For better or worse, 2017 is shaping up to be a key milestone in Fitbit's history. The company is referring to this as its "transition year" as it looks to turnaround a business on the down and reposition itself with its first smartwatch, which will arrive in time for the holidays.
While headlines after last week's earnings talked up slightly increased sales and better-than-expected revenues, its 40% slump was hard to ignore, and its stock has been on a long downward trajectory for the last couple of years. To kick the boot in, new numbers from Strategy Analytics claim Xiaomi has taken the crown of having the most wearable sales worldwide.
Fitbit's name might still synonymous with the fitness tracker, but this is not a healthy company right now. Late last year it announced it was laying off 6% of its staff to streamline its operation, and while we heard of no cuts in its last week's earnings announcement, it's clear that Fitbit is trying to correct its course. It hopes its smartwatch is the answer.
Read this: Fitbit's smartwatch - what we know so far
Fitbit is betting big on its smartwatch to help it transition back to profitability in 2018. CEO James Park has been talking about the fabled watch for many months now, reassuring investors that the wearable messiah is just around the corner, while the company has been consolidating power by snapping up smartwatch makers Vector and Pebble. But it's become increasingly apparent how much Fitbit is betting on this one product, and it's raising some concerns.
"I don't think increased investment in a multi-use watch is a smart move as they will likely always lose to Apple," Patrick Moorhead of Moor Insights & Strategy, told Wareable. "I think they should be doubling down on making fitness better, increasing profiles for different exercises, providing better insights into long-term health and solving the blood glucose measurement challenge to complete the ring."
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CEO James Park spoke to Fitbit's long-term fitness strategy in last week's investors call, where he talked about tackling conditions including hypertension, arrhythmia and sleep apnea. So we know these are on the cards, and Fitbit has moved into new areas of biometrics in its latest products which now track VO2 Max and more intricate sleep levels. These deeper health insights will give Fitbit a brighter future, but they require research, and it needs a stopgap in the meantime.
We don't yet know what the smartwatch will do, but if reports are to be believed then Fitbit is positioning this as a premium device in the $300 range to go up against the Apple Watch. It's shaping up to be a more rounded wearable, straddling the line between fitness tracker and smartwatch.
Which raises the question of who the Fitbit smartwatch's audience will be. "To me it seems that Fitbit's main dilemma right now is that everyone who is going to buy a Fitbit has already purchased one and they are relying on current users upgrading to new products," Jackson Somes, market analyst at Gap Intelligence, told us. "Fortunately for Fitbit, basically the entire Android phone user-base is available as there hasn't been a direct smartwatch rival to Apple."
The smartwatch will probably need to offer the same fitness abilities of the Charge 2, the company's current top-line tracker, while also doing the smartwatch bits, if it's going to convince many existing Fitbit users to upgrade.
The next question is: how does Fitbit maintain growth beyond the smartwatch? Word on the street is that it's prepping the Charge 3 and Blaze 2 for 2018, and these will need to have compelling new health features - like the ones Park talked about - to keep things moving in an upward direction. Cracking something like glucose tracking, which Apple is also rumored to be working on, would do huge favors to Fitbit.
Xiaomi's emergence as the new wearable leader also raises doubt about the "middle market" that Fitbit has been sitting in for so long, which is now being squeezed by cheaper devices at one end - and Apple at the other. Maybe we'll see Fitbit offer cheaper trackers in the future as response to this, but where its future looks brightest is in those deeper health insights Park talks about. The smartwatch may be a knockout success; it may not turn Fitbit's fortunes around. Either way, if it can just do enough to get Fitbit to those more advanced biometrics, it will have been worth it.