Fitbit financials tumble but that might not worry Google

Fitbit might not be the profit bonanza it once was, but with sales increasing it offers Google another interface to collect data and launch new services.

Although the financial results do not seem the most attractive at first glance, it is always worth remembering what the new objective of this business is likely to be. Google acquired Fitbit in November, and while the Mountain View residents never say no to money, there is a bigger picture.

Fitbit is most likely about exposure, increasing the number of Google interfaces in society and offering more opportunity for the internet giant to create services. This is where Google’s expertise lies, in software not hardware, but it does occasionally need to encourage the development and adoption of supporting ecosystems to realise its own goals. If more smart devices are being worn by consumers, the greater the opportunity for Google to make money.

“In 2019, we continued to advance our mission of making health accessible to more people around the world by delivering devices, software and services at affordable prices that help improve peoples’ health,” said CEO James Park.

“As a result, we sold 16 million devices and our smartwatch business grew 45% at retail, due to strong demand for Versa 2. Our community of active users increased to nearly 30 million, and Fitbit Health Solutions grew 17%, underscoring the strength of the Fitbit brand.”

2019 2018 Change
Total Revenue 1,434.8 1,512 (5%)
Net Income (120.8) (320.7) (264%)
Devices Sold 16 13.9 15%
Monthly Active Users (MAUs) 29.6 27.6 7%

Figures in millions (US$)

The full year financial measurements are clearly not heading in the right direction, though part of this can be attributed to the average selling price of the devices decreasing 17% to $87. This trend is thanks to the decision to introduce more accessible and affordable devices, increase the range of devices and various promotions or offers.

Perhaps the most important statistic to note here is the number of devices sold over the period. This is up 15% on 2018, while 61% of sales came from completely new customers. For the repeat customers, 54% came from customers who were inactive during a prior period meaning Fitbit is re-engaging those it might have lost as well.

Google might have spent $2.1 billion to acquire the Fitbit business, but it was highly unlikely going to be driven by the direct revenues it would achieve. $1.434 billion is nothing to turn you nose up at, but it is a drop in the ocean if Google can scale wearable devices in the same way it has done to smart speakers.

Prior to the entry of Google and Amazon, the smart speaker segment was sluggish. Adoption was almost non-existent, and interest was even lower. But in introducing their own, more affordable, devices and very cash-intensive advertising campaigns, these two internet giants drove up engagement and sales, whilst also forcing competitors to create their own products.

Looking at the final quarter of 2019, Strategy Analytics estimates that 55 million devices were sold globally, with Google collecting a 24.9% market share. Others are catching-up, but that won’t bother Google.

The more smart devices which are in the world, the more opportunity there is for Google to own the platform which services are build on and through. Android extends the Google influence into the smartphone world, the smart speaker gives it a voice interface in multiple rooms in the home and Wear OS is a version of Google’s Android operating system designed for smartwatches and other wearables.

From here on forward, pay a bit of attention to the financials of Fitbit, but be more interested in the number of devices which are being sold and the number of customers who are signing up to not only Fitbit’s health monitoring services, but also Google’s. This is a new data treasure trove for Google and a further opportunity to monetize digital lifestyles through a new interface.

Fitness tracker use is exploding in the US, especially among rich young women

A recent Pew survey shows 21% of US adults regularly wear a smartwatch or fitness tracker. Over half of them think it acceptable for the device makers to share user data with medical researchers.

According to the survey results shared by the Pew Research Center, an American think-tank, smartwatch and fitness tracker adoption may have crossed the chasm from earlier adopters to early majority. 21% of the surveyed panellists already are regularly using smartwatch or specialised tracker to monitor their fitness.

Such a trajectory is in line with the recent market feedback that the total wearables market volume has nearly doubled from a year ago (though what counts as wearables may be contested), and both wristbands and smartwatches have grown by nearly 50%.

When it comes to difference in adoption rates between social groups, the penetration went up to nearly a third (31%) among those with a household income of over $75,000. In comparison, among those with a household income of less than $30,000, only 12% regularly wear such a device. In addition to variance by income groups, women, Hispanic adults, and respondents with a college degree and above are also more likely to wear such devices than men, non-college graduates, and other major ethnic groups.

