The rapidly growing wearables category consists of only three major competitors with first-mover and pioneer Fitbit (NYSE: FIT) having established a wide lead over Apple (NASDAQ: AAPL) and Xiaomi (Private: XI). Samsung (OTC: OTC:SSNLF) and Garmin (NASDAQ: GRMN) have managed to scratch out a meager few percentage points of market share. Please reference Bull-Bear Trading's recent article on competition in the wearables category. Numerous other companies are struggling for survival in wearables and the recent IDC report (shown below) groups these less competitive companies in the "Others" column. Click to enlarge
Another perspective of the wearables category shows the Top Five Wearables Vendors with Fitbit taking back market share from both Apple and Xiaomi during the important holiday 4Q15 period:
This is the highly competitive wearables category to which Under Armour (NYSE: UA) seeks to submit a new, but late, product entry. Bringing another product so late to an already over-crowded category where the leader Fitbit has been dominating for the last nine years puts UA at a disadvantage. It does not bode well for UA that even tech-savvy Apple brought their product to market late about a year ago but has struggled after suffering a post-launch 90% decrease in sales. If mighty Apple with its engineering/design prowess and marketing muscle is struggling in wearables, then this may portend a difficult road ahead for UA's late entry in wearables.
However, undaunted with the UA brand name and a large number of customers already registered as users of several other UA apps, the company's CEO Kevin Planck believes they have a chance for scratching out enough market share to survive in this challenging category. Bigger, more tech-savvy companies than UA have tried and failed in wearables without being nearly as late to market as UA is with their March 2016 product launch.
Major companies such as Google (NASDAQ: GOOG) (NASDAQ: GOOGL) and athletic apparel competitor Nike (NYSE: NKE) have tried to bring products into the wearables market and they have both failed. Microsoft (NASDAQ: MSFT) brought a product called Microsoft Band to the market with little success and has since followed up with Band2 in an effort to upgrade their chances for success. To date, they have not been able to achieve even a market share of 4% as evidenced by the fact that Microsoft is nowhere to be found on the IDC's list of Top Five Wearables Vendors. Many other companies have attempted to compete in wearables but they have all been relegated to the IDC's "Others" category with less than 4% market share. Jawbone (PRIVATE: JAW), Fossil (NASDAQ: FOSL), Pebble (Private: PEB) and many others find themselves in desperate straits hoping for a break before the inevitable shake-out happens in wearables.
For now these numerous, weaker competitors have been buoyed by the rapid growth of wearables that saw an increase of 171% in 2015 according to the IDC report. But as the torrid pace of growth in this category must inevitably slow, there will come the merciless shake-out that will kill the weak products in the category. Survival of the fittest is the rule of the jungle in wearables and UA has not helped itself by bringing its product to market so very late when the category leader, Fitbit, launched its first product nine years ago and now has established worldwide dominance of the category with retail consumers, insurers, healthcare providers, and the corporate-government wellness market.
Spoiler Alert!: This article will provide a summary of consumer and media reviews as well as our own product review that may enable you to discern what exactly went wrong with UA's Health Box and UA Band product development prior to launch. Then we can speculate upon the reasons why UA elected to make such a damaging decision to launch this non-competitive product before it was ready for the market. If this current product launch by UA in wearables is received poorly by the consumer, then UA may find that wearables is an unforgiving category that may not allow a second chance to try again. Google, Nike, and Microsoft can each attest to this fact that in wearables if your first effort fails, then you are likely to be one and done. And UA may lack the resources to commit to the category in any meaningful way as the industry leaders Fitbit and Apple have done.
Kevin Planck's UA may have rushed the Health Box and UA Band to market before it was ready, or else this was simply the best product that this company could cobble together with the resources they had available. In either case, UA Health Box and UA Band are not ready for prime time and these products give the impression that they were rushed to market before being properly completed. The alternative conclusion that these products were simply designed and engineered so poorly that they could not be fixed prior to launch is an even more disturbing destination of thought.
UA may be learning the hard way, just like a growing list of other major companies that have attempted and failed to succeed in wearables, that this category is far more challenging than so many self-proclaimed experts have been reporting. As it turns out, not just "anybody can slap together a rubber band and a glorified pedometer" to enter the wearables category as so many talking heads in media have been incorrectly stating for some time now. Reference the brief experiences of major companies that have failed or quit in wearables such as Google, and Nike. Or other major companies that are struggling for survival in wearables like Microsoft, and smaller companies like Jawbone who may never see its efforts to achieve an Initial Public Offering of stock come to fruition.
