Forget Fitbit's (FIT +0.00%) utility as a device to count the number of steps you've taken: If the fitness tracker really wants to grow, it needs to dramatically scale up its subscription business. Its purchase of Twine Health may be just the thing it needs to do so.
A divergent market
The wearables market is wearing thin. It has largely split between high-end smartwatches such as Apple's Apple Watch 3 and cheap wristbands such as Xiaomi's Mi. Even after introducing the Ionic smartwatch to counter the change in preference toward upper-end wearables, its $300 price point puts it in the middle of the road, and though it's competitively priced, the only things you usually find in the middle of the road are dead squirrels.
Fitbit, which is scheduled to report its fourth quarter earnings on Monday, is in danger of being run over itself. It is suffering from declining device sales, declining rates of active user growth, and widening losses. Being a hardware company isn't the same lucrative business it used to be when Fitbit pretty much launched the wearable fitness device market. With so many choices now, Fitbit's single-purpose devices won't move the needle anymore, and its upscale, multi-function device has left many people less than enthused.
But transforming itself into a company whose hardware can help users truly take more effective control of their health could open up new opportunities for Fitbit.
Image source: Getty Images.
Heading for healthy change
Twine Health is a small, HIPAA-compliant start-up that helps people manage chronic diseases such as diabetes and hypertension by connecting them to coaches and doctors who forge plans that assist in establishing healthier lifestyles.
While jogging around the perimeter of the healthcare industry, Twine allows Fitbit to jump over the fence and become a partner with health plans, health systems, and corporate wellness plans. The acquisition envisions a time when hospitals or clinics run the Twine software platform or integrate its technology with other vendors in the industry.
Fitbit co-founder and CEO James Park says the device maker and Twine "can help healthcare providers better support patients beyond the walls of the clinical environment, which can lead to better health outcomes and, ultimately, lower medical costs."
Sure, that's some flowery language, but it could signal the transformation of Fitbit devices from mere curiosities to necessities. Over the long haul, the acquisition gives Fitbit the opportunity to extend access to the Twine platform to over 25 million users while also expanding into new areas of overall health and fitness.
Tooling up for growth
The acquisition also can help generate some recurring revenue streams for Fitbit. The device maker has tried to kick-start subscription services before, such as the Fitbit Coach it re-engineered alongside the launch of the Ionic smartwatch at a cost of $40 a year. But as my colleague Evan Niu recently calculated, its few hundred thousand subscribers amount to an infinitesimal fraction of Fitbit's vaunted user base. A platform like Twine Health could broadly expand those numbers.
It could also make the Ionic smartwatch a worthy competitor to Apple, which has increasingly been adding healthcare functionality to the Apple Watch. While Fitbit's smartwatch has numerous health capabilities already including linking to glucose monitors; built-in blood oxygen sensors, that could help alert a user of sleep apnea; and the now-ubiquitous heart rate monitor; the addition of the health coaching platform has the potential to radically change the dynamic of its usefulness.
By making a Fitbit device a more serious healthcare tool, this could finally be an acquisition that actually matters to the company's future.
