Pebble, Fitbit, and some thoughts on scale

The first details are emerging about Fitbit’s ongoing acquisition of the assets of smartwatch pioneer Pebble, in turn an early Kickstarter success.

The fall of Pebble, the company that raised a record amount on Kickstarter in April 2012, repeating the feat in February 2015 is hardly surprising considering the evolution of the category it more or less invented.

Before Pebble, a number of companies, not all of them startups, had worked on smartwatches. Pebble’s own launch hardly made much of a splash, a model for BlackBerry that garnered moderate success for a modest startup formed by five people, who then started work on their next project.

The smartwatch category did not exist as such, and talk of a watch with more features than telling the time made little sense at the time.

Pebble’s success showed many brands that the market was mature enough to get the idea of a smartwatch. Several companies attempted to exploit this segment, from some that had previously released models, as well as new players. But as has happened in other segments, Apple made its move, in September 2014, pretty much paralyzing everybody else’s sales until the launch of the Apple Watch, after which it automatically became the leader in the category.

Meanwhile, Pebble kept up its successes: its second launch video on Kickstarter, the Pebble Time evidence an ebullient Eric Migicovsky with a company of more than a hundred people and another comparatively successful launch for a company of its size, punching above its weight.

The problem with crowdfunding financing is even if the money comes just when it is needed and does not involve losing control of a project, it is not money as such, but simply prepayment for goods that have to be made and then shipped. What the company has to do is capitalize on the intangibles obtained in terms of visibility and prestige through crowdfunding, which admittedly, is a relatively easy task for a small company. Despite Pebble’s success, the company ended up losing a quarter of its workforce and getting deeper into debt to find the money risk capitalists were not prepared to provide.

The reality is that despite two successful product launches that attracted huge media exposure, Pebble never stopped being a startup, with all that entails. Thanks to Pebble and Migicovsky, we learned that learned that crowdfunding could be used as part of a strategy for corporate finance, that crowdfunding was not about money so much as market research, brand development and, above all, the publicity obtained from appearing on tech websites.

Despite appearances, Pebble was always a fragile company in a segment dominated by giants that don’t need to put all their resources into launching a new product and that can take a failure or two in their stride.

Today, despite widespread customer satisfaction, nobody knows if the smartwatch is here to stay, and many pundits say it will go out of fashion over time. As a user of both Pebble and Fitbit, my experience tends to make me think that we will continue to add functions to the devices we wear on our wrists. But it must be said I am a pathological optimist.

So what happened? Pebble, a small company that was offered $740 million by Citizen in 2015, ended up being acquired by Fitbit for less than $40 million, little more than required to cover its debts. The simple truth is that it was not able to reach the scale necessary to compete on equal to equal with its competitors.

Fitbit itself was only able to buy Pebble after growing quickly with a rapid wave of highly successful products and then going public, which allowed it to reach the minimum size required to deal with distribution, the media and the markets. Consumer electronics has complex entry barriers, where being the startup flavor of the month guarantees nothing. Only sustained sales and successful, innovative products guarantee access to financing, distribution and attract talent.

And so Pebble disappears, along with its products, 40% of the workforce has been offered a job within Fitbit, and Eric Migicovsky returns to Y Combinator, where he will be in charge of hardware, an area he has experience in. For most of those involved, their time at Pebble will be something interesting to add to their curriculum, and if nothing else they will have learned that hardware is hard, and in many cases, will have been an opportunity to make some money while pursuing their passion. For others, it will have meant a lot of work for nothing. And for all, this is a another case study providing insight into the business of consumer electronics and the minimum scale required to compete in it.

(En español, aquí)

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