The Inside Story Behind Pebble’s Demise
The CEO of the feisty smartwatch company explains what went wrong, and why Fitbit scooped it up.
If the myth of Silicon Valley is to be believed, Eric Migicovsky should be ebullient. After all, he has failed. For the past nine years, he spent time and made time — 24/7 — with Pebble, a smartwatch company he started as a 21-year old whelp while studying abroad in the Netherlands city of Delft, known more for pottery than technology. His trajectory has been niche legendary: struggling Y Combinator startup, Kickstarter hero, builder of a platform, and seller of over two million smartwatches. Sounds like a lot, but it wasn’t enough. Pebble was losing money, with no profit in sight.
So on December 6, Migicovsky sold Pebble’s key assets, including its intellectual property, to Fitbit, which will reportedly hire about 40 percent of his workforce. At 30, he’s facing the first days of his adult life without the title of CEO. And in a culture that fetishizes failure, he has earned the ultimate credential: a crashed and burned startup.
But he is not ebullient.
Nor is he mopey. When I met the lanky (he’s six foot six), bearded Canadian last week in a Palo Alto diner, Migicovsky was the same cheerful, thoughtful fellow I’ve known in more promising times, though our conversation did have a uncharacteristic sobriety. After all, it was the day the Fitbit deal closed.
Migicovsky agreed to meet with me because I have been intermittently chronicling his company. I interviewed him while he was the lone hardware startup in the Y Combinator, class of Winter 2011 (his company was called Alerta then, and the watch named InPulse), and during the last two years, Backchannel has visited him multiple times for a series we dubbed “Adventures of Pebble.” I made a point of visiting him the day after Apple announced its watch in September 2014; Migicovsky said Pebble would benefit from the validation of wearable products. I saw an early version of the very cool Swatch-like Pebble Time Round. And earlier this year, I was excited to see Pebble expand its product line to a screenless gadget that would hook on a key ring and stream music while it quantified your run. (It would also run Amazon’s Alexa software, delivering thousands of skills upon voice command.) When we were arranging this meeting — after reports had leaked about the sale — he said out loud what I was already thinking: I’d be writing about Pebble’s last adventure.
“Adventuresome” is perhaps a kind way of describing Pebble’s year: 2016 started in crisis. The year before, the once-profitable company dropped into the red, and hit the second half 2015 by not meeting its sales goals. Pebble would never be profitable again. In March of 2016, Migicovsky laid off a quarter of his staff of 160, just as the company moved from its cramped, loft-like Palo Alto headquarters into a gleaming, spacious new office tower in downtown Redwood City. In its optimism, the company had rented two floors; now it fit on just one.
It turned out that both Pebble — and, incidentally, Apple —had misjudged the wearables market. The idea of an iPhone on the wrist hasn’t caught on. The one killer app for wrist devices, at least so far, seems to be fitness. Active people find it useful to wear something that quantifies your biometrics and tracks your runs. Apple’s emphasis on fashion and Pebble’s on productivity and third-party innovation were costly detours—the smartwatch market is rooted in health and fitness. “We learned late, and Apple is learning this as well,” says Migicovsky. (He acknowledges that notifications are perhaps the other key function smartwatches perform.) “We did not get this in 2014 — if we had come out then as the smartwatch fitness wearable, maybe it would be a bit different.”
To its credit, Pebble has been working quickly to play catchup with its brand. The products Pebble announced earlier this year did concentrate on fitness, most notably the Pebble Core, that aforementioned key-ring gadget, which is roughly the size of a mahjong tile. (You’ll notice that the second version of the Apple Watch similarly targets the fitness crowd.) Pebble also introduced new watches optimized for health apps, with heartbeat monitors. The April Kickstarter announcement got over $12 million in orders.
All of that came too late for Pebble to reap sales that might rescue the company. The Core is destined be become a ghost product, a brilliant prototype that will never be delivered to the 24,000 people who ordered it on Kickstarter. (They will get refunds through the Kickstarter system.)
But what Migicovsky didn’t tell me when he spoke about the Core during our April conversation was that Pebble’s return to Kickstarter was forced by the company’s inability to raise funds. “It was difficult to raise money around the layoffs. That was kind of a non-starter,” he now says. “That’s why we did the Kickstarter. After the Kickstarter we tried to raise money and we were unable to.”
Throughout the spring and summer, Migicovsky tried everything to keep the company afloat, with his efforts coming to a frantic crescendo as summer waned and a poor holiday season loomed — the new products were late, with scheduled shipments not slated until 2017. “September was hectic,” he says. “I was flying around the world, flying to China, trying to do a deal with a licensee to license the operating system, talking to investors — a really different tier of investors than the ones that you talk to in other stages of your startup.” Instead of top VCs he was visiting private equity companies, family-based investing offices—companies outside of the normal tech circles.
