Fitbit provides various product lineups from well-known wrist-bands to clip-type devices. The main functions these products deliver are tracking user’s activities and showing the statistics and summaries of the activities such as steps, distances, speeds, calories active minutes, and even sleeping patterns. The market forecast is fairly optimistic. According to market research institutes such as Gartner and IDC, wearable devices market will grow very fast, and Fitbit will take advantage of the inflowing wave of the industry. The company is now a public company after its IPO in June 18th 2015 at the price $20, and is traded in NYSE. The current stock price is $33.18, as of Dec. 4th.
<Exhibit 1> General Introduction of Fitbit platform
Fitbit’s main source of revenue is Hardware sales. In 2014, Fitbit’s market share in 2014 was 70%, significantly outperforming Jawbone, the second-largest player in wearable fitness tracker product category. They also generate revenue from their Software sales, which is a yearly-basis premium service that provides five distinctive features – other people’s benchmarks, food report, activity report, sleep report, and fitbit trainer function. Their business model is generating hardware sales as a main source of revenue, and using software as both additional revenue and retention, with affordable premium services. The company introduced Fitbit Premium service, which is a $49.99 yearly-fee basis service. This premium service provides in-depth analysis on one’s physical activities. For example, you can compare your physical status with other people in your age group, and its trainer function challenges people to go beyond their personal limits to be healthier and well-shaped. In 2014, paid active users of the service were 6.7mil, and it is expected to rise to 9.5mil for Mar. 2015. Also, their accumulated customer base and data are helping them develop improved features and services for customers, which will be the key to further success and retention of customers in the fitness service industry.
< Exhibit 2 > Sales Unit Volume / Revenue / Paid Active User figure
First, Fitbit is very effective in terms of sales unit per employee. The company has achieved 10.9 million unit sales with only 469 employees as of December 2014, which means each employee sold 23,241 devices in 2014. Considering that Samsung has more than 150,000 employees worldwide, and Fitbit’s direct competitor Jawbone also has more than 400 employees but recorded only 27% of Fitbit’s sales, Fitbit shows quite an efficient operating model as a device manufacturer. Also, as the number of paid users is significantly increasing from the year 2012 to 2015, the limited number of employees are generating higher values than just product sales.
< Exhibit 3 > Wearable Fitness Tracker Market Share
Second, Fitbit concentrates on their strength, showing consistency on wrist-band shaped design and analysis on huge customer base. Initial Fitbit product showed some problems to people’s skin, but now the company has learned a lot about people’s wearing behaviors so the field claim rate dramatically improved compared to the customer claim rate of the initial product. The efficiency comes from the fact that the company keeps focusing on wrist-band shaped designs, which generates not only expertise as a wrist-band manufacturer, but also provides accumulated customers’ behavior data for further improvement, and their data is the largest in the world regarding customer base.
Third, the company developed an efficient hardware lineup. And the company also shares many basic but essential tracking features, such as Bluetooth technology to connect with smartphone, micro-usb charging hole, simple display and tracking module based on GPS and other activity sensors such as accelerometer. Sharing the core features and components among their various products, while differentiating with design, material and additional new features by product, the company is pursuing operational efficiency in its hardware lineup.
< Exhibit 4 > Fitbit Hardware Lineup Feature Table
Last but not least, is its efficient software. The company’s software not only raises retention rate of customers with its customized premium service, but also efficiently aligned with various products. Similar to the company’s hardware operating model, all these products share basic functions and provide the same application for all products. Introducing an all-in-one application for Fitbit’s diverse products is an efficient model for the software engineers because they do not need to develop all the different applications for the different products. By simply figuring out which type of product is being used, the application can be optimized to the user’s product and provide necessary tracking and analyzing services. Therefore, the company provides only one application from mobile appstores for analyzing and showing the user’s performance.
< Exhibit 5 > Product Selection Page in the same Fitbit Application
Aligning the company’s business model with its operating model seems crystal clear – the company’s efficient operating model enables Fitbit to 1) reduce hardware development costs and gain procurement power with optimized components for minimized SKUs 2) save application development and operation resources by using same application, and use these for creating new products like premium service 3) gaining learning curve for wrist-wearing band type product and analysis of accumulated data and 5) finally lead to customers’ retention and increase of sales.
< References >
http://www.edgar-online.com – Fitbit Form S-1 Registration Statement (for the firm’s Initial Public Offering)
http://www.advisor.marketscope.com/SP/msa/reports.pdf?reportURL=/EQ/pdf/sr/3/33812l10.pdf (S&P Capital IQ Stock Report, November 28, 2015)