Rumors became reality when CNET reported Friday that 55 people in Nike’s 70-person hardware team were laid off and the FuelBand device was shut down from future production.
The 70-person hardware team was part of Nike’s larger Digital Sport division that totaled approximately 200 people.
This fall, Nike had planned to sell a thinner version of the FuelBand but abandoned the project according to CNET. Nike will still continue to sell the second-generation FuelBand SE, with Nike saying in a statement to Re/code:
“The Nike+ FuelBand SE remains an important part of our business… We will continue to improve the Nike+ FuelBand App, launch new METALUXE colors, and we will sell and support the Nike + FueldBand SE for the foreseeable future.”
The move to shutter FuelBand production and move away from hardware is a strategic one for Nike. With Apple preparing to enter the market through the iWatch this year and Samsung joining the wearable battle with devices of its own, it didn’t make sense for Nike to compete in these markets given the scaling challenges and the thin profit margins on sales of hardware.
Instead, Nike has shifted its focus toward fitness software. This was evident from last week’s launch of its San Francisco-based Fuel Lab—an incubator-like initiative to partner with some of the leading innovators in the digital fitness landscape such as MyFitnessPal, RunKeeper and Strava.
The debut of the Fuel Lab comes a few months after Nike opened a similar Accelerator Program in 2013 for innovators and companies to build offerings off the Nike+ platform and NikeFuel. Through its 2013 Nike+ Accelerator Program, the company provided mentorship, tools connections, all the typical resources you’d find at a start-up accelerator, to companies that embraced the Nike+ system and developed technologies on the platform. They included Sprout (an enterprise app that inspires employees to get fit) and CoachBase (a platform that modernizes the coach’s clipboard).
With a strategic alignment now on software, Nike will look to further advance its own NikeFuel metric system and the Nike+ API which other hardware makers can integrate into their own wearables.
Rather than focus on having a Nike FuelBand on every wrist, Nike is instead making a play to have every wearable device made by XYZ company use the NikeFuel measurement system. Given the high margins on software and ability to scale through licensing, it’s a shrewd play.
Big Step Toward a Larger Nike-Apple Partnership?
The relationship between Nike and Apple is a strong one and hints at a potential partnership in the wearables space going forward. In 2006, the two companies teamed up to launch Nike+iPod, a partnership that brought to market a wireless shoe sensor from Nike+ footwear that communicates with an iPod.
For Nike’s FuelBand, end users could only access FuelBand data through web-based portals and Apple iOS applications. That meant any Android-based user was shut out of the market and could not access FuelBand data or track Fuel points.
The connections continue. Apple CEO Tim Cook serves as a member of Nike’s Board of Directors and has gone on record dismissing Google Glass in favor of the Nike+ FuelBand.
Is the dismissal of the FuelBand the preface to an even larger Nike-Apple partnership just as the iWatch is set to launch this year?
Nike’s Digital Fitness Strategy
However you slice it, Nike proved that its brand is so strong that the company can introduce anything into the market a la the FuelBand and be successful in the short-term.
But sustaining that success over the long-term is quite different, and while Nike could have very well dedicated the necessary resources to develop competencies for hard-earned success in the hardware space, manufacturing the FuelBand simply wasn’t a worthwhile investment compared to the riches that would await if the company made a concerted pivot toward fitness software. For Nike, growing the proprietary NikeFuel fitness metric and advancing its Nike+ API have now become its top priorities in the digital fitness market.