He brainstormed wilder alternatives, at one point even mulling crowd-sourced equity funding. But because the company had already gotten criticism for going to the Kickstarter well too often, that option was discarded. As were other options, including Hail Mary schemes “like firing everyone and bringing the company down to 10 people and just seeing what would be next.”
He now compares the situation to the real-time gaming scenarios that election night commentators charted as states kept going red: what was the narrowing path for Hillary Clinton to eke out an electoral victory? As with the Democratic candidate, there proved to be no path.
In October, Migicovsky made the final determination that Pebble was sunk. It was time to sell off what he could, with the priority of protecting his customers, sticking by his developers, and doing the best he could for his employees. Oddly, the pivot gave renewed energy to him and his executives. “Once we made that decision in October it was straight shooting,” recalls Migicovsky. “We had a mission. We had to sell the company.”
The best suitor turned out to be Fitbit, a leader in fitness wearables and a recent entry into the smartwatch market.
Migicovsky says that what attracted him to Fitbit (besides the relatively modest cash, which Bloomberg Business Week estimates as south of $40 million) was the company’s willingness to keep Pebble’s developers and users in the game. Though it’s not clear how this will unfold — will future Fitbit watches run on the Pebble operating system?— Migicovsky now indicates on his blog that the Fitbit deal could expand the reach of developers from Pebble’s user base of two million to Fitbit’s 50 million. “Fitbit is going above and beyond to support the developers,” says Migicovsky.
Though all the particulars of the deal aren’t public (and Migicovsky wasn’t free to share them), from the announcements in the respective Pebble and Fitbit blogs, the deal emerges as an asset sale involving Pebble’s software, firmware, patents, but not the actual hardware or inventory. Pebble is still responsible for its own debts. A number of Pebblers, as Migicovsky’s employees are known, will join Fitbit; they’re mostly engineers — an awkward circumstance, to be sure. Migicovsky confirms that those who don’t will receive severance.
Pebble watches will still keep ticking, of course, and initially, Fitbit will support Pebble watches, though warranties are no longer valid. Those who created third-party apps and add-ons can still sell to what will be a shrinking Pebble community. Those who ordered Pebble products on Kickstarter will get refunds.
Fitbit has had its own problems of late— last month it cut its estimates of holiday sales and its stock is at an all-time low — but adding the expertise of Pebble’s engineers and the patents on some of Pebble’s more innovative features will presumably improve future Fitbit products. Ironically, when I spoke to Migicovsky last April, he cited Fitbit as a company that understood early that fitness would be the dominant function of wearables in these early days, and was building on that. “They have an outline of how they transition from health and wellness into more of a general-purpose smartwatch,” he told me. “We have the opposite situation right now where we started out as this general purpose smartwatch and need[ed] to recognize that health is one of the number one things people do with Pebble.” He had no idea then, of course, that Fitbit would try to accomplish its transition with the remains of his own company.
A press release statement from James Park, CEO and co-founder of Fitbit, synchs with this theory: “With basic wearables getting smarter and smartwatches adding health and fitness capabilities, we see an opportunity to build on our strengths and extend our leadership position in the wearables category.” (I tried to talk to Park but wasn’t able to connect with him before my deadline.)
Migicovsky himself will not be going to Fitbit. He won’t confirm or deny reports after our conversation that he will work for Y Combinator. No matter what he does, he’s not leaving Pebble as a wealthy man. “It’s not that kind of a deal,” he says. “This deal is mainly about customers, employees, and vendors.”
“I wouldn’t change that much,” he says. “It didn’t go perfectly to plan, but things rarely do. We gave it a shot. We built a great product, we shipped it, we started a market…and we weren’t able to get to the next step.”
And what about that Silicon Valley badge of distinction known as failure? Migicovsky doesn’t believe he owns it. “I wasn’t necessarily following the mantra of fail fast,” he says of his nine-year odyssey. Yet, for Migicovsky, a large motivation for the sale was preservation—the opportunity to continue nurturing the community he’d built. “It’s not a massive community, [but] I think it’s a meaningful amount: two million people out in the world,” he recalls.
As I see it, Eric Migicovsky accomplished quite a lot in his twenties. Despite its abrupt ending, Pebble was an innovative and expansive company that delivered value to its users and an appreciative community for developers. It was a breath of fresh air in a space where big companies compete with grim and sometimes misguided determination. Only 30, Migicovsky has plenty of time for future glories. And plenty of leftover watches to keep that time.
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