Another question on the survey asks the respondents if they think makers of a fitness tracking app can share “their users’ data with medical researchers seeking to better understand the link between exercise and heart disease”. The response is divided. 41% of all the respondents said yes, as opposed to 35% saying no, while 22% unsure. However, the percentage of those believing such sharing acceptable went up to 53% among the respondents that are already regularly using such devices, compared to 38% among the non-adopters.

Due to the lack of a GDPR equivalent in the US, it is not much of a surprise that there is neither a consensus among users nor a standard industry practice related to user data sharing. “Recently, some concerns have been raised over who can and should have access to this health data. Military analysts have also expressed concern about how third parties can use the data to find out where there is an American military presence,” Pew said in its press release.

Meanwhile, how useful the data tracked by the devices can be for medical research purposes may also be debatable. For example, even the best of the devices, the Apple Watch, does not qualify as a medical device, despite its being “FDA certified”.

The survey was conducted by Pew from 3 to 17 June 2019. 4,272 qualified panellists responded to the survey.

Apple continues to command the smartwatch market – report

Analysts believe Apple has increased its smartwatch shipments by 50% to capture a bigger share of an expanding market. The gap between the Apple Watch and the chasing pack is widening.

Unlike the contracting smartphone market, the smartwatch market is still experiencing fast growth, although the absolute volume is still small. According to data published by the research firm Strategy Analytics, 12.3 million smartwatches were sold in Q2, up by 44% from 8.6 million a year ago.

5.7 million pieces of Apple Watch were shipped in the quarter, up by 50% from 3.8 million in the same quarter last year, giving Apple, the run-away market leader, a 46.4% market share, up from 44.4%. The biggest market share gain, however, was registered by Samsung. The Galaxy Watch maker more than doubled its volume to 2.0 million from 0.9 million in Q2 2018 and took over the number two position on the leader board with a 15.9% share. Samsung’s gain was primarily at the expense of Fitbit, which saw its market sharing plunging from 15.2% a year ago to 9.2%.

“Fitbit has struggled to compete with Apple Watch at the higher end of the smartwatch market, while its new Versa Lite model has struggled to take-off at the lower end,” Neil Mawston, Executive Director at Strategy Analytics, commented on the competition dynamics. “Fitbit will have to move fast to execute a recovery, because Samsung, Garmin, Fossil and other competitors are keen to grab a slice of its valuable health and fitness customers.”

The research firm does not publish the value and value share of the smartwatch market, but it should be safe to estimate that Apple’s leading position would be more commanding if calculated in monetary terms, considering that Apple Watch is generally priced 40% higher than the Galaxy Watch with similar features, which in turn is generally more expensive than the smaller competitors.

Smartwatch market Q2'2019 SA

Although Apple does not break down sales income to product lines, “Wearables, Home and Accessories”, the business unit that includes the Watch, reported the highest growth (+48%) among all the business units in Apple’s Q2 results, and has overtaken the total revenues from the iPad unit.

Tim Cook, the CEO, is also banking high hopes on the Apple Watch for future growth. In a January interview by CNBC, Cook claimed the Apple Watch has democratised health care. “We are taking what has been with the institution and empowering the individual to manage their health. And we’re just at the front end of this,” Cook said. “But I do think, looking back, in the future, you will answer that question: Apple’s most important contribution to mankind has been in health.”

Apple’s design chief decides to call it a day

Jony Ive, Apple’s Chief Design Officer, has announced that he is leaving the company at the end of the year and will set up LoveFrom, his own creative business, with Apple as its first client.

Sir Jonathan “Jony” Ive has been instrumental in giving the world a string of iconic Apple products over the last two decades. Among them the most influential ones should be the iPod, which turned the recorded music industry upside down, the iPhone, which redefined what mobile handsets are and do, and the iPad, which practically created the tablet market. In addition, he was also behind the Mac computers and the Apple Watch, the success of which has been more muted.

