Most people think of Fitbit has a consumer facing company, however with historically the largest market share in the wearables industry, Fitbit is using the data collected from devices already paid for to capture even more value.
Value creation model
The value creation model is straightforward for the average consumer. A company or individual purchases the hardware device in hopes of becoming more fit. The consumer is willing to pay for the device because it tracks different types of data and can display it on an app or website, helping users see their progression (or digression) over time. As more and more users sign on, and each user continues to use the device over time, Fitbit collects a large amount of data on your week, your day, and each specific activity session. Many have argued that seeing this data has no direct correlation with improvements in fitness, which is why the majority of users stop using the device after 3 months.
However, the value creation tremendous for someone who’s job is to research and analyze data. Before Fitibit, researchers at Universities or Health Insurance companies had to run expensive studies monitoring a group of test subjects to get enough sample data to conduct research and test their hypothesis. With Fitbit, researchers can pay a smaller sum to access larger quantities of data, with more variety and specificity. This business model has even inspired piggy back companies such as Fitabse whose sole purpose is to help researchers conduct experiments with Fitbit’s data. Value creation only works here because of Fitbit’s scale. Smaller wearables companies have tried to monetize their user data, but often have trouble winning over clients because their data is not as extensive.
Value capture model
Fitbit captures value from consumers by charging for the hardware device. Once the device is paid for in theory, Fitbit doesn’t care if you use the device or not because it has already made a healthy margin. However, Fitbit and the whole industry focuses heavily on user engagement because they want a customer to keep using the device and generating valuable data. Fitbit can then aggregate all the data, take out personally identifiable fields, and bundle it together to sell to clients. In many ways, every Fitbit user is like a contractor – working 24 hours a day to generate data for the company. Fitbit has also continued to explore different ways in which it captures value. Fitbit offers premium membership by providing better insights/motivation (assuming this is possible) and also tries to win over corporate clients with potential claims that the company’s health insurance costs could go down with Fitbit’s data tracking.
How does operating model drive business model
This operating model allows Fitbit to capture value at both ends of the funnel. The importance of data has caused the company to focus heavily on retaining customers. Fitbit’s email engagement campaigns have also been driven by data insights. For example, Fitbit sends weekly emails but also occasional emails to remind users that adding friends through Facebook or your contacts can help you become more active. No doubt Fitbit has needed to bolster it’s data science team so that the company’s capabilities continue to allow them to create and capture value.
Collecting data and revenue and playing the waiting game
Fitbit got to where it is by patiently chasing down multiple sales channels and booking large enterprise clients, many of whom purchased thousands of devices at a time.
However, as privacy becomes a larger concern, Fibit will have to manage perceptions better on what exactly it’s doing with the data, especially now that it’s a public company.
Fitbit’s legal policy states that it sells your data to “no one”, but the fine print clearly contradicts that statement:
“Fitbit may share or sell aggregated, de-identified data that can’t be linked back to you, with partners and the public in a variety of ways, such as by providing research or reports about health and fitness or as part of our Premium membership.”
Furthermore, as more and more wearables devices enter the fray, Fitbit has seen erosion in it’s market share. Fitibit’s ability to create value hinges on the fact that it serves a large customer base, through which it is collecting thousands of data points by the second. Fibit will have to defend it’s B2C business if it wants to be able to continue feeding it’s B2B cash cow.