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Versa and the Race Against Time ?4


Executive Summary: the Versa is likely to sell far more units than the Ionic due to its low price point and improved feature set.  The device shows Fitbit's experience at making cheap products, which is both positive and negative, but also belies the continued immaturity of its software ecosystem.  Even though the Versa does improve the company's prospects significantly, I expect the good fortune to only last until a new wave of competition hits towards the end of the year.

Evaluation Parameters

The Versa was given to an active female professional for evaluation on May 4th.  It's taken us quite a while get an assessment of the Versa out, and the reasons why are significant.  Quick Replies and female health tracking features were announced as available just three days later.  Despite this, the new functionality was not available on our model until May 14th.  This is because Fitbit actually rolled the features out only very gradually in order to test them.  Processes like this have become common, even with end-user devices, but as a programmer, I find them to be sad commentary on the state of both software development and consumer relations these days.

While we waited for the features we most wanted to test, the user quickly came up with the following list of Pros and Cons about the Versa's basic functionality:

Pros:

Cons:

Competitive Assessment

This last point raises what I suspect is a crucially misunderstood point about the recent collaboration with Google.  Alphabet has literally left any trace of its original "Don't be evil" motto behind.  Most consumers have become inured to the privacy concerns that should go along with their personal data being stored on anywhere other than on their own private devices.  So the marketing impact of this new agreement should be minimal or even slightly positive.  What I'm concerned with is the competitive trade off.  Fitbit gets a more reliable and capable cloud than the one that failed it just before the agreement was announced.  What does Google get?  It gets information it can use to further its own health care initiatives, which is all well and good on the big data side where Fitbit was never realistically going to out-compete the behemoths anyway.  However, on the data collection edges, where Fitbit makes its (meager, as of late) living, I posit that Google gets exactly the usage data it needs to fine tune its own wearable devices and the software that runs them.  My position is supported by Fitbit's Terms of Service
By making Your Content available on or through the Fitbit Service you hereby grant to Fitbit a non-exclusive, transferable, sublicensable, worldwide, royalty-free license to use, copy, modify, publicly display, publicly perform, reproduce, translate, create derivative works from, and distribute Your Content, in whole or in part, including your name and likeness, in any media.
and its Privacy Policy
We transfer information to our corporate affiliates, service providers, and other partners who process it for usThese partners provide us with services globally, including for customer support, information technology, payments, sales, marketing, data analysis, research, and surveys. These partners provide us with services globally, including for customer support, information technology, payments, sales, marketing, data analysis, research, and surveys.
I'm not claiming that Google is going to be spying on whether or not you slacked off last Thursday, though anyone who doubts the possibility of even that level of invasive analytics should revisit Facebook's history with Cambridge Analytica.  The real danger here is that Google is able to make aggregate observations for fine tuning Wear OS, and showing what anyone who's really analyzed this space already knows: that the current generation of products are great motivational tools, but poor diagnostic devices.

As I covered in conjunction with the 4Q17 report, Fitbit and Garmin have enjoyed temporary shelter from from Android competition because of stagnant hardware.  However, that is about to change with the introduction of a new SoC (system on chip) from Qualcomm this fall, which will probably debut with a Google branded wearable this fall.  It will be followed by host of new holiday season competitors with vastly improved battery life, due to modern foundry production.  Expect that to be accompanied by plenty of technically independent media reports pointing out the flaws in current health data collection.  However, I expect the deadliest point of comparison will be something I've harped on for a long time...

Messaging

If you've been following my thoughts on wearables, you know that I think messaging is the other key feature (along with health tracking).  Though some have wanted more, we found Quick Replies easy to use and reliable, assuming you become aware of the notification at all.  However, Fitbit has not included any ability to dictate a response, likely because its software is not up to the task.  Alphabet's clearly is, and I expect this functionality to really come to the fore in the next iteration of devices based on the hardware and software mentioned above.  When it does, I think Fitbit is going to have major problems competing.  Our test user supports this, saying
I like receiving texts, when it happens to be connected to my phone.  Quick-replies are a nice to have, but honestly, I have not had too many scenarios when I use them because the conversation needs more than a canned response a lot of the time.
I already dictate messages most of the time on my phones.  I just don't see any way that Fitbit (or Garmin, for that matter) can match Google when it comes to voice recognition.  Arguably, the Flyer headphones, which have a microphone, can simply interface to Android to make use of that functionality, as could a future watch with a microphone.  Nonetheless, I think Fitbit's integration will lag that of native Android and iOS devices. 

Conclusion

Over the current and coming quarters, I suspect Versa sales will improve Fitbit's unit numbers substantially, but its margins less.  The market is already beginning to cheer this and push FIT shares up from the $5 level somewhat.  However, good investing is generally a marathon, not a sprint.  New wearables based on the new Qualcomm SoC are likely to allow the Android ecosystem to shine in ways that will be difficult for others to match. Garmin may be somewhat insulated by its high-end market positioning but the going is likely to be especially tough on the value end of the market, where Fitbit has been forced.  The latest data from Canalys also shows the company facing declining interest in its legacy trackers, as new, smaller competition starts moving that functionality from the wrist to the finger.  Consequently, while Fitbit should seemingly start to hit its stride with the Versa, I won't be surprised to see the company sucking wind again as we stride into 2019.