While Apple and Other Smartwatch Rivals Go High, Fitbit Goes Low—In Prices

Fitbit is pushing a smartwatch strategy that’s noticeably different from rivals Apple, Garmin, and Samsung: Lower prices.

On Wednesday, Fitbit unveiled four new devices, all priced below its previous smartwatches and some below its most popular fitness trackers, as well. And the struggling company offered a few hints about a new effort to raise revenue through a premium subscription service.

The most expensive of the new products, called the Fitbit Versa Lite, is a smartwatch that lacks a few features available on the company’s 2018 hit, the Versa. Priced at $160, the Versa Lite costs 20% less, but can’t count the number of laps a user swims, store music files, or be used for mobile payments. It still includes sleep tracking, four-day battery life, and compatibility with Fitbit’s app ecosystem. Fitbit also said it would continue selling the original $200 Versa and $300 Ionic, introduced in 2017, without any hardware updates yet (“stay tuned on that front,” says CEO James Park).

Other new products introduced on Wednesday were even cheaper. A new fitness tracker with a touchscreen display, called the Inspire, will cost just $70. A model with heart-rate tracking, called Inspire HR, costs $100.

They’re both meant to update a couple of Fitbit’s aging trackers, such as the Alta and the Zip. Finally, the company updated its Ace tracker for kids with a model called the Ace 2 that, at $70, will cost 30% less than the earlier edition.

The goal is to increase the number of active users of Fitbit devices and then sell them a new subscription service that is supposed to debut in the second half of this year, CEO Park tells Fortune. Without revealing much detail, he said the subscription would include more coaching, guidance and content to help users with issues like weight management, improving sleep, and reducing stress.

“It’s really not just about the devices for us anymore but thinking about our business model as a combination of devices and services,” Park says. “We really focused this spring’s launch on making sure that our products were much more affordable and simpler to use.”

Services could also help improve Fitbit’s profit margin. The company’s gross profit was about 40% of its revenues last year. Digital services could be much more profitable if they can attract enough customers. Apple disclosed it reaped a 63% gross margin on its services last quarter, for example.

Lower-priced devices should also help Fitbit attract more healthcare plans and large employers to its burgeoning corporate business. Insurers like UnitedHealthcare and Humana are giving customers Fitbit trackers to help them exercise more regularly. That boosts device sales along with some services Fitbit offers the insurers. Fitbit’s healthcare business should hit $100 million of revenue this year, Park says.

Apple (AAPL) went in the opposite direction with its smartwatch lineup last fall. The Apple Watch Series 4 started at $399, up from $329 for the previous year’s entry-level edition. A model with cellular connectivity costs $499, up from $399. And Garmin (GRMN) is expected to add a price premium to a new version of its $280 vivoactive 3 Music smartwatch that will include cellular connectivity and go on sale in the next few weeks. None of Fitbit’s products yet come with cellular connectivity.

Fitbit is also developing a loyalty program that will let customers earn points from activities tracked on their Fitbit devices that will be redeemable for discounts on Fitbit products and rewards from partners such as Adidas, Blue Apron (APRN), and Deezer. Fitbit noticed that a program used by UnitedHealthcare to reward members with up to $1,500 a year in rewards for exercise activities gained popularity and it decided to offer something similar to its own customers, Park explained. “It really incentivized people so we’re taking what we learned there and applying it to our consumer side,” he said.

And all Fitbit customers should have access to an overhauled mobile app for their phones soon, Park said.

Park and his team are still trying to pull Fitbit (FIT) out of the doldrums. Sales of fitness trackers peaked at 22.3 million in 2016, a year after Apple introduced its first smartwatch. Fitbit’s first smartwatch, the Ionic, didn’t go on sale until over two years after Apple’s and was hardly a smash hit. With more consumers seeking more capable smartwatches, Fitbit sold only 15.3 million devices in 2017 and 13.9 million last year. And Fitbit’s stock has lost over 70% of its value since the company went public almost four years ago.

Wednesday’s device announcements comes a week after Fitbit disappointed Wall Street with its fourth quarter results and a weaker-than-expected forecast for 2019.

Revenue of $571 million was unchanged from a year earlier and slightly better than analysts expected. But a forecast of $1.52 billion to $1.58 billion for this year, versus $1.51 billion in 2018, disappointed investors and ended a recent stock rally. After finishing 2018 below $5 per share, Fitbit’s stock had rallied to just under $7—until the quarterly results on Feb. 27. The stock has since slumped, closing at $5.92 on Tuesday.

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