As rumored, Fitbit has officially finalized their buyout of Pebble. Though, using the term “buyout” or “purchase” seems a bit misleading. In fact, Pebble sent out an email today declaring that they were shutting down the company. The communication referred to Fitbit deciding to purchase “key assets.” Therefore, counter to the original rumor, Fitbit is not acquiring Pebble. Instead, Pebble closed shop today and Fitbit was first in line to buy any meaningful assets. While a small detail, this means that the financials at Pebble were likely far worst than predicted.
If we had to guess, similar to last summer, Pebble was desperate for more cash. Likely, they once again could not find the money through VC and this time were not able to get another bank loan. Their only option at that point would be to sell or close. Pretty much confirming that line of thinking, in an email from Pebble this morning it states that they “can no longer operate as an independent entity.” This is all pretty astounding for a company that turned down a purchase offer from Citizen for $740 million in early 2015 (not even 2 years ago). Recognizing the immediate need to sell, Pebble most likely could not find a purchaser willing to acquire all assets including debt, therefore the only sound business decision left was to shut down (business school 101: shutting down is always a viable option). Details are emerging on what assets Fitbit is purchasing and what Pebble’s closure means for customers and employees.
Fitbit is purchasing only Pebble’s intellectual property. This includes the PebbleOS, watch apps, and cloud services. As part of the acquired assets, Fitbit also owns the Pebble name which they can decide to either use or not. Fitbit will not assume any existing debt and product inventory, employees (including C-level), facilities, and other assets are not part of the deal. Any employees Fitbit does wish to retain will receive a formal job offer and according to Bloomberg about 40% of the employees have received an offer. Beginning last week the job offers were extended to people who were working at Pebble in select divisions. This includes most of the software engineers, a few interface designers, and no one from the hardware teams. Pebble’s CEO, Eric Migicovsky, is moving on to greener pastures at Y Combinator, the startup incubator that Pebble was born from. Any stock held by employees is now worthless.
With Fitbit not acquiring any hardware, effective immediately Pebble is ceasing all hardware operations. According to Pebble, this means they will no longer manufacture, promote, or sell any product. Products such as the Pebble Time 2 and Pebble Core (a connected iPod Shuffle-like device) will never see the light of day. There is some good news though, some of the $40 million brought in from the sale of assets to Fitbit will be used to pay back Kickstarter backers who did not receive their reward. But what if you are a current user of a Pebble watch? The company says existing devices will work as normal “for now.” While Fitbit did acquire Pebble’s cloud services, that likely only means the technology behind it since Fitbit did not purchase any of Pebble’s servers. The future seems a bit unknown for current users and with Pebble’s watches being heavily dependent on the cloud, we are guessing the wearable will not be fully functional for much longer. Also any product currently in the wild will no longer be eligible for support and Pebble does not expect any future software updates.
The road for Pebble has been an interesting one. Not only were they one of the 1st smartwatches on the market, they helped shape the wearable market and catapult Kickstarter into popular culture. When the watch was originally shown to the press at CES 2013, it was an instant hit. Everybody wanted to get their hands on the wearable. But while Pebble was patting themselves on the back, Android Wear smartwatches and the Apple Watch burst onto the market. These devices offered a richer experience with stunning visuals, beautiful hardware, and, most importantly, much tighter integration into the operating system of people’s phones. These deeper hooks allowed Google’s Android Wear and Apple to offer more features, enhanced interactions, and a seamless experience. Despite the increased competition, Pebble believed that their 7 day battery life trumped all else. To keep users interested, they reimagined the PebbleOS in 2015 and added a color screen but it wasn’t enough. After nearly 4 years on the market, Pebble only offered modest hardware revisions and didn’t move with the market. Only one model ever shipped with a heart rate monitor, nothing was ever done to address the much hated giant bezel, and the low resolution screen never excited the market.
Unfortunately Pebble was unable to continue to surf the wave they helped create. They believed in their own hype too much and ultimately were left behind. The halls of tech history are lined with similar companies (i.e. the Rio MP3 player) and it is an important reminder that in tech, you don’t always reap the benefits of being the first mover and defining a category. It will be interesting to see how Fitbit incorporates Pebble’s IP into future products.