Platform Innovation // Blog

The Fuelband Failed But Nike Will Be Better For It

Take a look at the companies leading our economy today.

Google, Apple, Amazon and Facebook — these companies have all taken over their industries in the last decade. Not too far behind are recent startups like Uber and Airbnb that are disrupting and quickly overtaking their competitors. And right up there with them is Nike.

Nike might seem like an odd inclusion on this list. Most would call the rest of these these businesses “tech companies,” but that tells you very little about what they actually do. All it says is that they use modern technology. But what business shouldn’t be trying to do that? Thinking of an Apple, Facebook or Google as tech companies only keeps you from understanding what really drives their success.

So why include Nike on this list?

What Nike has in common with Google, Apple and the rest is that they are all platform businesses — they have business models that use connected technology to facilitate exchanges between their users. Think Facebook and Google connecting users and advertisers or Uber connecting consumers with drivers. Platforms create value by facilitating interactions.

Platform graphicThis is the business model that’s driven the most successful companies of the last decade and will likely come to dominate the next. Connected technology is poised to play an even bigger role in the economy in the years ahead — that’s why I say we’re in the middle of the Connected Revolution.

A big part of why these platform businesses have been able to take over their industries is that existing companies’ cultures and shareholders don’t allow them to transform their business models and embrace platform innovation. Instead, it’s been mostly the VC community and startups that have disrupted existing businesses.

But over the last few years, Nike ventured out into the unknown and started a connected hardware product line, the Fuelband, which had the potential to grow into a platform. Recently, however, reports emerged that Nike had fired most of its Fuelband team and would be moving away from making wearable devices. It would be easy to think of this as a failure. Nike is nixing a product it spent a small fortune developing. But this is the wrong way to look at what Nike’s trying to do.

They are one of only a few established companies that have embraced platforms. Arguably, Nike has been the most audacious, even compared with the likes of GE and Under Armour.

The risks they took, and will continue to take, are an important part of any business trying to innovate and explore new business models. Without risk, there is no reward.

Given the tenure of the average CEO and C-suite, internal company cultures, shareholders expecting quarterly results, etc., it is difficult for a large, existing business to embark on a long-term, risky path that could have negative impacts on the bottom line in the short term. But this is exactly what needs to happen if established companies are going to take advantage of the Connected Revolution. Otherwise they will keep losing out to the new Uber’s and Facebook’s that will emerge over the next ten years.

Despite its short-term losses on the Fuelband, Nike’s going to be just fine. It still has billions in profit in addition to a good learning experience under its belt. And now it has a footprint in the wearable industry with Nike+, which it could grow into a valuable development platform.That said, there will always be competition from young, platform startups and traditional “tech” companies, even if Nike moves in a software-only direction.

So did Nike’s connected hardware initiative, fail? Yes. But is that okay? Yes. Could it be a good thing? Absolutely.

This is the dawn of a new era, the Connected Revolution, and existing businesses need to become more comfortable exploring platform business models. So, Nike should be applauded. While they failed in the short term, failure is part of what it takes to stay an innovative and sustainable business. Fail fast, fail often.

Other established companies should look at Nike’s efforts as a model for how to succeed in the Connected Revolution. If they do, it would enable more of them to focus on their true, long-term success. If they don’t, they risk being part of an old and familiar story: a once-successful business going the way of history.

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