Fitbit's Wearable Market Share Slips Even as Sales Surge

By Markets Fool.com

Image source: Fitbit.

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Fitbitis in a fight for its life right now, though it may not seem like it. Sales of the company's wearable devices were up about 25% in the first quarter of the year, according to new data from IDC.

That sales increase was more than enough to keep Fitbit in its spot as the No. 1 wearable device maker worldwide.

But the darker side of the story is that its leadership position is slowly being chiseled away. In the first quarter of 2015, Fitbit held a commanding 32.6% market share in wearables space, while Applehad 0% (on account of the fact that it hadn't launched its Watch yet), and its closest competitor, Xiaomi, had just over 22%.

What's interesting about Fitbit's wearable market share loss since then is that it hasn't come only from Apple's gains. The iMaker now holds 7.5% of wearable market share compared to Fitbit's nearly 25%. But additional gains were made from Chinese vendor BBK and other smaller vendors.

And there are a few reasons Fitbit should be worried.

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It's getting crowded in here

It's been clear for a while that Apple's move into the wearable technology space would be bad news for Fitbit, but the rise among smaller players shows that Fitbit is also vulnerable as the wearable tech space becomes more crowded.

Apple dominates the smartwatch market, and it's not likely Fitbit's Blaze, or subsequent smartwatch releases, will change that much. The Apple Watch's superior design and its ability to run third-party apps, Apple Pay, and the broader Apple ecosystem give the Watch significant advantages that Fitbit can't match.

But now it's clear that Fitbit will also have to contend with smaller players that ship inexpensive wearable devices as well. According to IDC the "Others" category of vendors took 37% of wearable shipments in the first quarter, up from 33% a year earlier.

A two-front war

I think Apple's high-end wearable tech market share and the cheaper wearables from the IDC "other" category represent a two-front war for Fitbit.

Clearly, the company knows how to sell good devices to consumers, but as I've mentioned before, Apple could easily enter the cheaper segment of the wearables market and cut Fitbit's lead relatively easily. All Apple would need to do is introduce an iBand (just guessing on the name here) that targets Fitbit's popular $130 Alta band or $110 Fitbit Charge, and its current sales numbers could be in big trouble.

All of that is hypothetical of course, but even if it doesn't happen Fitbit investors should still be concerned about smaller vendors. As wearable technology becomes more pervasive and cheaper, it'll be harder for Fitbit to differentiate itself in the market.

The company has the lead right now, and it's doing a decent enough job holding onto it, but the bigger question is where does it go from here? If it adds lots of new sensors, displays, etc. then it needs to raise prices -- which will put it in closer competition to Apple. If it keeps the status quo then vendors making inexpensive devices that offer good-enough features will continue to encroach on Fitbit's market share lead.

Investors really need to see Fibit releasing new products that set them apart from cheaper wearable devices. Fitbit's advantage right now is that it got into wearables early, but I don't see any true competitive advantage that other device makers can't replicate. And that should be just a little worrying to for the company's investors.

The article Fitbit's Wearable Market Share Slips Even as Sales Surge originally appeared on Fool.com.

Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.