While Fitbit is the only company winning big worldwide with 26.9% market share in 4Q15, Apple and Xiaomi have both managed to achieve double digit market share in the mid-teens range. Garmin and Samsung round out the IDC's Top Five Vendors with barely a 4% market share. And that summarizes the entire wearables category at this time with numerous other companies fighting for survival in IDC's "Others" grouping with insignificant market share. UA may find it difficult to separate itself from this dubious group of Others in wearables for the following reasons:
- UA has priced their Health Box at a lofty $400 when the three hardware components of this bundled package: an activity tracker called the UA Band, a scale, and a chest strap heart rate monitor can each be purchased separately for much cheaper, and at higher quality from competitors. It remains to be seen if the consumer even wants a bundled product as UA has created but it is certain to confuse a number of consumers who only want to buy an individual fitness tracker or scale without the expensive bundle. Early product reviews by consumers are very keen to this flawed pricing strategy. It seems that the free-flow of information has made us all smarter consumers, but not necessarily smarter vendors when it comes to UA's pricing strategy on Health Box;
- Curiously, UA has chosen to target a smaller market of hardcore athletes with their Health Box product rather than the much broader mass market targeted by Fitbit. The concept of a chest strap heart rate monitor does not appeal to most of the general fitness market. UA has chosen to design Health Box including this chest strap HR monitor hardware, which may appeal more to a hardcore athlete. Surprisingly, the UA Band fitness activity tracker only measures resting heart rate, not active heart rate. This fatal flaw in design may be an effort to push consumers into buying the expensive Health Box since the chest strap in the three hardware device bundle would be required to measure active heart rate. Or it may be that UA and its manufacturing partner HTC (OTC: OTC:HTCXF) simply lacked the ability to include the latest technology in their UA Band;
- The UA Band activity tracker can be purchased separately from the Health Box for an overly expensive price of $180 according to the UA website when competing products from the industry leader, Fitbit, offer superior technology and sell for less at $130;
- Consumer reviews state that the scale is slightly inaccurate but not enough to make a difference or be a problem. The issue with the scale is that the consumer apparently has to purchase the entire $400 Health Box to own the scale since it does not appear to be sold separately;
- The UA website apparently will not allow the chest strap heart rate monitor device to be purchased separately from the expensive bundle called Health Box either.
But there are still more reasons why the UA entry into wearables can be pronounced DOA (Dead On Arrival), or if not DOA then at least DMW (Dead Man Walking) as the UA product will be confined to the IDC's group of Others that have insignificant market share and these zombie products will likely be killed during the upcoming category shake-out.
This walking dead, zombie-like status of the UA Health Box and UA Band are ensured by the product killers mentioned above as well as the following fatal flaws with their products:
- A dead-give-away for the death of any product, sometimes even before it is brought to market, is inferior technology. The Health Box's fitness tracker called the UA Band includes older, previous generation technology that has already been made obsolete in the marketplace by cutting-edge technology being advanced by Fitbit, Apple, and a few other competitors. Since UA did not have the capability to design and engineer the UA Band in-house as industry wearables leaders Fitbit and Apple are able to do, UA chose to short-cut this essential process by partnering with HTC as their manufacturer. HTC is not a leading wearables manufacturer and may not have had the know-how to include a heart rate monitor that would function well-enough to measure active heart rate during workouts since the UA Band only measures resting heart rate. This is a curious and fatal design flaw in the UA Band, especially at the over-priced ask of $180. Because the UA Band lacks the ability to measure your heart rate during your workout, which is one of the key reasons for using a fitness activity tracker, this inferior technology will suffer in the marketplace.
