The rise and fall of Fitbit

Fitbit went from just an idea to a $10 billion maker of fitness trackers in less than a decade. At their peak, they had over 45% market share. But after just about 5 years later, they were down to 4%. Things had gone horribly wrong. This is the story of the rise and fall of Fitbit. By the way, I made this video in partnership with my company, Near. More on them later. In 2007, a Harvard dropout named James Park was a free agent and he was looking for his next thing to do. At this time, the Nintendo Wii was all the rage, and part of the Nintendo Wii were these sensors. You would wear them on your wrist and it would tell them what your body was doing at any given time. He asked, what if those sensors were on all the time, everywhere? He teamed up with a Yale computer science graduate, a guy named Eric Friedman, and with $400,000 they raised from friends and family, they founded Fitbit. They got accepted to a thing called TechCrunch 50, which was like a startup showcase in San Francisco. But they kind of had a problem. They didn't actually have a product yet, so they put together a mockup using basic electronics and believe it or not, wood. They went on stage hoping they would get 50 preorders. Instead, something magical happened. They got 2,000 instead. In business, this is something called a champagne problem, and we don't worry about champagne problems in business. If a good thing like this happens, like overwhelming customer demand, you just roll with it and then move on to the next problem. And that was the next problem for these guys. They had to figure out how to actually build their idea. Building hardware is absolutely brutal. Park said over the next year they had several quote-unquote near-death experiences putting the thing together. But they did something really smart. Instead of keeping it quiet that they were going through tough times, they blogged about their struggles, being public with the challenges they were facing. And customers, they loved it. This is something that great brands do. They make you feel like they're part, or you're part of their story. And in this case, it worked. People felt like they were part of the Fitbit community. They were emotionally invested. By 2009, the product was finally ready. They shipped their first 5,000 units, generated $500,000 in revenue. Whether they knew it or not, these guys had created an entirely new category. The fitness tracker industry. They made a fateful decision at this time. They would sell you the device up front without a subscription or any ongoing payments, and this was something that would come back to bite them later on. Even still, being early and first can give you huge advantages, often called a first mover advantage. What next followed was one of the great hardware stories of, well, forever. They had launched their product at the perfect timing. Culturally, we were like doing the whole 10,000-step thing at the time. Companies were doing all these health, get healthier programs, and what was at the center of a One of them, Fitbit. Next part of the story isn't essential to the whole thing, but I have to put it in. In 2011, by default, all of your Fitbit activity profiles were public. So people were kind of shocked to see that their activities, including, say, nocturnal and sexual activities, were showing up in Google results. And eventually Fitbit had to apologize and go fix that. So I just found that funny. Fitbit by the numbers was incredible. By 2014, they did $745 million in revenue. For those of you keeping score at home, that's 150x growth in just a few years. By 2015, they had 64% of the fitness tracker market, and in the broader activity market category, they had 85% market share. When you reach this level of dominance, it's kind of like Xerox with copying or Kodak with film. People just equate your name with that. And in many cases, fitness tracking meant the word Fitbit. Fitbit became a cultural phenomenon. They tracked by 2021, 47 trillion steps. That's enough to walk back and forth to Pluto 5,000 times. With this kind of growth, Fitbit went public. Investors were clamoring to get a piece of it, and the early investors wanted to monetize their shares. So they went public and the share price, well, it went nuts. Within the first few weeks, shares went from $20 a share to $52 a share, more than doubling. And the stock market valued the company at over $10 billion. Park and Friedman were still in their 30s. They were overseeing an empire doing hundreds of hundreds of millions of dollars, and they were worth hundreds of millions of dollars. They changed the world. They sold 20 million devices. They were in over 30,000 stores. And look, if you think about the Fitbit story, there have been tons of cases where people saw weird data on their Fitbit and that caused them to go to their doctor and discover they had serious