Ive stressed that his departure from the company does not mean he will stop working with Apple. “While I will not be an [Apple] employee, I will still be very involved — I hope for many, many years to come,” Ive told the Financial Times in an interview. “This just seems like a natural and gentle time to make this change.” Tim Cook, Apple’s CEO, believed the company would continue the success of the Ive era, and was looking forward to the collaboration with Ive’s new venture. “We get to continue with the same team that we’ve had for a long time and have the pleasure of continuing to work with Jony,” Cook told the FT. “I can’t imagine a better result.” Apple will not announce a successor to fill Ive’s CDO position immediately. Instead, the managers of the design teams will report to Jeff Williams, Apple’s COO.

Ive’s decision to leave should not appear to have come out of the blue to those that have followed the industry, and the company, closely. He was the late Steve Jobs’ closest ally and, among other things, had been an active presence at product debuts, through video links. After Jobs passed away this patterned continued, up to the point when the Apple Watch was launched. Ive would appear at the events on pre-recorded videos, unveiling the products, in particular talking about the details. That has not happened since. In a 2015 feature by the New Yorker magazine, Ive said he had been “deeply tired”. In May that year he was appointed CDO, a position that would rid him of the day-to-day responsibilities to run the design team.

More recently it appears Ive has expand his interest beyond sleek consumer products. For example, his team were heavily involved in designing Apple’s new headquarters. This is also a vision he gives his new business. “There are products that we have been working on for a number of years,” Ive told the FT. “I’m beyond excited that I get to continue working on those, and there are some new projects as well that I’ll get to develop and contribute to.” He also denied that the weakened appeal of the iPhone, which has not been helped by the trade war with China, is a contributing factor to his decision. To tell from his reduced involvement in products over the last few years, the decision seems to have been long in the making.

Before he was knighted for “services to design and enterprise” by the Queen in 2012, Ive had already been hailed by Stephen Fry as one of the two Englishmen alive to have the most profound impact on people’s lives. The other, according to Fry, is Sir Tim Berners-Lee, the inventor of the World Wide Web.

Enhanced privacy protection is now at the core of Apple

At its 2019 developer conference Apple introduced new measures to strengthen user privacy protection, as a point of differentiation from other big tech companies.

Apple is hosting its 2019 edition of Worldwide Developer Conference (WWDC) in California. On the first day the company announced a number of new products including the iOS13, new version of MacOS (called “Catalina”), the first version of iPadOS, and WatchOS6. At the same time, iTunes, which has been around for nearly two decades and has been at the vanguard of Apple’s adventure into the music industry, is finally retired. At the event, Apple also unveiled the radically revamped Mac Pro. Instead of looking like a waste basket (as the 2nd generation did), the new top end desktop computer looks more like a cheese grater.

One key feature that stood out when the new software was introduced was Apple’s focus on privacy, in particular the new “Sign in with Apple”.  It will be mandatory for apps which support 3rd-party log in to also include this new option, in addition to, or as Apple would like it, instead of, Facebook and Google. Although Tim Cook, in a post-event interview with CBS claimed “we’re not really taking a shot at anybody”, Craig Federighi, Apple’s software chief, was pulling no punch when introducing the feature. After showing the current two options to sign in apps or websites, he declared Apple wanted to offer a better option, which will be “fast, easy sign-in without all the tracking.”

In practice this means Apple will act as a privacy interlocutor. A user can log in to an app or a website with his or her Apple ID. Apple will then verify the email addresses, make dual-factor authentication, then send developers a unique random ID, which Apple asks developers to trust. Users can also choose to use TouchID or FaceID for authentication. In addition to the Apple products (iPhone, iPad, Watch, etc.), and it can also work on browsers built on other platforms (Windows, Chrome, etc.).

In addition to Sign in with Apple, the company also updated its Maps, so that apps that track users’ location would need to ask for permission every time it is activated. On MacOS, all apps need to request permission to access the user’s files on the computer, while Watch users can approve security requests by tapping the button on the side.

Although both Facebook and Google have been talking up about their focus on privacy, these companies have an intrinsic conflict of interest: their business model is built on monetising user data. Apple, on the other hand, makes money by selling products and services. Therefore, it is in Apple’s own interest to guard user privacy as close as possible, to enhance current and future consumers’ trust. By making privacy protection its differentiator, or as TechCrunch called it, delivering “privacy-as-a-service”, Apple is elevating the match to a level Google, Facebook, and other internet companies will be challenged to match.

