued. As neither fish nor fowl (fashion accessory nor healthful device), Fitbit must quickly find its true raison d’etre in the marketplace to justify its enormous valuation.
Apple (NASDAQ: AAPL) is currently valued at 15 times trailing twelve months earnings and Fitbit (NYSE: FIT) is currently valued at 90 times trailing twelve month earnings. 39% of Fitbit customers stop using the product within a year. Imagine where would Apple be if 39% of customers stop using their iPhones within the first year. For Apple, Apple Watch won’t effect the company earnings that much. And somehow, Fitbit stock is trading at six times the earning multiple of Apple. This is insane.
The real change in behavior will come when all the physical activity data we are generating gets integrated with our healthcare system and we start measuring inputs (food, air, environment, etc.) into our body and mental health in addition to output (physical activity).

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