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Beyond Hardware: Fitbit's New Subscription Push

By MyWallSt Staff - Oct 29, 2019 at 1:13PM

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With Fitbit's fall from the wearables throne in recent years, is the company now looking to its services to help it rise again?

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In late August this year, Fitbit (FIT) unfurled the new subscription offering, named "Fitbit Premium," alongside its fall launch lineup. Costing $9.99 a month, or $79.99 a year, Fitbit Premium allows you to enjoy in-app tips, guides, and step-by-step health and fitness programs tailored to your needs. With over 10 years of experience making devices that track physical activity, Fitbit is also trying to work with third parties as well as internal experts to come up with guides that help improve energy levels, nutrition, and general well-being.

A closeup of a smartwatch

Image source: Unsplash.

After its revelation in late August, Fitbit Premium was launched in September. Though the main aim of the subscription model is to help people with issues such as weight loss and overall wellness, the company also said that it is looking to target specific chronic issues ultimately. Among the many features of the premium service are thousands of workouts and a health report that you can carry to your doctor at your annual physical.

But will Fitbit's efforts of moving into the subscription industry help recover market share from the likes of Apple and Samsung?

Apple's top strategies: Offer subscription services to customers

Back in 2016, Fitbit sold more wearables than Apple and Samsung combined. However, in recent years, Fitbit faced struggles competing with bigger companies like Apple in the smartwatch market, which steadily eroded its market placing it in fifth position this year.

Now, it have adopted a strategy straight from Apple's playbook -- offering subscription services to customers.

After Fitbit's Versa Lite smartwatch witnessed disappointing sales, its stock is presently trading below $3 a share, over 85% lower than its IPO price from 2015. In Fitbit's 2019 revenue forecast that was released on July 31, management blamed the disappointing sales of the recently launched smartwatch Versa Lite for sending shares tumbling as much as 16%.

Based on a recent report by Strategic Analytics, Apple is the leader in the smartwatch market, followed by Samsung and then Fitbit.

During the press event held before the launch, James Park, CEO of Fitbit, stated that the subscription services are a way of bringing transformation to its business model. Rather than relying on convincing customers into buying a new device after another, the subscription services will help Fitbit hold on to its customers and build a long-term, beneficial relationship with them. Park also mentioned that the subscription services will help create more predictable and frequent revenue streams.

Fitbit's chief competitor, Apple, has found success through subscription services such as Apple Music, iCloud, and Apple TV+. It has also been found that revenue from such services helped Apple offset declines in revenue from the iPhone business.

Talking about Fitbit Premium, it should be noted that this isn't the first time Fitbit has introduced a paid service. For instance, Fitbit already owns a Fitbit Coach App that costs around $39.99 per year and offers personalized video workouts.

Fitbit is also working on another paid service that will allow users to contact certified health and wellness coaches for personalized guidance to overcome weight loss or diabetes issues. This coaching service is supposed to launch in 2020, and these added digital health features are thought to help Fitbit boost its financial health.

With all its advances in the subscription arena, Fitbit is definitely not giving up on its hardware ambitions. But will the new subscription model help Fitbit in the long run?

Presently, Fitbit Premium puts every health and fitness feature that the users require in a single app. There are even fitness collaborative and adaptive challenges in which a user can compete against friends and family. It's a smart strategy because no other app tracks sleep and counts the user's daily step count or resting heart rate.

With all such features, Fitbit will definitely succeed in squeezing some extra money out of their customers. Like Apple's strategy of developing services that are exclusively available to owners of its hardware, Fitbit's new subscription service will keep the users loyal and paying for the long term. In fact, the strategy will prove to be especially beneficial for Fitbit because it offers incremental updates without pushing the existing users to spend more money on new hardware.

Though only nine guided programs are available on Fitbit premium presently, Fitbit said it will be adding more as time goes on. With a lot of updates to come, Fitbit's new subscription model has the potential to help the company take some market share back from the likes of Apple and Samsung.

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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Apple and Fitbit. Read the full disclosure policy here.

The Motley Fool owns shares of and recommends Apple and Fitbit. The Motley Fool has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple and recommends the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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