Apple drives global smartwatch market up 48% in Q1

The latest global smartwatch shipment numbers from Counterpoint Research reveal strong segment growth driven largely by Apple.

The fruity gadget giant accounts for over a third of the market, so when its shipments increase by 49% year-on-year it’s not surprising to see the whole market grow in line with that. Intriguingly Apple’s biggest smartphone competitors seem to be getting their act together in this smartwatch renaissance. Both Samsung and Huawei gained overall market share as you can see in the chart below.

counterpoint smartwatch q1 19

“Apple Watch shipments grew a solid 49% YoY despite the weak demand for its iPhones,” said Satyajit Sinhaof Counterpoint. “Apple continues to focus on the health-related features like ECG and fall detection in the Apple Watch Series 4. The ECG capability in the Apple Watch is the most desirable feature, according to our latest Consumer Lens survey. Apple has now received approval on its ECG features from healthcare authorities of Hong Kong and 19 other countries including France, Germany, Italy, Spain, and the UK.

“The heart rate sensor for health monitoring, GPS and pedometer sensors for fitness, and NFC embedded for payment are some of the key integrated technologies. Related use-cases and in addition to notifications with cellular capability are driving the smartwatch adoption. However, limited battery life remains a pain point for consumer’s decision-making process, irrespective of region and price band.”

“Samsung grew exponentially at 127% YoY as the Korean brand’s market share jumped to 11% in Q1 2019,” said Sujeong Lim of Counterpoint. “Its success was due to the latest Galaxy watch series which came with better battery life as well as a very traditional round clockface design. Further, it provides cellular LTE connectivity which gives it an edge over others targeting Android-based smartphone users. It is a great alternative to the Apple Watch for Android and Samsung’s huge installed base of users.

“Huawei’s market share jumped to 3% in Q1 2019 due to good traction for its latest Huawei Watch GT. The striking design, affordability, leveraging the growing ‘Huawei’ brand mindshare, and the smartphone user base is driving demand. Further, Huawei has shifted focus to sell more Huawei branded smartwatches whereas the smart bands are selling well under its Honor brand.”

So it looks like the big smartphone brands have finally worked out how to persuade their customers to buy smartwatches too, presumably helped by actually finding some useful functions for them. It’s still hard to see this as anything other than a fairly niche category for fitness nuts and hypochondriacs though and it will probably remain so until the voice and gesture UIs become so useful that it becomes viable to leave your smartphone at home.

Maybe Fitbit can be more than just a niche exercise product

Fitbit might not be turning in the results of yesteryear, but riding the wave of Versa to beat analyst expectations demonstrates there might be mass-market appeal for the brand.

Total revenues stood at $299.3 million for the three months ending June 30, and while this is still considerably down on the $353.3 produced in the same period for 2017, it beats expectations from analysts. The success for this period has been attributed to Versa, the team’s attempt to break away from the fitness-tracking niche and enter into the mainstream smartwatch market.

“Our performance in Q2 represents the sixth consecutive quarter that we have delivered on our financial commitments, made important progress in transforming our business, and continued to adapt to the changing wearables market,” said CEO James Park.

“Demand for Versa, our first ‘mass-appeal’ smartwatch, is very strong. Within the second quarter, Versa outsold Samsung, Garmin and Fossil smartwatches combined in North America, improving our position with retailers, solidifying shelf space for the Fitbit brand and providing a halo effect to our other product offerings.”

Overall, Fitbit sold 2.7 million wearable devices across the quarter, with the average unit price increasing 6% year-on-year, primarily down to the newer product releases. Those devices released in the last twelve months accounted for 59% of total revenues, providing confidence in the brands ability to diversify from the niche which has served it so well through the underwhelming years for wearable devices.

Fitbit launched the Versa on 16 April and boasted about selling one million devices just over one month later. The product is more in-line with what you would have expected from a smartwatch device, moving beyond the fitness tracking niche Fitbit has become known for. Just looking at the device demonstrates the shift, though what’s on the device is what counts, as it features all the apps we have become accustomed to. It is a big move from Fitbit, and it looks to have worked.

