U.S. Markets closed

Fitbit CEO James Park on the struggles and future of the wearable maker

Brian Heater
Fitbit CEO James Park on the struggles and future of the wearable maker


James Park is quick to admit that the Ionic didn't live up to expectations. Fitbit’s co-founder and CEO refuses to disclose any specific numbers during our chat, but he acknowledges that the company’s first smartwatch wasn't a mainstream device.

The sentiment is punctuated by the fact that the product felt like a Hail Mary at the time. As Fitbit’s fortune was declining, the executive began talking up the product well in advance of its release, as the company acquired several offerings to bolster the device.

Of course, that admission comes in the wake of this week’s product announcement. The Versa is the device the Ionic should have been. It’s a more mainstream product that makes a special effort to focus on a female user base, with added health features. It was a large demographic that was overlooked with the product, which likely proved too large for many wrists.

The Versa attempts to address the issue, as the company works to expand its reach even further. The company announced its first fitness tracker aimed at children aged eight to 17 and outlined its plan to shift more of its focus to the healthcare sector — a category that could provide more stable than the ongoing ups and down of consumer wearables.

TC: You started the event by discussing the shift the company is undergoing with regards to healthcare.

JP: We’ve historically been primarily focused on the consumer. We’ll continue to do that, but the shift we’re undergoing is taking what we’ve done and packaging it in such a way that it can be used by the healthcare system, so when we invest in a particular technology or service that it can by used that way. So, we’ll continue to develop our consumer revenue stream, but continue to develop healthcare as well.

TC: How fundamental of a shift is this for the company? Jawbone recently moved entirely in that direction. What percentage do you ultimately see the healthcare side making up the company’s revenue?

JP: It’s hard to state today. It’s too early to say what that percentage will be. But in the future, you should think of us as a hybrid company. We’re both consumer and healthcare. Doing both is really important. One of the challenges that healthcare has today is in the effective use of technology. A bigger problem they have is in engaging consumers — keeping them active and motivated to use these tools that are coming out. No one is really excited to interact with their hospital or healthcare provide. Our aim is to become a front end to the consumer healthcare system.

TC: Is it becoming too difficult to be successful as purely a consumer wearables company?

JP: I think we see it more as an untapped revenue stream — one that has more unstable revenue streams that are recurring and of a predictable nature. A lot of successful companies do this kind of hybrid. If you look at [Johnson & Johnson], for example, they have consumer products, but they also have a really amazing healthcare business that consumers may not know about. We as a company are looking to follow the same path, to grow as a company and also diversify our revenues.

TC: Was the Ionic as disappointment?

JP: It didn’t do [as] well as we wanted it to. We’re being pretty upfront about that. A large part of that had to do with the fact that, ultimately, it was a performance-oriented product. That audience is much smaller than a mass appeal device. I think the positive thing for us is that it outselling, at a similar stage, our Fitbit Surge device, which it is replacing. The hope with the Fitbit Versa is that this is our true mainstream device from a feature set, design and price perspective. This is a device for us to use as a means to gain a significant market share.

TC: Can you disclose specific numbers on the Ionic?

JP: No.

TC: You talked up the Ionic long before the launch of the device. The company was struggling and you were positioning the product as the one that would move the company in the right direction. Did you hype the device too much? Is the [Versa] the device that should have come out first?

JP: When we thought about our entry into smartwatches, it wasn’t about just one device. So, there was a portfolio plan. When you think about our acquisitions of Pebble, Vector and Coin, leveraging to really develop the Fitbit SDK, that software investment is one that’s going to be leveraged across a portfolio of devices, including the Versa. So, a lot of things you see today are launching on Versa, but they’re going to be available on Ionic, as well. That’s how we think about our investment in Versa. It’s not just about one device.

TC: So you’re still committed to the Ionic?

JP: Absolutely. When you launch into a category, you want to include a flagship device, which the Ionic is, from a pure feature set. But not we’re thinking about how to address the needs of a lot of other people.

TC: What’s the sense among the board as far as the health of the company and your role, versus a year ago?

JP: I think 2017 was a year that we had to take very quick action to stabilize the company and turn things around. I think we did that, and if you take a look at our 2017 guidance versus results, we did what we said we would. For the full year, we ended up meeting our guidance on revenue and actually doing a little better than we forecasted on free cash flow. We’re moving from losing money — about $25 million in 2017 — to be break-even on a free cash flow basis in 2018. So it shows that we’re stabilizing the company.

TC: What does the consumer side of wearables look like, moving forward?

JP: With the consumer side, what we're seeing is a shift from fitness trackers to more fully featured devices like smartwatches. The launch of Ionic and Versa allows us to have a portfolio that takes advantage of that trend. We didn’t have the right mix of products in 2017, which is what hurt us as a company. But I think one of the places where that strategy is really succeeding is internationally. It’s about 40 percent of our revenue. The state of that industry is about a year behind the U.S., and you’re just starting to see that change from fitness trackers to smartwatches, but the good news internationally is that, as that transition is happening, we actually have the right set  of products to mitigate the effects of the decline of the tracker market.

TC: On the tracker side of things, you’re competing with devices from companies like Xiaomi — $20 products. It’s hard to make a profit at that level.

JP: Actually, you’ll see that price hasn’t been a barrier for us on the low end. The average selling price has remained pretty stable. The combination of our brand and community helps us maintain our price points.

TC: When you talk about smartwatch growth, you’re primarily talking about Apple. It’s far and away the leader. What are you able to offer that the Apple Watch doesn’t?

JP: I think there’s benefits for consumers and the healthcare industry. For us, it’s about having devices that are focused on fitness. Cross-platform compatibility is a huge deal, battery life, the right features and price point. I think all of those things, along with our community of users. And if you think about fitness and healthcare, these are huge markets. There’s going to be room for more than one company to succeed.

TC: As the company was going through a difficult time, tough decisions had to be made. Obviously it’s never easy to let go of staff. Did you reconsider whether you’re still the best person to lead the company?

JP: The main thing for me is, I’m incredibly excited to come into work every day. I’m driven by the mission of the company. What we’re trying to do is build the right management team, including the board. My focus is taking my passion, building the right team around me and continuing to execute on the mission. The company has been around 11 years. We’ve had a lot of challenges, and I think the great thing is that we’ve been able to persevere through each one of them.

TC: You never had a moment of doubt, whether you were in the right position?

JP: To not have doubt is kind of crazy over 11 years. There’s always those moments when it’s tough. But the most important thing for me is whether I still have the passion.

TC: Is the company out of the woods?

JP: It’s too early to say that. I think what we’re showing through the past year is that we’ve stabilized and are looking to grow.

TC: Does the new dual focus on smart devices and healthcare mean we’re going to see fewer fitness band lines moving forward?

JP: We’re looking to streamline that category, but it’s going to continue to play an important role in the company. Whether it’s kids or the healthcare system, or people who are more price conscious, trackers continue to play a role. But now we have a lineup that’s more diversified and better to meet people’s needs.