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Look who's saving Fitbit

Fitbit is losing market share to Apple, but that's okay. Corporate wellness is saving it

Published: Feb 12, 2016 06:13:14 AM IST
Updated: Feb 9, 2016 05:22:03 PM IST
Look who's saving Fitbit
Image: Christian Peacock for Forbes
Wellness warriors: Fitbit co-founders James Park and Eric Friedman

Given how things go in Silicon Valley, Fitbit shouldn’t be around. It started selling wearable activity trackers when other hardware startups struggled for funding. Its founders hadn’t sold a single gadget when they shipped their first product and had no clue how much it would cost. Last year, Apple launched a smartwatch that was to blow all other wearables away. ­Instead, Fitbit remains the biggest device seller by shipments, and its founders, James Park and Eric Friedman, raised $841 million in one of 2015’s most successful IPOs. They’re on track to earn $215 million on sales of $1.8 billion for 2015, double of what they earned last year.

Threats to Fitbit’s existence aren’t going away. Its share of the global wearables market shrank from 33 percent to 22 percent in the past year as Apple and China’s Xiaomi launched their own devices. Fitbit’s most high-tech smartwatch, the $250 Surge, is nowhere near as good as the Apple Watch or the Samsung Gear. Analysts suspect consumers will gravitate toward watches that do more than count steps. Fitness trackers have a tendency to wind up at the bottom of the sock drawer after a few months of use.

Yet, Fitbit has a buffer that could prolong its survival: An obscure market called corporate wellness. Around 80 percent of American employers do things such as subsidise gym memberships or organise activity challenges that encourage their staff to be healthy, and they spend an average of $693 per worker on such programmes, according to Fidelity Investments. Fitbit has been going after these dollars since it first started shipping to consumers in 2009 and will gross as much as $180 million this year from thousands of employers, making the corporate market one of its fastest-growing businesses. More than 70 large American employers have bought Fitbit devices in bulk for their staff, including Target, which recently bought 330,000, and Barclays, which is subsidising their cost for 75,000 staffers.

Other wearable-device makers such as Jawbone and Misfit sell to employers, too, but Fitbit dominates. Jiff, a startup that makes software for managing wellness programmes, says that some 70 percent of the devices ordered by its corporate customers are Fitbits. Though Misfit charges employers less per device at about $40, corporate customers still gravitate to Fitbit because of its better software and analytics service, says Jiff CEO Derek Newell, and they avoid the Apple Watch’s high price tag. Expect more employers to ape Target and buy devices in bulk, says Stephanie Pronk, head of wellness at insurer Aon, who advises employers on how to build their programmes. “Devices are coming down in cost, so employers see that as a viable option.”  

Fitbit dates back to an unusually cold May morning in San Francisco in 2006 when co-founder Park was shivering in line to become one of the first people to buy the Nintendo Wii. He took the game console home and was struck by its combination of sophisticated sensors with a dead-simple interface that kids and grandmothers could use. He called his partner on a previous startup, the tall and lankier Eric Friedman, who was in Bangkok for a conference. “I’ve got an idea,” Park said, for a pedometer that would be as sophisticated and accessible as the Wii. They flew to Japan, where pedometers and on-the-job exercising were plentiful, to survey how people use their devices. In 2008, Friedman bought a small balsa-wood box and stuffed it with circuitry to fashion their first prototype.

Months after launching their $99 Fitbit Tracker, Park and Friedman got a phone call from Vickie Lee, a vice president of HR at the Austin, Texas, office of semiconductor firm Tokyo Electron. In the midst of planning her first corporate wellness programme she spotted an ad for the Fitbit Tracker and ordered two devices to try out. Fitbit’s website was clunky, but its app’s graphs and data were just geeky enough to thrill her 1,200-person workforce of mostly engineers. She paid $120,000 to buy a Tracker for everyone. A couple of years ago, Aon’s Pronk contacted Fitbit. “There’s an opportunity here to come into corporate America,” she told them. At the urging of several employers, Fitbit developed software to track and analyse workers’ steps and sleep activity, and in the middle of 2015, began bundling it for free.

Not many bosses have the nerve to track their workers’ sleep just yet, even though it would be a step toward addressing workplace mental health issues; insomnia is highly correlated with depression and anxiety. Jiff’s Newell says a few of his corporate customers tried offering rewards to staff who showed the healthiest sleep patterns and met with a privacy backlash from their workers.

Fitbit needs more pioneers to expand the market for corporate wellness tracking. Employers (especially those that are self-insured) are already saving money. Cloud-computing service firm Appirio cut its 2014 insurance premiums by 6 percent, or $280,000, after showing its insurer the activity data from 400 Fitbits it had given to workers. Tokyo Electron, also self-insured, is paying $11,800 per employee per year on health costs but estimates the number would be $15,000 if it weren’t for its Fitbit-focussed wellness plan. Its annual claims growth is now running at 5 percent, down from 11 percent in 2008.
 Fitbit’s researchers are working on adding more ways to track health. What about talk that it could introduce a sensor for monitoring blood sugar, a way into the diabetes market? “No comment,” says R&D chief Shelton Yuen, whose team built one of the first optical sensors to measure pulse. It’s not always the people you expect who solve the trickiest problems.

(This story appears in the 19 February, 2016 issue of Forbes India. To visit our Archives, click here.)

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