Perhaps this is a positive sign for the wearables industry on the whole. For years, Fitbit appeared to be the only wearables brand which could survive as devices failed to meet the expectations of consumers. Maybe the consumer was not ready for the wearables craze, but the simplicity of Fitbits fitness trackers worked. In being able to move out of the niche and into mass-market appeal, this might be a sign the general public is ready to embrace wearables on the whole.

Looking at the share price, it is still way down on the peak from 2015, some 87%, but there have been signs of recovery across 2018. There is a notable dip in the last 5-6 weeks, though should Fitbit be able to maintain this venture into the mainstream market, we can only see the share price going up.

Fitbit Shareprice

Fitbit struggles epitomise uphill climb for wearables

Declining revenue for fitness tracker brand Fitbit is a perfect example of the fight the wearables segment faces in the battle to remain relevant in the super-connected era.

For years it seemed Fitbit was the only brand out there which could actually make money from the long-suffering wearables segment. The promise had been wonderful for the devices, but in reality, brands were constantly chasing the fictional pot of gold. Even Apple, with its legions of cult-like iFollowers, strained to make the technology lucrative, and it seems Fitbits run of good-fortune is lacking fitness.

For the last three months, Fitbit bagged $247.9 million in revenues, up slightly on analyst expectations, but quite a bit short of the $298.9 million generated during the same period of 2017. This compared to $505.4 million in Q1 2016 and $336.8 million in 2015. It seems the boomtime for fitness trackers has ended, but someone forget to tell the management team.

“The strong growth and defensibility of our business continues to be powered by product innovation, the network effects of our community, our expanding global distribution, and investment in our brand,” said James Park, Fitbit co-founder and CEO. “Based on the first quarter’s performance and momentum, we are confident about the remainder of the year, which is reflected in our increased guidance.”

Prospects for the rest of the year might well be good, but you can’t argue with the figures. The devices are simply not in high-demand as they were in yesteryear. Fitbit should be worried, as should the rest of the industry; if Fitbit can’t make the segment work, what hope is there for anyone else?

The smartwatch and overall wearables segment has struggled for years to make any meaningful impact on the technology world. In truth, there was little point to the devices; smartwatches did not do anything a smartphone couldn’t, and until recently, weren’t able to function without being tethered; consumers were not prepared to make the swap. There is little point in a smartwatch. However, Fitbit found a niche.

In creating an affordable device, with a specific purpose and targeted at specific audience, Fitbit discovered success. This was not a connectivity device, nor was it a fashion statement, it was simply a fitness tracker. It was a sensible strategy, as sportspeople are often open to spending on premium devices which serve a purpose. It was a niche and limited usecase for Fitbit, but it worked. Some might also have hoped the normalization of the technology in this niche might have created momentum for other, more profitable usecases focused on connectivity. But what does the latest dent in Fitbit spreadsheets mean for the segment on the whole?

We suspect the wearables euphoria was pumped too early. There are usecases for the technology out there, but it is by no-means going to be a revolution because the practicalities of the devices are lacking. Wearables could well make an impact on the communications world in the future, but we suspect this won’t be reality until the voice interface has taken hold.

Unless smartwatches offer something smartphones don’t, they will probably be viewed as a replacement. However, with the touch interface still commonplace, the screens on watches are not practical for everyday use. The voice interface is starting to gather some momentum, which could make the concept of a screen redundant when it comes to communicating (i.e. dictating messages, voice commands to answer calls, a virtual assistant reading out written content) and offer a place in the world for wearables.

Fitbit struggles should be viewed as a significant concern for the rest of the wearables segment. There might be a time for the devices, but now is not that time.

Following comments from the European Data Protection Supervisor, do you feel the internet giants are taking advantage of the digital economy?

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A smartwatch that uses body heat to recharge – sounds too good to be true

We’ve never been convinced by the smartwatch trend, as it continues to disappoint month after month, but every now and then a feature crops up which might turn out to be quite useful.

PowerWatch will start shipping this month (November), and it has one feature which certainly has the potential to cut through the mundane noise which is being made by the other manufacturers; the watch runs off your body heat. Obviously there is an option to charge in the more traditional manner, but put it on your wrist and the battery will start to fill up depending on how many degrees is radiating from your skin.