- The above point leads the UA products to another fatal design flaw that tries to compensate for the inferior technology in the UA Band. This design flaw is the inclusion of the chest strap heart monitor in the UA Health Box. We know that the cutting-edge, next generation technology to accurately measure both resting and active heart rates from a wrist wearable device exists because Fitbit owns patents to this type of technology and employs this feature in its products. A recent lawsuit questioning the accuracy of Fitbit's heart rate monitor technology has highlighted this issue and here is what we now know: The highly credible and independent organization known as Consumer Reports has twice tested Fitbit's patented PurePulse heart rate monitor technology and twice found Fitbit's heart rate monitor to be, "very accurate" and on par with the best chest strap heart rate monitor. Chest strap HR monitors were previously considered more accurate than wrist wearable HR monitors like Fitbit uses. Consumer Reports states that this is no longer the case since Fitbit's innovative technology has pushed the envelope of wearables further than almost every other company in the category and now can accurately measure active heart rates from a wrist wearable device. This seems to indicate that since neither UA nor HTC have access to the next generation of technology that Fitbit has innovated, UA has chosen to bring a product to market with inferior technology and is trying to compensate by including the chest strap heart rate monitor in the Health Box that must be used in tandem with the UA Band. This makes the UA wearables entry more expensive, less convenient, and with increasingly obsolete technology. None of these points will be lost upon an increasingly informed consumer.
- For those thinking that the use of a chest strap heart monitor is a minor issue, think again. Consider that the consumer must remember to physically carry the chest strap with them to and from workouts, which is an inconvenience. The chest strap must also be put on prior to each workout and then taken off after each workout. For those that have used such devices before, you know that oftentimes lubricant must be applied to the monitor, strap, and body to avoid skin irritation and chafing from the movement of the monitor/straps against the skin during workouts. The lubricant may affect the accuracy of the chest strap HR monitor's ability to read your biometrics. After a few minutes of working out the lubricant and sweat begin to coagulate on the monitor, straps, body, hands, and clothing. The chest strap may become dislocated during the workout causing the consumer to have to stop working out and adjust the monitor and/or strap. Hopefully, you didn't get any lubricant on your hands prior to returning to your workout that could get in your eyes or on the equipment. The UA chest strap HR monitor causes issues with cleanliness, lack of convenience, discomfort, and skin irritation that are all deal breakers for many consumers. Paying extra for the inferior and obsolete tech of a UA chest strap HR monitor device in a $400 Health Box bundle is not likely to be popular among consumers. This chest strap heart rate monitor problem is no small issue for many consumers, in fact it is a fatal flaw in the design of the UA Health Box likely caused by the inability of UA / HTC to bring cutting-edge technology to the marketplace. This effort to compensate by bringing the increasingly obsolete technology of a chest strap HR monitor will not help sales.
- You will find more obsolete, inferior technology from UA / HTC in the UA Band: compare the picture of the UA Band's tiny, low-resolution readout screen below with the new Fitbit Alta's screen:
If you are having difficulty reading the tiny, low-res, UA Band screen in the above close-up picture, then it is not your eyes that are the problem. Media and consumer reviews are complaining about the readability problem with the recently launched UA Band's screen. At the premium price of $180, this inferior technology is not likely to win many friends for the UA Band or Health Box. This may prove problematic for UA in the marketplace when competing products with superior technology and bigger screens sell for less. Please click on the Watch Video button in this link to view the screen on one of Fitbit's newer products that sells for $130, and please also take note of the next generation Touch Screen technology in the video of Fitbit products that do not exist in the UA Band. Perhaps Kevin Planck and his company UA have an inflated opinion of their brand name and they believe the consumer will give up their hard-earned money for UA products that charge premium prices for inferior technology. We will see.
Imagine that you are running or walking briskly and trying to read this small, low-resolution image on your moving wrist. Here is another picture below for you to make the assessment as to whether you would pay $180 for the UA band's tiny screen when competitors will give you cutting-edge tech for less money. Or you could pay up for the $400 Health Box and get more old tech with the chest strap heart rate monitor. Because if you want to track your HR during workouts, which is kind of the point to get your HR in the "zone" to achieve your training goals, then the UA Band requires that you also buy and use the chest strap HR monitor on every single workout. Since the UA Band's obsolete tech is unable to track your HR during activity, UA has tried to compensate by selling you another overly expensive piece of old tech, the chest strap HR monitor. But you have to buy the entire Health Box to get the chest strap HR monitor. So UA believes that they have you cornered into paying up the $400 for the over-priced Health Box. Really? Or you could simply buy new-tech for less money from the industry leader Fitbit, where you won't even need a chest strap HR monitor, your choice.
