Updated with comment from a Nike spokesman
It made perfect sense for Nike to pioneer one of the leading products in the nascent market for wearable fitness trackers. Its Nike+ FuelBand wraps as snugly around your wrist as its sneakers hug your feet, tracking steps and parsing them into its own points-based NikeFuel system.
Yet a recent report in CNET says the sports apparel maker has decided to bring all that to an end. It reportedly fired the majority of its FuelBand team and plans to stop making wearable hardware, including a slimmer version of the device planned for the fall. Nike has confirmed a small number of layoffs in its digital sports division to Re/Code.
UPDATE: A Nike spokesman also refused to say if Nike would bring out new devices after the FuelBand SE. "The current iteration of the hardware is what we’ll continue to support," the spokesman said by phone, adding only that Nike would release its FuelBand SE with new colors in the coming weeks. "That’s what we’re working with right now." When asked about other devices after the FuelBand SE he replied, "I can’t get into any of that." With no clear commitment to future wearable gadgets, it sounds like Nike may indeed be moving away from making wrist-based hardware.
This all reads at first like a indictment on wearable tech, a much-hyped business that has nevertheless struggled to capture mainstream appeal over the last couple of years.
Among the difficulties: motivating customers to not throw their fitness tracker in a drawer after three months, and making devices that look stylish enough for people to covet. With its behavioral insights into what customers actually like wearing (something lacking among many a Silicon Valley tech giant), Nike was in a good position to pioneer the space.
Yet with sales of 120 million shoes a year, and revenue of $25 billion in 2013, Nike may have found the FuelBand a costly distraction. Three other factors that might have weighed on the minds of Nike’s management:
1) A Looming Battle: Already a challenging business, “wearables” is about to become hellish with the entrance of other huge competitors.
Apple CEO Tim Cook, who has worn a FuelBand at various public events, also sits on the board of Nike. You could speculate that Nike is playing nice with one of the world’s biggest technology companies in a bid to maintain close ties. The company is already redirecting its efforts towards software, according to CNET, and the iWatch would probably be a bigger, better platform than Nike’s own hardware. "Competing with Apple on hardware is a very unappealing prospect," says wearables analyst Daniel Matte of Canalys Research.
Rajeev Chand of boutique investment bank Rutberg & Co. agrees. “The space is getting very competitive... Everyone is waiting for what Apple will do.”
2) A Highly Complex Business: Shoes and fitness trackers are completely different businesses when it comes to technology, supply chain and marketing.
The formula that Nike knows well — melding shoe design with marketing — are a world away from the many other factors that come into play with wearables: software stacks, user-interface design, and in particular data management.
Fitbit is cleverly finding ways to turn the data it collects from its own trackers into analytics dashboards. This means that when a large company buys its trackers in bulk for their employees as part of a corporate wellness program, its HR department can monitor the health and activity of a workforce en mass. This is one of the fastest growing parts of Fitbit’s business, but there’s no indication that Nike has had similar success in selling its own band in bulk to employers.
One data management company which processes the fitness data for employers using the Fitbit, told me it had rejected multiple fitness devices for its wellness program for reasons like bad data management, an increasingly vital part of the wearables market as players work with third parties. Re/Code cites a source at Nike as saying that the shoe maker was “getting a lot of data and just do not know what to do with it. They could not exploit the market.”
3) The Battle For Talent: If Oregon-based Nike is keen to improve the analytics smarts of its tracker, it needs to find talented engineers in hardware, software, cloud computing and big data. “These people are hard to find and retain in Oregon,” says Chander Chawla, a consultant who advises VCs and manufacturers on the wearables market. No surprise then that both and Intel and Apple have hired some of the FuelBand’s top designers away from Nike over the last couple of years.
Bottom line, the wearables market is not unlike the MP3 market before the iPod, according to Rutberg's Chand, with valiant pioneers like Nike that may simply lack staying power.
“We have a series of products that are conceptually interesting but are imperfect in capturing the consumer experience and opportunity," he adds. "For Nike, it makes more sense to let others innovate on the increasingly-crowded hardware space.”
