Monday, July 27, 2015

Fitbit and a Blue Ocean

In the H.B.R. article titled Blue Ocean Strategy (W.Chan Kim and Renee Mauborgne) discuss red oceans versus blue oceans.  They state that over time spaces can become commoditized due to heavy competition driving down profits and growth for those competing in those spaces.  Fitbit is an example of a company that although arguably did not create a blue ocean (Nike did), it forced one of its largest competitors to exit the space.  A study by Moor Insight Strategy found that fitness wearables would generate 160M devices by 2017.  The study found that “the winners and losers will be driven by companies that are able to establish themselves as true experts in health and fitness and become trusted advisors in helping the users reach personal health and fitness goals”.  Essentially building value around fitness data collection which is in essence what these devices do.

Before Fitbit’s IPO was the hottest thing, there was Nike+.  As the leader in sports shoes and powerhouse marketing brand Nike was well positioned with its Nike+ platform.  Arguably, Nike had all the right resources and technology to launch a successful wearable wrist-based portable fitness tracker.  In my opinion, the Fitbit Flex should have never existed had Nike executed properly.  Going back as far as 2008, one can find a startup called Fitbit at TechCrunch trying to enter the blue ocean of wearable fitness trackers.  In 2011, Fitbit launches Fitbit Ultra, a simple first attempt at a personal tracker that included an altimeter, stopwatch and a digital display.  Nike+ had introduced their fitness tracker in 2006 by using kits to integrate with apple IPod.  Nike continued to expand its Nike+ line by developing an “iPod transmitter” and Nike shoes with built-in transmitters.  On January 2012, Nike released its Fuel band wrist wearable fitness tracker for US customers only at Nikestore.com.  Then a month later at select Nike stores.  Although first to market there were several issues with the Fuel band, it had a difficult time tracking activities that involved lower body movement such as a spinning class, weight lifting, and yoga.  The Fuel band was water resistant but not waterproof therefore could not be used in activities such as swimming and etc.  In April 2014, it was reported that Nike had decided to discontinue the Fuel band and focus on software applications.  Cnet reported that 80% of Nike’s hardware wearable team was fired.

Fitbit continued to innovate with the Fitbit One and Fitbit Zip, in May 2013 Fitbit released the Fitbit Flex a wrist based fitness tracker.  The Fitbit learned and improved in several categories where the Fuel band struggled.  It was more water resistant and had a longer battery life and tracking lower body movement such as floor climbing.  The Fitbit also cost less than the Nike Fuel band.  Lastly, Fitbit tapped into our need for instant gratification and reward by introducing the concept of badges in 2011, to reward users based on reaching specific goals.

In summary, Fitbit avoided competing in an overcrowded industry.  They recognized the growing wearable industry and decided to enter it.  One can argue that although a blue ocean strategy is seldom about technology innovation, Fitbit is a technology company.  However one can also argue that the technology already existed, Nike had all the components to outperform Jawbone, Fitbit and the other entrants into the fitness tracker space.  Fitbit simply created linked the technology to what customers value most.  For example Fitbit allowed sleep tracking, a feature which the fuel band never contained.  Fitbit pursued differentiation and low cost simultaneously.  According Electronics360.com a Fitbit Flex costs $17.36 to make and is sold for $99.95 where a Nike Fuel band cost $25.74 to manufacture and was sold for $149.99.

 

References:

Teardown of Fuel band manufacturing costs:


Fitbit Manufacturing costs:


Moor insight and strategy article:


Nike lays off hardware wearable team:

http://www.cnet.com/news/nike-fires-fuelband-engineers-will-stop-making-wearable-hardware/

 

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