Fitbit, Inc., in 2017: Can
It Revive Its Strategy and
Reverse Mounting Losses?
ROCHELLE R. BRUNSON Baylor University
MARLENE M. REED Baylor University
Fitbit revolutionized the personal fitness activity in
2009 with the introduction of its Tracker wearable
activity monitor. By 2016 the company was a hit in the
marketplace with Fitbit devices becoming nearly ubiquitous with fitness enthusiasts and health-conscious
individuals wearing the devices and checking them
throughout the day. The company’s sales of activity
monitors had increased from 5,000 units in 2009 to
21.4 million connected health and fitness devices by
year-end 2015. The company executed a successful IPO
(initial public offering) in 2015 that boosted liquidity
by $4.1 billion and recorded revenues of $1.86 billion
by the conclusion of its first year as a public company.
Fitbit’s chief managers expected 2016 revenues in the
range of $2.4 billion to $2.5 billion. However, on the last
day of February 2016 the price of Fitbit stock plunged
nearly 20 percent after the company announced that
the sales and earnings in the first quarter would fall
short of analysts’ forecasts. The company’s revenues
increased by nearly 17 percent from 2016 to 2017 and
its number of devices sold increased from 21.4 million
in 2015 to 22.3 million in 2016. However, the company’s cost of revenue increased from 51.5 percent
in 2015 to 61 percent in 2016. The dramatic cost of
revenue increases coupled with rapidly increasing operating expenses resulted in a net loss of $102 million
in 2016 for Fitbit.
Fitbit’s financial troubles accelerated in 2017 with
the company reporting revenue for the first quarter of
2017 of $299 million and a net loss of $60.1 million.
While the company’s financial travail in 2016 was
related primarily to increasing costs, the weak first
quarter 2017 performance was driven by a decline
in the number of devices sold. The company sold only
2,956 devices in the first quarter of 2017 compared to
4,842 during the first quarter of 2016. Correspondingly, Fitbit’s revenue declined from $505 million during the first quarter of 2016 to $299 million during the
first quarter of 2017. The accelerating collapse of Fitbit’s competitive advantage and financial performance
created a crisis for founders James Park and Eric Friedman, who were now faced with promptly establishing a
new strategic course to save the company.
Background on Fitbit
Fitbit was founded in October 2007 by James Park
(CEO) and Eric Friedman (CTO). The two men started
the company after noticing the potential for using sensors in small wearable devices to track individuals’
physical activities. Before they had a prototype, Park
and Friedman took a circuit board in a wooden box
around to venture capitalists to raise money. In 2008,
Park and Friedman addressed the TechCrunch50
Conference drumming up preorders for their product.
Neither man had any manufacturing experience, so
they traveled to Asia and sought out suppliers and a
company to produce the device for them.
Fitbit put its product named “Tracker” on the
market at the end of 2009, and the company shipped
approximately 5,000 units at that time. They had
additional orders for 2,000 units on the books.
Copyright © 2017 Rochelle R. Brunson and Marlene M. Reed. All rights
272 Part 2 Cases in Crafting and Executing Strategy
The product Park and Friedman developed was
called an “activity monitor” which was a wirelessenabled wearable technology device (see Exhibit 1).
The purpose of the Fitbit was to measure personal
data such as number of steps walked, heart rate,
quality of sleep, and steps climbed. The device could
be clipped to one’s clothing and worn all the time—
even when the wearer was asleep. Included with
the Tracker was a wireless base station that could
receive data from the Tracker and charge its battery.
The base station uploaded data to the Fitbit website
when connected to a computer. This feature allowed
the consumer to have an overview of physical activity,
track goals, keep food logs, and interact with friends.
The use of the website was free for the consumer.
Thereafter, the company developed a number
of devices utilizing the Tracker technology. These
devices are shown in Exhibit 2. Some of the later
devices located the sensor technology in a watch that
could be worn on the wrist (see Exhibit 3).
On May 17, 2015, Fitbit filed for an IPO with the
Securities and Exchange Commission with an NYSE
(New York Stock Exchange) listing. The IPO brought
in $4.1 billion. The stock was initially priced at $20
but shortly thereafter the shares were trading for $35.
