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The big lesson from Nike abandoning the FuelBand? Smartphones are the only wearable we need

In the end, Nike used the classic non-denial-denial to respond to a CNET scoop that the sportwear giant had fired most of the team working on its FuelBand fitness tracker. CNET reports that 70-80% of the dedicated 70-person strong hardware team were “let go” after being informed of the decision on Thursday. As the site points out, the roughly 55-affected were part of the company’s larger Digital Sport division, which totals around 200 staff.

In an e-mail to Bloomberg Businessweek on Saturday, Nike acknowledged “a small number of layoffs”. It added that “Nike is committed to Nike+, to NikeFuel, and to driving innovations that bring richer experiences for all athletes. We will continue to leverage partnerships to expand our ecosystem of digital products and services, using NikeFuel as the universal currency for measuring, motivating and improving.”

Speaking to the Financial Times, Nike said “The Nike+ FuelBand SE remains an important part of our business. We will continue to improve the Nike+ FuelBand App, launch new METALUXE colours, and we will sell and support the Nike+ FuelBand SE for the foreseeable future.”

That’s about as close to an admission as you’ll get these days.

The decision to cut back, together with the cryptic follow-up statements from the company, has led to all manner of speculation.

It’s fair to suggest that FuelBands are hardly the highest margin business for Nike (the new SE variant retails for US$149 – around the price of one of its higher-end running shoes, but with a significantly higher cost to produce). Are they generating a return on effort? Are they selling in large enough numbers for Nike to continue selling them regardless? I suspect the answer to both those questions is no.

Of course, Nike was the pioneer in this space. It released the FuelBand in early 2012 (which seems a lifetime ago). Aside from rates of return, the reasons it’s called quits on the device business could be many.

Nike could be a key partner of whatever Apple does in the wearable category (the rumours of an ‘iWatch’ keep getting louder, although I personally think the ‘iPod’ name would suit a wrist device better). It helps that Apple chief executive Tim Cook has been a member of the Nike board for the past nine years. He’s a FuelBand user. You can be sure that Cook is on board with whatever happens with Nike’s apps (Nike+) and devices in the future.

Nike could also be shifting to a model where it opens its Nike+ API to other hardware manufacturers. Do we expect to see a proprietary Fitbit system with its own app and reporting platform alongside a proprietary Jawbone wristband (Up) with its own app and reporting platform alongside Nike’s FuelBand platform (including Nike+) alongside whatever Apple and Google dream up? Not to mention the next tier of popular fitness apps like RunKeeper and Strava, each with their own integration into the available wristbands… Again, probably not.

Fitness wristbands are hardly a hundred billion dollar market. And they’re not likely to ever become one. To become (‘just’) a billion dollar business, a wristband maker would need to sell around seven-million devices a year. I honestly doubt those larger brands mentioned above together have come anywhere close to that.

Remember that when considering how big any wearable device would be in Apple’s life (probably not likely to move the needle). Then again, Apple already has the perfect wearable device (easily 50-million in the market already). With the embedded M7 motion sensor, the iPhone 5S is everything these wristbands and smart watches are trying to be.

That doesn’t mean we couldn’t see a clever wearable with a twist from Apple (or Samsung or Google) later this year. Perhaps we’re thinking too narrowly. We don’t need a underpowered, poorly designed ‘smart watch’ with a 2 megapixel camera (!) to flash up notifications on our wrists.

Whenever the next hyperbolic headline screams predictions about smartwatches, I keep coming back to this question I’ve asked myself all along: What real need does a wearable device fulfil?

Author | Hilton Tarrant: Columnist

Hilton Tarrant: Columnist
Hilton Tarrant is production editor at Moneyweb. His main focus is project management for the listed company’s local and international websites, and contributes to their strategic direction. From time-to-time, he also fills in for Alec Hogg on the SAfm Market Update with Moneyweb radio programme. In between, he covers... More

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