The idea is based on thermoelectric power. The technology itself has been around for quite a while, though has been primarily used in very niche areas due to the cost/benefit ratio (i.e. there generally isn’t a positive one), such as the NASA space program. Matrix Industries, the manufacturers of the PowerWatch, has said due to the advent of low-power electronics, it felt it was the right time to use the thermoelectric technology for a consumer product.

And priced at $169, there is every chance the product could make a splash. Of course there are the standard features you tend to see on every smartwatch (calorie and step counter, sleep tracker, water resistance etc.), but we don’t really care about those; the body heat recharger is a genuine USP and you don’t see many genuine USPs in the hardware market anymore.

Just to be clear, we haven’t had a chance to look at the product, so any claims on body heat recharging are taken on the word of Matrix Industries, but should the technology prove to be successful, it could be the first step of a genuine breakthrough for mobile devices. Battery power and performance is an area which has seen little progress over the last couple of years, however incorporating these thermoelectric ideas into the any new design would certainly be of interest to various smartphone manufacturers around the world.

Obviously the power and performance demands of a smartwatch is nothing compared to a smartphone, however new ideas in the battery segment of the tech world are far and few between. This could be one worth keeping an eye on.

Ericsson jumps on the tetherless bandwagon

Ericsson has released new VoLTE based core network multi-SIM voice call functionality, to essentially allow operators to offer voice services on multiple SIM-based devices.

Could this be the breakthrough which smartwatches needed to make the move out of the wannabe camp? We’re still sceptical, but it is certainly a step forward when it comes to one of the biggest criticisms of wearables; why have one when they need to be tethered to a smartphone?

“We continue building new useful services for our installed base of VoLTE networks, to enable our customers to launch innovative consumer and enterprise communication services,” said Monica Zethzon, Head of Product Management Communication Services at Ericsson.

“With the new Multi-SIM for voice calls functionality, we support operators launching new attractive devices, which can also make high-quality operator voice calls anywhere, using the subscriber’s mobile phone number.”

Multi-SIM for voice calls functionality allows a mobile operator to offer a one number solution for multiple SIM based devices. Whatever the wearable device, if it is compatible with the multi-SIM technology, you could now share the mobile phone number already belonging to an existing smartphone subscription.

The technology is being deployed in more than 10 Ericsson VoLTE-enabled operator networks in Europe, North America and Asia Pacific right now, but the team has highlighted the potential is much wider. For operators that have Ericsson VoLTE /IMS deployed, the team has said it is just a software upgrade to their network which will be needed.

In truth, there are more use cases to talk about with the breakthrough of this technology, but for some reason people seem fascinated by the smartwatch. Other examples include those diptsticks who might be more prone to losing or breaking things (your correspondent will put his hand up there). Devices which could act in place of a phone, while a person is waiting for a replacement, would be very useful. Or how about elderly people for connecting in case of emergency situations. There are numerous use cases.

The idea of being tethered to your smartphone has always been a useful stick for the nay-sayers of the limping smartwatch revolution. This is certainly an answer, but we still have doubts for the technology.

What about messaging apps. Talking to someone on your smartphone seems to be a product of a by-gone age, as messaging apps soar in popularity. Have you ever tried to type out a message or read a lengthy one on a smartwatch? It’s tough. Perhaps natural language processing or voice recognition software could bridge this gap, allowing the user to listen to and dictate the message, but these are features which haven’t been plugged yet.

There are other bridges which need to be crossed before the smartwatch can be considered mainstream, for instance, when are they going to be as attractive as normal watches? While the watch might have started off hundreds of years ago as a useful tool, it is much more of a fashion statement now. Another point which Light Reading’s Iain Morris mentioned a couple of weeks ago on the podcast, is youngsters aren’t really wearing watches anymore. The next generation are the ones who are likely to fuel this revolution, but if they have no need for a watch, maybe it’s a non-starter.

It might be a case of tackling one problem at a time, but at least with this technology the idea of multi-SIMs might catch on. Smartwatches have 99 problems, but a tether ain’t one.