A study in 2015 by Diaz et al., published in the
International Journal of Cardiology, investigated the
Fitbit to see how reliable the device was, and whether
it could be used to monitor patients’ physical activity
between clinic visits. The research indicated that
the Fitbit One and Fitbit Flex reliably estimated step
counts and energy expenditure during walking and running. These researchers also found that the hip-based
Fitbit outperformed the Fitbit watch.1
Another study in 2015 by Cadmus-Bertram et al.,
published in the American Journal of Preventive Medicine,
had essentially the same outcome as the Diaz study.
Their study examined the Fitbit Tracker and website
as a low-touch physical activity intervention. They were
attempting to evaluate the feasibility of integrating
the Fitbit Tracker and website into a physical activity
intervention for postmenopausal women. Their conclusions were that the Fitbit was well accepted in their
sample of women and was associated with increased
physical activity at 16 weeks. In other words, merely
wearing the Fitbit seemed to heighten the amount of
physical exercise in which the women engaged.2
However, another study undertaken by Sasaki et al.
in 2015 and reported in the Journal of Physical
Activity and Health found that the Fitbit wireless
activity tracker worn on the hip systematically
underestimated the activity energy expended. These
researchers suggested that the Fitbit management
should consider refining the energy expenditure prediction algorithm to correct this consistent underestimation of activity in order to maximize the physical
activity benefits for weight management and other
Mission of Fitbit
According to Fitbit, “The mission of Fitbit is to empower
and inspire you to live a healthier, more active life. We
design products and experiences that fit seamlessly
into your life so that you can achieve your health and
fitness goals, whatever they may be.”4
The Activity Tracking Industry
Source: Denis Kortunov/Fitbit, Inc.
There were a number of companies that would be
considered competitors of Fitbit in activity tracking—
companies such as Garmin (originally producing
GPS equipment for cars) and Under Armour (originally
Fitbit, Inc., in 2017: Can It Revive Its Strategy and Reverse Mounting Losses? 273
Activity Tracker Devices Developed by Fitbit
Name of Device
Capabilities and Options
Device with a clip to fit on clothing
Sensed user movement
Measured steps taken, distance walked, calories burned, floors climbed
In black and teal only
Altimeter that measured slope of floors
“Chatter” messages that occurred when Ultra moved
New colors of plum and blue
Wi-Fi smart scale
Recognized users wearing Fitbit trackers
Measured weight, body mass index, and percentage of body fat
More vivid digital display
Separate clip and charging cable
Wireless sync dongle
Used Bluetooth 4.0
Size of a quarter
Tracked steps taken, distance traveled, and calories burned
Included a disposable battery
Lower price than other Fitbits
Worn on the wrist
Tracked movement 24 hrs a day including sleep patterns
LED display showing time and daily activity
Tracked activities in real time
Replacement for Fitbit Force
Wristband displayed caller ID
Similar to a smart watch
Monitored heart rate
Tracked pace, distance, and elevation using GPS
Similar to a smart watch
Focused on fitness first
Exchangeable strap and frame
PulsePure heart rate tracking; Sleep tracking; 7-day battery life
Four colors and three sizes
Fitbit Alta HR
Date First Unit Sold
Source: Fitbit, Inc. website.
producing undergarments for men). There were also
companies such as Apple who produce smart watches
that perform many of the same tasks as Fitbit’s devices.
Another company entering the market late was
Jawbone. This company was formed in 1999, and its
consumer devices were Bluetooth headphones and
speakers initially and later fitness trackers. With the
increased competition in the activity tracking industry
beginning in 2015, Jawbone dropped to seventh place
in the second quarter from fifth place in the first quarter among makers of wearable tracking devices.
Xiaomi, a Chinese company, shipped 15.7 million
wearable activity trackers in 2016. That gave the company a 15.4 percent global market share, which was
second to Fitbit with Apple, Garmin, and Samsung
behind the two leaders. In 2014, Xiaomi had shipped
274 Part 2 Cases in Crafting and Executing Strategy
Source: Tom Emrich/Fitbit, Inc.
