Nike’s FuelBand Could Become Big Business

Nike (NYSE: NKE ) closed 2011 strong. The company saw profits grow to $469
million in its quarter ended in November, up from $457 million year on year.
Revenue grew to $5.7 billion, up 18% over 2010. The brand also is strong in
China, where revenue for the full year came to nearly $1.2 billion, up 25% over
2010. All three of the companys operating segments—footwear, apparel, and
equipment—grew in 2011. Nestled inside Nikes equipment category is what is
perhaps the companys most intriguing business, Nike+. Started in 2006 under the
brand Nike+iPod, Nike+ was originally a set of tools developed in partnership
with Apple (NASDAQ: AAPL ) for tracking running information. The core of the
product line was a small pedometer that could be placed inside a Nike running
shoe and synced with an iPod so a runner could be updated on his progress while
listening to music. In the five years since, Nike+ has grown into a line of
products, including an iPhone app, a GPS wristband, and a growing social network
that boasts a membership of 5 million registered users. Now in 2012 Nike is
looking to expand Nike+ further, making it integral to its entire accessories
and equipment business. Strap it on your wrist Nikes flagship product for the
new Nike+ is the Fuelband, an exercise in both minimalist technological design
and aggressive branding. The device is a thin digital bracelet that houses an
accelerometer, which is designed to measure the number of steps a wearer takes,
the level of movement (based on arm motion), and how much NikeFuel theyve built
up. NikeFuel is, in the companys words, a normalized score that awards equal
points for the same activity regardless of physical make up. Translation: You
rack up fitness points a la Weight Watchers (NYSE: WTW ). Those are tallied
after connecting the band to a PC or an iPhone/iPad and then uploading the data
to the Nike+ social network, where progress can be compared to that of other
contacts. Its an ingenious product. Its built to take full advantage of
consumers infatuation with Apples portable electronics while also indulging the
compulsive behavior thats made social networks like Facebook such a massive
success. Whats more, Nike has announced the FuelBand precisely when another
gadget maker partnered with Apple is flailing. Independent gadget-maker Jawbone
in November released the Jawbone UP, a wristband for tracking health
information, including physical activity and food intake. The device interacted
with Apples devices much like Nikes FuelBand is designed to do. Jawbone UP was
sold through Apples online store, and as a luxury accessory through other Apple
retail partners like AT&T (NYSE: T ) and Best Buy (NYSE: BBY ). But Jawbone UP
was so widely criticized by consumers following its release, that the companys
CEO posted an apology on the companys website on Dec. 8, and offered a refund to
anyone who bought the device in 2011. Good timing for Nike Equipment other than
shoes and apparel brings in significantly less revenue for Nike just $608
million last year compared to $6.4 and $3.3 billion, respectively, for shoes and
apparel. The Nike+ and Fuel brands should help continue to grow that segment in
2012. Nike needs to be careful, though. Like Jawbone, Nike has had problems with
its technology in the past year. The entire Nike+ social network was functioning
so poorly in September 2011 that the company had to issue an apology to users
and promise to revamp the service from the ground up. Its possible that these
woes are behind the timing of the FuelBands announcement. While Nike is also
promising that all of its Nike+ products, including pedometers and heart-rate
monitors, will tie in with the FuelBrand social networking tools, its still not
clear when that functionality will be publicly available. It is clear that the
FuelBand itself has kinks that need to be worked out. As noted in a recent Fast
Company report, the FuelBand can only track activity that has your arms moving,
meaning popular exercises like bicycle riding wont be tracked. Pretty peculiar
considering Tour de France champion Lance Armstrong was trotted out to endorse
the gadget at its debut. But if the kinks can be worked out, Nike has an
opportunity to make its equipment business a billion-dollar operating segment,
and one that competitors won't be able to ignore. As of this writing, Anthony
John Agnello did not own a position in any of the stocks named here. Follow him
on Twitter at