If you’re looking to stay in shape these days, athletic-shoe manufacturers hope you’re taking an interest in more than just their shoes. Footwear giants Nike Inc., Under Armour Inc. and Adidas Group have been shelling out big bucks for health apps and tracking systems designed to help fitness enthusiasts and novices alike stay in shape.
While fitness trackers of the armband variety come with price tags north of $50, most fitness apps are free for users to download.
So why the multimillion dollar investments in a product that consumers can get free of charge?
Analysts and industry insiders have posed similar questions — most recently of Under Armour’s executive team regarding its $710 million investment in its Connected Fitness platform, consisting of MapMyFitness, which it purchased in 2013, and MyFitnessPal and Endomondo, acquired this past February.
On the heels of UA’s Q1 earnings release on April 21, UBS Investment Bank analyst Michael Binetti reiterated his concerns in a note. “[Under Armour] will have to articulate to investors how it plans to monetize its recent $700 million-plus investments in Connected Fitness,” he wrote.
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And the company’s 2015 guidance, it said, will continue to reflect the net dilutive impact from the Connected Fitness acquisitions, including one-time deal-related costs.
The Business Strategy
As you’ve probably guessed, there aren’t many things that are completely free of charge in the 21st century, and heavy-hitting footwear companies certainly aren’t raking in billion-dollar profits by giving things away.
A few key principles, experts say, are driving this business move.
First, there’s the bundling marketing strategy. For example, Adidas’ miCoach Train and Run app, which allows users to set weekly goals and create personalized training plans, is free to download on Google Play or iTunes. However, it can — and probably should — be used with Adidas’ miCoach Fit Smart armband, which retails for around $150.
To take the monetization and product-integration strategy a step further, Under Armour’s MapMyFitness app has a Gear Tracker feature that monitors users’ shoe usage and alerts them when it’s time for a new pair— complete with a link to Zappos.com to close the deal. Similarly, Adidas’ miCoach also features a Gear Section designed to track shoe usage.
Then there’s consumer engagement. The optimal time to tap into a consumer’s interest in fitness gear might be when he or she is entrenched in a sweat-inducing workout, and health and fitness is top of mind. Brands have become the helpful, motivating coach that’s by one’s side throughout a grueling workout.
Essentially, while providing customers a useful service, footwear giants are taking advantage of a key opportunity to create brand loyalty.
All of this, insiders note, ties together with many footwear and apparel companies’ growing interest in redefining themselves as part of the tech world — think omnichannel.
For now, Under Armour prides itself on having “the world’s largest digital health and fitness community” and announced that its Connected Fitness users recently hit the 130 million mark, with one of five people in the U.S. signed up for one of its apps.
“The premise is simple: the wealth of data — tracking of fitness activities [plus] health choices — will allow Under Armour to sell more shirts, shoes and some services over time through predictive analytics,” said Susquehanna Financial analyst Christopher Svezia in a note. “For now, scalability will likely be the concern, with increasing the user base as a focus.”