1.1 million units and garnered only 4 percent of the
world market share.
The presence of Apple in the market had been
almost as noteworthy as Xiaomi’s. The Apple watch
was first marketed in 2015, and in that year its market
share went to 14.2 percent. This was despite a much
higher price for the Apple product relative to either
Fitbit or Xiaomi.
For many years, neuroscientists had only the
electroencephalogram, or EEG, to detect signals
that carried different stages of sleep or brain power
surges brought about by seizures. This was a very
cumbersome process. Then, in 2007, Dr. Philip Low
in San Diego invented the Sleep Parametric EEG
Automated Recognition System (SPEARS) algorithm. This invention allowed physicians the ability
to create a cluster map of brain activity with information that was gleaned from one electrode. This
advancement caught the attention of Tan Le, CEO
of Emotiv (a company that manufactured EEG rigs
for consumers). Le believes wearable activity devices
may be the appropriate venue for this new medical
breakthrough. This would open up far-reaching new
uses for wearable activity tracking devices.5
Demand for wearable devices continued to increase
through 2016 with shipments growing to 33.9 million
units in the fourth quarter of 2016 alone and annual
shipments growing by 16.9 percent when compared
to 2015. The market was segmented between singlefunction products and smart wearables, many running
third-party applications. An activity tracker industry observer noted, “Like any technology market,
the wearables market is changing. Basic wearables
started out as single-purpose devices tracking footsteps and are morphing into multi-purpose wearable
devices, fusing together multiple health and fitness
capabilities and smartphone notifications.”6
New entrants to the industry such as Fossil created new fashion segments within the activity tracking industry and helped generate consumer interest
in hybrid watches and other fashion accessories
with fitness tracking capabilities. The innovations
of another group of new entrants included non-wrist
worn trackers such as earpieces and clothing items
with activity tracking sensors. Such devices made up
only 1 percent of industry sales in 2016 but reflected
the continuing growth opportunities in the industry.
An analyst for IDC Mobile Device Trackers commented in mid-2017, “With the entrance of multiple
new vendors with strengths in different industries, the
wearables market is expected to maintain a positive
outlook, though much of this growth is coming from
vendor push rather than consumer demand.”7 Exhibit
4 presents the shipments and market shares of the top
five wearables vendors for 2014 through 2016.
Problems for Fitbit
There were early problems with the design of Fitbit.
For one thing, the antenna did not work properly. In
regard to the antenna problems, CEO James Park
said, “In my hotel room I was thinking this is it. We
literally took a piece of foam and put it on the circuit
board to fix an antenna problem.”8
The Fitbit Ultra had a permanently curved shape
that allowed it to be clipped onto a piece of clothing.
However, the plastic in the unit could not handle the
strain at the looped end and would continually break.
When this occurred, Fitbit offered the consumer
replacement or repair of the unit.
Fitbit, Inc., in 2017: Can It Revive Its Strategy and Reverse Mounting Losses? 275
Top Five Wearables Vendors by Shipments and Market Share, 2014–2016
(units in millions)
Source: IDC Worldwide Quarterly Wearable Device Tracker, February 23, 2016; March 2, 2017.
From the beginning of the company, Fitbit was
plagued by problems. When Fitbit added Fitbit Flex
and Fitbit Force to its list of products, the company
began receiving complaints that the watchband
was irritating the skin of consumers. The irritation
was discovered to be caused by allergic reactions to
nickel, and the products were recalled in early 2014.
As many as 9,000 customers were reportedly affected,
and the Force was replaced by a new model named
Fitbit Charge, which was believed to be allergen free.
Unfortunately, customers continued to complain
about allergic reactions to the new device as well.
Too Much Information
One of the greatest strengths of Fitbit from the very
beginning was its website. By utilizing Bluetooth technology, information from the Fitbit could be uploaded
to the web in order to track energy expended and compare one’s performance with other Fitbit users. However, the company discovered in 2011 that users who
recorded their sexual activity (time spent, not activity)
were sharing their information with the world unknowingly. Therefore, Fitbit realized that sharing all of a
customer’s information with the world was not a good
idea, and the company changed the website so that
information posted by the users was private by default.
