Fitbit's long-term sustainability and the abandonment issue: Page 2 of 2

Abandoned devices

Fitbit's long-term sustainability and the abandonment issue: Page 2 of 2

As daunting as the competition can be, some analysts believe that the stiffest challenge Fitbit faces has more to do with human nature than technology: Consumers are abandoning their fitness trackers a short time after purchase.
 
In its July 10 edition, The Atlantic cited a number of reasons why people gave up on their fitness trackers, including the novelty of fitness trackers wearing out; the devices not providing enough meaningful information; and the difficulty in recording the right kind of exercises.
 
A recent study (registration required) by research firm Endeavour Partners suggests that roughly a third of trackers get abandoned after six months.
 
And a report (subscription required) in the Journal of the American Medical Association (JAMA) reveals that more than half of the people who buy fitness trackers ultimately abandon their wearables, while a third of them actually stop using their devices within six months.
 
Fitbit is aware of this abandonment. Before its listing, the company acknowledged that only half of its 19 million registered users (as of March 2015) qualify as active users. This suggests that Fitbit and other fitness tracking companies are struggling with user abandonment rates.
 
Even cofounder Park, also its chief executive officer, acknowledged this challenge to Fortune, saying that his solution is to “further integrate the devices into the lives of users by adding a host of peripheral, but often requested, features such as text messaging.”
 
Asked by DNA how Fitbit is dealing with the abandonment challenge, Steve Morley, vice president and general manager of Fitbit, disputes the numbers cited by Endeavour Partners as “outdated and inaccurate.”
 
He however did not respond to the data cited by JAMA.
 
“As of March 2015, we have sold 20.8 million devices,” he tells DNA via email.
 
“We intend to maintain and extend our position as the leading platform for connected health and fitness … the referenced [Endeavour Partners] report is outdated and is not solely focused on Fitbit, therefore we do not believe it provides an accurate picture of engagement or user numbers,” he adds.

Morley also says that Fitbit continues to grow significantly and as of March 2015, had 9.5 million active users on its platform.
 
Pressed further as to how Fitbit plans to grow and maintain its market leadership, he says, “We will continue to build our active user base by enhancing the user experience through health and fitness data and personalised insights, and selling additional devices to existing users through upgrades or complementary devices as users become more active.
 
“We will also inform users about new offerings and premium services and increase user engagement on the platform through motivational and social features,” he adds.

Analysts weigh in
 
Fitbit's long-term sustainability and the abandonment issue: Page 2 of 2Senior technology specialist Evan Niu (pic)writing for The Motley Fool, notes that while Fitbit has 9.5 million active uses out of 19 million registered users, the potential risk still is that a large portion of customers who register an account eventually become inactive.
 
“In a worst-case scenario, their Fitbit device sits in a desk drawer somewhere gathering dust. As negative as that may be for a person's health, it also carries a specific risk to Fitbit's long-term business prospects,” the analyst for the financial investment website writes.
 
And while Fitbit is trying its best to entice active users with its premium subscription service as Morley says it would, Niu notes that less than 1% of revenue comes from subscription services, Fitbit said in the prospectus it filed with the Security and Exchange Commission.
 
As for its claim that abandonment rates aren’t as accurate as reported, Niu notes that another more recent study by Robert W. Baird & Co suggests similar numbers to what Endeavour Partners and JAMA have noted.
 
Still, Niu believes that Fitbit can still have better long-term prospects despite these challenges, arguing that the market for fitness trackers is still in its early adoption stage and the potential is still there.
 
“As the market matures, some of the adopters will fall off, but there will always be an addressable market of fitness enthusiasts that isn't going away any time soon,” he says.
 
“This subset may be a niche compared with the mainstream, but chances are it’s a very passionate niche that’s willing to invest in fitness.”
 
Meanwhile, Fitbit will gladly sell a device to anyone, even if that person ends up abandoning the product, he ventures.
 
“But over time, I would expect Fitbit to focus its efforts on this crowd of enthusiasts where it can very likely count on recurring upgrades to premium products with higher margins,” Niu says.

He also believes Fitbit will upscale its products and push higher-end, greater-margin products such as the Charge, Charge HR and Surge, as nearly 80% of its revenue comes from its three most expensive products.
 
“As the product mix shifts higher, average selling prices and margins tag along for an uplift,” he says.
 
Fitbit's long-term sustainability and the abandonment issue: Page 2 of 2JP Gownder (pic), principal analyst at Forrester Research, argues that one of the biggest opportunities for Fitbit lies in its business-to-business-to-consumers (B2B2C) segment, meaning that it sells through insurance companies, hospitals, and corporate wellness programmes.
 
“This is a huge channel for them, and the interest here is growing,” he tells DNA via email.
 
“In April, John Hancock Life Insurance in the United States announced that it would give Fitbit devices to customers, who can earn up to 15% discounts on their life insurance rates, as healthier people mean a lower risk pool,” he notes.
 
Gownder also suggests Fitbit license its software to other players, and partner with other wearables such as smart clothing, which have both B2C and B2B applicability.
 
Asked about the problem of abandonment, he says that Microsoft Corp’s approach for its Band merits consideration, as rather than telling people fairly basic information (like the number of steps they take), its Health app aims to connect to one’s life in a more holistic way.
 
“For example, it could look at your calendar and tell you ‘every day that you meet with your boss, you have a stressful day (as evidenced by galvanic skin response). So tomorrow, if you have a meeting with your boss, go for a morning run and avoid coffee, and you’ll have a better day’,” he says.
 
Counterpoint Research’s Shah sums it up this way: “Move away from just being a hardware company. Strengthen the core software, cloud and analytics to offer a service that is unique, accurate and differentiated … and above, all life-changing.
 
“Good software user experience and meaningful service-centric offerings will be the key differentiators for Fitbit,” he says.

Previous Instalment: Fitbit remains bullish, pumped up about Asia
 
 
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