Its nice to be right once in awhile. In December, I had the distinct pleasure of speaking on a panel at the Wearables Technology Expo, alongside Intel’s Rob Rueckert and LumoBack’s Monisha Perkash. When the moderator asked the panel for some closing thoughts on wearables, it wasn’t the most popular thing to say that if you were an entrepreneur developing activity tracking hardware for the wrist, you should immediately stop. Though unpopular at the time, and a comment that elicited one or more “boos” from the audience, my comments were, as I explained, grounded around three solid axis: (1) That anyone wanting to compete with Samsung and Apple or the hordes of Android-enabled devices to come would have to have $100M annual marketing budgets; (2) That any wrist-worn device needed to either win on fashion or go so far beyond common motion detection into accurately capturing deep biosignals to be differentiated enough to win on three fronts: consumer, healthcare, and venture capital; and (3) That even if you had massive budgets and a differentiated product for the wrist, you had to be prepared to lose hundreds of millions of dollars annually to play in the space, and even a Company like Nike might not be ready for this.
And so, it was no surprise, that yesterday Nike announced that it *might* be getting out of the Fuelband business. Or something like that. Heck, I even predicted it again the day before it was announced. Blind squirrel, meet acorn! It’s pretty simple math, actually, combined with a company cultural demand that killed the Fuelband, IMHO.
To put some context around the math, as a Company, although it isn’t broken out like this, the Nike Brand probably sells $3B of athletic socks, with substantial profit margins. SOCKS! And although they also don’t release these figures, if you extrapolate from Target and Best Buy’s weekly sales data on overall wrist worn device sales, my guess is that Nike’s topline Fuelband revenue is no more than $150M-$200M. And that is just topline. On the bottom line, you know, the one that counts with Wall Street, this was a money pit. Nobody takes back socks. They don’t break. Their USB dongles don’t lose contact points. Their firmware isn’t faulty. And they don’t fail when they get wet. Bottom line, and I mean both actual bottom line and metaphorical bottom line, this has been a major sinkhole for Nike, just as it will be for someone, foolishly, trying to do anything around the wrist without taking into consideration the warnings above.
But there is another, less obvious reason why Fuelband might have been killed, one that is rooted deep within the bowels and history of Nike. See, over the years, Nike has explored many products that have been discontinued, products that from the outside seem like they have a ton of tailwind behind them–in-line skates, snow boards, helmets, hockey equipment, cycling gear to name a few. Heck, the Fuelband itself, in previous incarnations, had been shut down a few times before. Nike has always shown an incredible amount of financial discipline around these tough decisions but it is only half the story. Nike isn’t a Company wired to sustain massive losses for profits on the come in areas that it doesn’t and can’t own as the dominant player and clearly, it wasn’t going to own the area. So why does this happen beyond the bottom line math?
The largest driving force behind these decisions is often that if Nike doesn’t feel that it is truly able to create innovative products that can enhance authentic athletic performance, in a differentiated way, it gets out of the business. And it does so, concluding sometimes that the most innovative approach is often to step back and look for more meaningful ways to add value. The Fuelband, let’s face it, was a really fashionable pedometer and watch, one whose greatest achievement was Kaizer Sozean. Nike essentially convinced consumers through a wonderful marketing concept called “Fuel”, that accuracy was less important than directional accuracy. So if we’re being honest, Fuelband was a fancy pedometer/watch that required a tremendous amount of specific hardware, software and firmware talent that traditionally hasn’t fared well working within the Nike culture. It also had very little mass street appeal, which is worthy of another blog post entirely. So this should not come as any surprise if true, and frankly represents just another good business decision by a well run company. Simply put, math + inability to truly innovate beyond where the market is today, are the dual reasons why the Fuelband and those behind it, no longer part of the Nike story.
So where does Nike go from here? If I’m handicapping their next moves, here is what happens next, though this is more of a “should” happen than a what will happen: (1) Nike will grossly overpay for Strava (>$300M) because it can, which combined with its massive running user base from Nike+ and other digital products aimed at runners, will create ownership of two of the most authentic communities from both sports and a unique crowdsourced data model; (2) Nike will re-enter cycling gear, a sport it really only entered previously because of Lance Armstrong, but whose global momentum is growing rapidly; (3) Nike will leave Matt Gainey and hopefully Michael Horvath alone, give them more responsibility over digital sport, and let them do what they do best.