By Emily Bary
Getty Images for TechCrunch
The wearables business has stumbled in recent years, but Fitbit thinks greater integration into the health care system can revive the industry.
With interest in fitness trackers waning, Fitbit Inc. /zigman2/quotes/202323205/composite FIT -0.16% has been on the hunt for new areas of growth. The company said last year that it would pivot its business more toward smartwatches, and it has been trying to partner within the health space in an attempt to move beyond device sales to consumers.
The transition hasn’t been easy, with shares down more than 70% from their 2015 IPO price of $20. Fitbit faces stiff competition in the smartwatch business, including from Apple Inc. /zigman2/quotes/202934861/composite AAPL -1.60% . And Stifel analyst Jim Duffy commented last month that while Fitbit’s health ventures are “conceptually intriguing,” he didn’t see how the company would be able to monetize them in the near future.
See also: Apple and Fitbit expected to boost sales of smartwatches and other wearables
Fitbit had an uncharacteristically muted presence at CES earlier this month, which Chief Executive James Park said was a reflection of the company’s new spring/fall product launch cycle rather than an effort to cut costs. During the conference, however, partner UnitedHealthcare announced that it would be working with glucose-monitoring firm DexCom Inc. /zigman2/quotes/201324608/composite DXCM -1.96% and an unnamed wearable manufacturing on a pilot program for diabetics. That mystery company is Fitbit, Park confirmed.
“We do want to diversify as a business and that’s where our health solutions business comes into play,” Park told MarketWatch during CES. “We’re very committed to growing what we call our non-device revenue, and that’s going to come from health solutions on the b-to-b side and also from services like Fitbit Coach,” a platform that delivers personalized workout advice.
How wearable technology can transform health care
Around 12-15 million people use wearable technology for health care - a market that includes Fitbit, Apple, Samsung and LG. MarketWatch spoke to Kate McCarthy, a health-care analyst that manages a rare disease using an Apple Watch and a service dog.
On the enterprise side, Fitbit sells subsidized devices to businesses, as well as software that helps them manage their employee wellness programs. The latter presents an opportunity for a more recurring stream of revenue.
Don’t miss: More than half of companies have or might get you a Fitbit discount
We caught up with Park about the wearables landscape and his vision for the company as it seeks to become more enmeshed in the health care system. Excerpts of the conversation follow.
MarketWatch: Do you see yourself as moving more from fitness to health? Park: We won’t ever abandon the consumer business, because actually a lot of the reason we get involved in conversations with companies like UnitedHealth is because of our consumer brand. One of the biggest challenges that the health care ecosystem has is engaging consumers and making products that consumers actually want to use on a sustained basis. When’s the last time you logged into your hospital’s portal or got excited about something your insurance company gave you?
MW: You have a lot of sleep and exercise data on users, and you’ve talked about using data to help with diabetes management. How does artificial intelligence fit in here?
Park: We have a machine-learning algorithm that improves the accuracy and efficacy of our devices. And tying into that DexCom/UnitedHealth thing, we want to start using that data to give people insights that lead to actions that they can take to change behavior. Things like, if your sugar levels are spiking, we noticed that if you do certain levels of exercise after the spike, you can actually suppress your body’s response. More and more data allows us to build intelligent, actionable insights that result in meaningful behavior change and health outcomes for people. We’ll never be in a position where we’re directly selling the data.
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MW: What’s the total addressable market for the b-to-b business, or is it too early to tell?
Park: It’s a little early, but our goal as a company is not just to sell devices or software, but also to drive actual health outcomes and therefore reduce health care costs. So one of the more exciting potentials is seeing if there’s a role for us to play in taking some of the risk upfront and sharing in the cost savings. If we can unlock that, that’s a huge new business opportunity that’s incredibly stable and, from an incentives perspective, aligns everyone together. We’re starting to see some indication that that could happen. If you look at diabetes, that’s $322 billion in costs to the U.S. health care system. Reducing that by 10% means $32 billion that could be distributed across players in the ecosystem that helped make that happen.
Some of the athletic companies like Under Armour Inc. are exiting the wearable business, and other companies like Fossil Group Inc. are focused on more fashionable devices. How does that impact you?
Park: It goes to show that you always want to have focus as a company and when you’re an apparel maker, you should probably focus on your core business. That’s why Adidas /zigman2/quotes/202556172/delayed DE:ADS +0.32% said it’s not really focused on wearables anymore, and we struck a partnership with them to power their wearable in a co-branded device. For us to really have the biggest impacts on health care, it’s all about accessibility, and so I don’t think a $400 to $500 fashion watch fits into that category.
Are there efforts to introduce some of the cellular-connectivity features that watches made by other companies have, or will you make it possible to send texts from your smartwatches?
Park: We’re going to be improving our communications capabilities over time, but LTE requires a really careful set of trade-offs. You could definitely make the very strong argument that today’s LTE watches haven’t quite nailed it, whether its battery life, or capability, or just bugs in general. We want to be very thoughtful about how we incorporate additionally forms of connectivity into our devices.
Fitbit stock has fallen 27% over the past year and 69% over two years, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.84% is up 24% over one year and 51% over two.