issues like thyroid and stuff like that. How cool! They were helping people. But just as it looked like they were on top of the world, that's when things were about to go horribly wrong for Fitbit. But before I tell you how that happened, here's a quick message from our sponsor. Let me give you a short pitch about a company that I co-founded called Near. It helps American businesses hire great talent in Latin America. If you're interested in hiring from places like Argentina, Colombia, Brazil, it's a great service for you. Besides the obvious savings where you can do 60 or 70% off US salaries, Latin America is the best experience of overseas hiring I've ever found. It's a great culture fit. There's no language barrier and they're in the same time zone, which matters way more than you think. They're just part of the team in the day to day and not second-class talent. I've hired dozens of people through them and the talent is just awesome. Huge businesses have been outsourcing entire departments to Latin America for decades, and Niera lets you do the same no matter your size. They just placed an 18-person team of sales reps at a big company here in Texas, and that group of people added $20 million in annual recurring revenue quickly. Or they're happy to just fill a single seat if that's all you need. I've hired dozens of people through the company— accountants, sales reps, everybody in between, engineers— and I encourage you to check them out. There's a link in the description. Now back to our story. 2 months before Fitbit's triumphant IPO, something else had happened. In April 2015, Apple had shipped the very first Apple Watch. At the time, the Apple Watch was $350 and pretty limited in terms of functionality. Fitbits were $100 to $150. Seemed like a totally different market, right? Well, wrong. When Apple came into the market, they decided they weren't going to compete on building better hardware against Fitbit. They were going to compete by not even being a hardware company at all. Fitbit saw themselves as a hardware company. They made fitness trackers. Their own SEC filing admitted that, uh, they weren't even really a software or technology company at all beyond that. Less than 2% of their money came in from software and services. Apple understood that the Watch wasn't a fitness tracker, it was an entry into the entire Apple ecosystem. The Watch was an entry point into the entire ecosystem because Apple had provided a thing called HealthKit, which enabled, via programmatic APIs for applications and systems from all hundreds and thousands of other vendors, to read and act upon your health data. The watch worked seamlessly with things like Siri, Messages, Mail, all the different stuff that you used if you were already built in and using Apple products. Meanwhile, Fitbit was a closed-point solution. You could maybe export data to applications like Strava, but by and large you were on your own and in a silo. It was a fitness tracker, period. Fitbit's functionality slowly was becoming just a feature of the Apple Watch, and the Apple Watch did so much more than Fitbit did. Apple's retention rates for the Watch consistently hover above 90%, while over 30% of users would typically quit a Fitbit within the first 6 months. But Apple wasn't the only problem. In 2014, Chinese tech giant Xiaomi launched the Mi Band at a price of $15. By early 2015, they had shipped over 2.8 million of these bands at a price less than a tenth the cost of a Fitbit. They took almost 25% of the market almost instantly. And suddenly you looked at it and Fitbit was caught in a pincer movement. From the top, you had Apple Watch crushing them for a premium product with customers who were willing to spend. And from the bottom up, you had cheap knockoffs from China like the Mi Band that were coming from the bottom and eating away at the price-conscious customers. Fitbit's $100 to $150 price point was suddenly a no man's land. Too expensive to compete on price and too limited in features and functionality to compete with the guys coming from the top like Apple Watch. And remember how I had said they chose to sell their devices in one-time payments with no recurring revenue or subscription? Well, other entrepreneurs were seeing what was happening to Fitbit at this time and were determined not to make the same mistake. In 2012, a Harvard squash captain named Will Ahmed founded a company called Whoop. For years, they sold an elite fitness band to athletes and competitors. Early on, they charged $500 for the device. Then in 2018, seeing what was happening to Fitbit, they decided to change their model entirely. They would give you the device for free, but then they would charge you $30 a month for a subscription. While Fitbit was fighting a hardware war, Whoop and another competitor called Oura realized that the real market was around insights, and they switched