What The IPO Of The Country's Best Known Wearables Company Means To Digital Health
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Fitbit’s blazing-hot IPO has been one of the most anticipated public offerings of 2015. The company’s sleek products have popularized the concept of wearable health and fitness trackers, and even prompted tech giants like Apple and Samsung and LG to launch their own gadgets. With the wearable tech industry poised to take off, Fitbit’s IPO marks a watershed moment in digital health.
Fitbit is going public tomorrow (NYSE:FIT), raising more than $700 million at a valuation north of $4.1Billion. The offering is one of the largest U.S. IPO’s this year. Regardless of day of IPO stock activity – dramatically increasing from its offering price of $20 per share or hovering at the price at which it opens — the public debut of a consumer wearables company from the digital health sector is a big deal.
At the highest level, Fitbit’s success story proves that naysayers were wrong: there is robust demand for consumer digital health products. The FitBit IPO represents a new trend of health consumerism. As consumers are becoming more financially responsible for their health outcomes (due in large part to the ACA), they are clearly responding by taking a more vested interest in their health and becoming more equitable partners in managing their own wellness. Americans are becoming keenly aware of the growing epidemics of obesity, diabetes and other chronic illnesses. As the rapid growth of Fitbit demonstrates, people are clearly willing to regularly monitor their own health goals outside annual checkups at the doctor’s office.
Part of Fitbit’s effective business model is that its devices – wearable clips and wristbands – interface beautifully with iOS and Android software, making them seamless additions to everyday life. This means Fitbit is not catering to a niche market of early adopters or extreme athletes. Everyday folks can make use of Fitbit’s smart scale to track weight loss, or wrist monitor to track improvements in cardiovascular health. Activity tracking, such as step counting, is by far the most popular use of wearable devices. Yet other popular uses include heart rate monitoring, sleep monitoring, blood pressure monitoring, and caring for the elderly, according to a survey from ON World.
Prior to the runaway success of Fitbit, revenue potential of personal health trackers was murky. One of the most important questions any new health startup needs to answer is: who pays? Fitbit is a great example of the digital health sector crossing over into healthcare, which raises the complex question of who foots the bill – the private payer, employers, the government or the consumer?
But because Fitbit positioned its devices as fitness trackers (without making any explicit health claims), the company has been able to tap into a previously untapped market, the consumer, while avoiding the complicated and painful sales process of convincing employers, payers and the government to foot the bill. Consumers today are well educated, and keenly aware of the dangers of a sedentary 21st century lifestyle. They are buying Fitbits to change their behavior and avoid ending up in a doctor’s office after the onset of chronic disease.
Fitbit’s IPO is just the start of a coming wave of auspicious digital health companies. Investors will recognize many untapped markets, exits, and billions of investment dollars more will start flowing into the sector (according to StartUp Health Insights, more than $6.5B was invested in digital health in 2014, and $2.8B has been invested already this year). Fitbit also gives the investor community a successful business model to lean on and proves that consumers will pay for health and wellness. Health and tech companies alike will be smart to take a few lessons from the Fitbit story. Although it sounds like a well-worn cliche, the key to the company’s success really has been its focus on the consumer. A new consumer device cannot be clunky. With an elegant user interface and simple installation, the software and hardware is easy to use every day. Notably, the company did not shy away from hardware. Other health tech companies should heed this lesson. Technology can only enjoy widespread adoption if the customer’s needs are prioritized over additional functionality or frivolous features. In addition, Fitbit’s business model is scalable. Fitbit is now quietly expanding into the corporate world, offering its fitness trackers and software for employee wellness programs.
Fitbit will face challenges. The company is embroiled in a lawsuit with competitor Jawbone over intellectual property issues. Tech heavyweight Apple is making a formidable play in the field with its AppleWatch. Intel acquired Basis Science in 2014 (disclosure: Basis Science was a StartUp Health company). Xiaomi, a Chinese company, also sells wearable devices and is a likely competitor in the global market.
Yet regardless of Fitbit’s long term value proposition, the recent IPO will be considered an important turning point: consumer health is going mainstream. It’s now a highly rational proposition to invest heavily in consumer-facing digital health solutions.