If these poor design choices, fatal flaws in the technology, and over-pricing haven't devastated the chances for the UA product to succeed in the marketplace, then consider the following deal-breaker: The inferior technology of the HTC manufactured UA Band does not sync accurately or reliably with the software end of the ecosystem called UA Record. That's right. Actually, none of the hardware devices of the UA Band, the chest strap HR monitor, or the scale are able to sync accurately or consistently with the dashboard for UA Record. Please see the comments section of this largely unfavorable review of Health Box in the industry publication Wareable where one consumer "bigdmajor" gives a detailed and scathing account of his disastrous experience with Health Box and recounts the inability of the UA / HTC hardware to sync with the UA Record software portion of the ecosystem. This is one of numerous complaints that can be found regarding this disastrous tech fail by HTC / UA.
Without an accurate and consistent sync between the hardware and software that informs you of your status, activity, progress, and metrics the entire product becomes literally pointless. UA Record is a good product but it seems the engineers and developers at HTC somehow were unable to get their obsolete technology in the hardware that they designed for UA to sync with the UA Record software on anything close to a reliable and accurate basis. Consumer reports of difficulty syncing, inaccurate syncing, and losses of entire workout data during and after workouts are numerous. This inability of the UA / HTC hardware-software to sync accurately and consistently is an epic technology fail of the sort that causes a product to quickly fail in the marketplace.
Summary: After so many failures by major companies trying to gain market share in wearables, perhaps at this point it is becoming more clear to even the most ardent critic of the wearables category that it is no longer possible to gain entry into the category without an expensive and resource intensive R&D effort. The days of strapping a "glorified pedometer" onto a rubber band and announcing your entrance into the wearables category actually ended almost a decade ago when Fitbit began pioneering the category with higher quality, innovative products. For UA to believe that they could show up to the wearables party all these many years late with an over-priced, inferior technology product as their entry into the category is a surprising miscalculation that will cost UA greatly. It appears that the former college football player turned athletic gear salesman, Kevin Planck, is out of his element in the increasingly high-tech business of wearables when pitted against two sophisticated software guys, Park and Friedman who co-founded Fitbit.
After the consumer makes their early, initial decision on the UA wearables product known in the coming months, UA may be faced with basically two choices: quit wearables, or seek to partner with a more competent wearables company that is already established in the marketplace. Because Fitbit products are already able to accurately sync with UA Record and since Fitbit is clearly the industry leader it may get interesting in the months ahead as companies like UA try to remain relevant in wearables. It is interesting that a competitor's (Fitbit) hardware devices can sync more accurately with UA's own software. This is why Fitbit's software guys, Park and Friedman, own the category.
But we will keep a close eye on UA and the developments in wearables, especially since the rumor mill has speculated that Nike has already been in contact with Fitbit. Wearables is an increasingly important category that major companies have realized they cannot be locked out of if they hope to participate in the high growth that this category will continue to achieve in future years. The problem for the numerous companies that want to establish a presence in wearables is that they are unable to achieve this challenging goal on their own. Since neither Apple, Xiaomi, or Samsung are likely to be acquired just to gain entry into wearables; this leaves only Fitbit and Garmin as eligible, pure-play companies in this category. And there is only one industry leader in wearables, which makes Fitbit the crown jewel of the industry. To make matters more interesting, Fitbit's stock is near a 52-week low, undervalued by just about every measure of valuation, and has about $600 million in cash with zero debt to help finance any buyout. All of this adds up to make Fitbit an attractive candidate for buyout. These factors put Fitbit in the driver's seat on any buyout offers increasingly as the category continues to achieve high growth and Fitbit's innovation continues to lead the market while earnings are growing sharply in 2016.
While Fitbit's future in wearables remains bright, unfortunately for UA's hopes to compete in wearables with a $400 product entry called Health Box, the consumer is more likely to want to pay less and get more from a competitor. It is worth noting that Fitbit also offers a state-of-the-art Aria scale that accurately syncs with the ecosystem of both Fitbit and the UA Record and the Aria scale can be purchased separately while the UA scale can only be bought in the expensive Health Box bundle. From top to bottom on every product point when the UA Health Box is measured against the industry leading Fitbit product line it appears likely that Kevin Planck and Under Armour may be disappointed in the results of the Health Box's first year in the marketplace, and so will shareholders.
Disclosure: I am/we are long FIT.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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