U.S. Senator Chuck Schumer declared in August
2014 that Fitbit was a “privacy nightmare.” He further
stated that users’ movements and health data were
being tracked by the company and sold to third parties
without their knowledge.9 Schumer asked that the
U.S. Federal Trade Commission undertake the regulation of fitness trackers. In response to this charge,
Fitbit suggested that it did not sell data to third parties
and would be glad to have the opportunity to work
with Senator Schumer on this issue.
Cost of Launching New Products
In Fitbit’s Form 8-K filing on February 22, 2016,
the company warned that the costs that were related
to two new products would negatively affect first
quarter earnings in 2016. They further stated that
research and development would hurt operating margins in 2016. The two new products that Fitbit suggested it would launch in 2016 were Fitbit Blaze and
Fitbit Alpha, and these two products would incur
very large manufacturing costs. In addition, Fitbit’s
full-year research and development budget included
the company’s Digital Health strategy.10
Going into 2016, Fitbit management expected to
record revenues of $2.4 billion to $2.5 billion as
a result of new products and expansion into new
geographic territories. In addition, the company
stated that it expected gross margins to range
from 48.5 to 49.0 percent. Fitbit also expected
adjusted EBITDA (earnings before interest, taxes,
276 Part 2 Cases in Crafting and Executing Strategy
depreciation, and amortization) to range from
$400 million to $480 million for the 2016 fiscal year.
The projections were based on Fitbit’s stellar
2015 fiscal year when annual revenue increased to
$1.86 billion from $745 million in 2014 and net earnings
increased to $175.7 million from $131.8 million in 2014.
However, 2016 proved to become a much more troubling year than managment expected. The company’s
2016 revenues failed to meet expectations, it recorded a
loss of $102.8 million, and adjusted EBITDA fell from
$389.9 million in 2015 to $30.0 million in 2016. The
company’s declining financial performance continued
during the first quarter of 2017 with its net loss exceeding
$60 million for the three-month period ending April 17,
2017. Exhibit 5 presents Fitbit’s consolidated statements
of operations for 2014 through the first quarter of 2017.
The company’s condensed consolidated balance sheets
for 2015 and 2016 are presented in Exhibit 6.
Analysts were becoming concerned about Fitbit’s
long-term viability as early as February 2016 when its
share price declined by 20 percent by month-end. An
analyst with Global Equities Research, Trip Chowdry,
suggested that he believed the stock could fall another
50 percent and speculated, “Gradually the market
for single-purpose devices (fitness tracker) is heading toward zero, and there is nothing FIT can do
to reverse the trend.”11 In addition, Chowdry commented that unlike Apple, Inc., Fitbit does not have a
group of developers or a way of generating income as
Apple does. Even though the Fitbit tracker products
were much cheaper than Apple’s ($129 as compared
to $349 for the cheapest Apple Watch Sport), Apple
had an inventory of more products than Fitbit. Activity tracking is just a feature used by Fitbit, and this
feature was being used in many other devices by a
variety of companies.
Leerink analysts were cautious about projections
for sales increases at Fitbit and suggested a target
price to buy the stock of $18. The analysts suggested
that ongoing sales would likely remain sluggish after
initial increases related retailer inventory needs for
new products were satisfied.12
Fitbit’s Strategic Inflection Point
Going into mid-2017, James Park and Eric Friedman
were confronted with how best to bolster Fitbit’s
Fitbit, Inc., Consolidated Statements of Operations, 2014–First Quarter 2017 (in thousands)
Cost of revenue
Research and development
Sales and marketing
General and administrative
Change in contingent consideration
Total operating expenses
Interest income (expense), net
Other expense, net
Income before income taxes
Income tax expense
First Quarter 2017
Source: U.S. Securities and Exchange Commission, Form 8-K, Fitbit, Inc., for fiscal 2015; Form 10-K for 2016; Form 10-Q First Quarter 2017.
Fitbit, Inc., in 2017: Can It Revive Its Strategy and Reverse Mounting Losses? 277
Fitbit, Inc., Condensed Consolidated Balance Sh ...
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