to the subscription model where basically it became a software play and the hardware was just an entry. The difference in all of this was stark. Fitbit would be scrambling for one-time revenue and always having to eat what it would kill each individual holiday season or during the year, whereas Whoop and Oura Well, they could count on customers to keep paying them month after month, year after year. And interestingly enough, I'm a Whoop customer. And you know what I pay? $30 a month. Do I think it's expensive? Hell yeah. Do I appreciate the insights? Definitely. And is there a Fitbit anywhere near me? Absolutely not. Today, Whoop is valued at $3.7 billion and they manufacture their devices in China for $15. The ones they give away for free. Oura, the smart ring company, does something similar. They charge you a low price for the ring, a couple hundred bucks, and they charge you a monthly fee for insights. Our CEO was quoted as saying that hardware companies operate at 20% or 40% margins. Theirs is different. Our operates at over 50%, and investors agree. Our, in its last fundraising round, was valued at over $11 billion. The Fitbit guys saw this coming to some extent, but it was too little, too late. In 2019, 4 years after their IPO, they launched Fitbit Premium for a paltry $10 a month. You could get insights into your health. Via software. But by then, they were already on death's door. It had been back in 2016 that everything had started to unravel for the company. That year, Fitbit's stock crashed from $52 down to $6, a huge decrease of almost 90%. Device shipments that year crashed over 40%, and revenue, it was down over 25% year over year. In September 2017, they launched the Ionic, which was a direct competitor to the Apple Watch for a price of about $300. It was an absolute flop. The Apple Watch had been introduced much earlier, already had momentum, and too many unfair advantages in favor of the Apple Corporation. Why buy a Fitbit smartwatch with no ecosystem, no software connectivity, and didn't work that well with your phone when Apple's was the same price and a lot better? By 2022, Apple would sell 50 million Apple Watches in a year, while Fitbit would move 9 million devices total. And that includes everything, not just watches. But the original trackers that they were known for. While Fitbit had to recall 1.7 million of their watches due to battery issues that potentially could cause burns on the wearer, by 2019, Fitbit stock was trading below $3, more than 90% below the peak at their IPO. If you're interested, this entire story is reminiscent of the story of the GoPro. You can see a version of the video here if you want to go see it. For both GoPro and Fitbit, the entire world changed around them for software. To become more about software and insights, and they kept acting like hardware companies. And the reaction was, well, let's expand into a new market. In this case, Fitbit and watches and GoPro and drones. And neither one of them worked out. And at this point, with things going horribly, Fitbit actually got pretty lucky. In November 2019, in stepped Google, who has an enormous amount of money and an ecosystem on their own, and they stepped in to buy the Fitbit company for just over $7 a share. The price was at $2.1 billion, which was 80% less than the peak valuation just a few years earlier. Google has a track record of doing poorly with hardware acquisitions. Nest, Motorola, many more. And the simple thing that happened to all of those companies inside of Google was they died a slow death. In 2024, the founders left Google, uh, and there's a broader reorganization happening as the Fitbit lines are slowly getting merged into the Google competitor to the Apple Watch, and it's kind of dying a slow death. And in a sad ending, the company that once showed so much promise, so much value, and changed so much of the world that it had 85% of the fitness tracker market is now fading away into oblivion as a feature lost in a sea of Google products. This story is a lesson that not all revenue is created equal. And if you could choose between the two, do you want to be like Fitbit and have somebody paying you once per year, or maybe once every other year hopefully? Or do you want to be like Whoop or the Oura Ring where people are paying you every single month in subscriptions? Well, I can definitely tell you which one of those you want to be. You want to be the one with the recurring revenue. And so it's important as we think about business models and where we shift our businesses and how we run them, like, you want to get high-quality revenue. And if you can predict what's going to keep coming in in the future, that's a really, really powerful thing. And it shows in the value of Oura and Whoop. All right, that's it for this video. Let me know what you think in the comments below. I try to read them all. See ya, bye!