Having lost the title of top wearables maker to Apple (AAPL -0.91%) last year, Fitbit's (FIT) decline is now accelerating and will only get worse from here.
According to IDC's latest market share figures, Apple's share grew to 17% in the second quarter from 13% last year, while Fitbit's fell from 12.8% to 9.5%.
This was the quarter in which Fitbit launched its Versa smartwatch as the wearables maker seeks to pivot from simple trackers to more advanced devices, and the drop in market share could get worse as Apple just announced its latest Apple Watch, which seeks to capture the same consumers looking for ways to better monitor their health.
Jockeying for position
Fitbit was notoriously late to the smartwatch game, and its first attempt with the Ionic fell far short of consumer expectations. The Versa was introduced earlier this year as Fitbit's answer to critics, and it has indeed become a popular wearable. IDC notes that with the device's introduction, Fitbit "successfully expanded its user base and emerged as the second largest smartwatch brand." As the wearables maker itself noted in its second-quarter earnings report, the Versa outsold the smartwatches from Samsung, Garmin, and Fossil combined, and smartwatch revenues now comprise 55% of total revenue.
The problem, however, is that sales might have already peaked. IDC says Fitbit shipped 1.1 million Versas during the quarter, but Fitbit had shipped about that many a little over one month after the smartwatch's launch, suggesting not many more have moved out the door since.
And now that the Apple Watch 4 will be hitting the market, featuring many advanced design components, such as the very first FDA-cleared electrocardiogram (ECG) sensor, which won't be available at launch, but will be later in the year, Versa sales will undoubtedly be eclipsed once again.
Apple is, of course, the smartwatch market leader and in the second quarter shipped 4.7 million units, IDC's data show, a 38% increase from the year-ago period and 75% more than the total number of units shipped by Fitbit in the period. And with the Apple Watch 4 dropping in a few days, the gap is going to widen further.
However, Fitbit's Versa is not really competing against the most advanced devices Apple produces but rather its most basic, which does really well. A recent report from Counterpoint Research shows the Apple Watch 1 is the best-selling smartwatch on the market, representing almost 90% of the Apple Watches sold in the second quarter.
While each new Apple Watch model has offered new features, one of the primary considerations of the later models has been their cellular connectivity. Because the Series 1 doesn't have such capabilities, it's price point was considerably lower.
And while Apple's decision to kill the older device with the release of the Series 4 device might help Fitbit, the price of the Series 3 watch was dropped to $279, making it much more competitive with the $200 Versa. It wouldn't be surprising if Fitbit lowered the cost of a Versa to maintain its attractiveness, but that would cut into its profitability.
The key takeaway
There are benefits the Versa can still tout, such as a battery that lasts longer than any Apple Watch's and a suite of features that pertain to health monitoring, but as Apple's higher-end devices move down the pricing ladder, Fitbit will be hard-pressed to develop features that rival those of the market leader.
Although Fitbit hopes to get close to being free-cash-flow-positive by the end of the year, the competitive necessity of investing a lot more just to remain relevant might make the goal that much more difficult to attain.