CE changes tack as Jawbone fails
• Liquidation means investors BlackRock and Kuwait Investment Authority are tallying losses from funding the maker of fitness gear
Jawbone is liquidating, though its CE is starting again with a company that moves out of the fitnesstracker business in favour of health-related products, an area that deeperpocketed rivals are also entering.
Jawbone is liquidating, although its CE is starting again with a company that moves out of the fitness-tracker business in favour of health-related products, an area that deeperpockets are also entering.
Founded in 1999, Jawbone was once a darling of Silicon Valley and regarded as a pioneer in wearable technology. Yet the company missed payments, had manufacturing issues that led to refunds for its fitness device and cut employees, despite raising several rounds of funds over more than a decade.
The closely held company also struggled against bigger competition that moved into the wearables market.
Now Jawbone is going out of business and investors including BlackRock and the Kuwait Investment Authority, are tallying losses from more than $900m in equity and debt funding the fitness gear maker raised over the years.
CEO Hosain Rahman has founded Jawbone Health Hub, according to people familiar with the matter. Many Jawbone employees were moving to the new company, said the people, who asked not to be identified because the issue is private.
The liquidation comes after several strategic changes and failures. Jawbone put its wireless speaker business up for sale in 2016 to narrow its focus to health and wearables.
It also ended production of fitness trackers and sold its remaining inventory to a thirdparty reseller.
The company raised $165m in January from lead investor Kuwait Investment Authority at about half its 2014 valuation of $3.2bn, Pitchbook Data says.
Jawbone has been locked in legal battles with Fitbit since May 2015, when Jawbone accused Fitbit in a lawsuit of plundering employees and critical proprietary information.
The biggest asset left in the company is the remaining litigation against Fitbit, from which Jawbone thinks it can generate returns back to its creditors, according to one source.
THE LIQUIDATION OF JAWBONE WILL PROBABLY WIPE OUT EQUITY HELD BY INVESTORS, MEANING BIG LOSSES
The company has been working for several months to focus on healthcare. Although analysts say health-related products and services are a step in the right direction, there is scepticism about whether the company can succeed, given the similar direction from rivals such as Fitbit and Apple.
Fitbit aims eventually to deliver consumer subscriptions that predict health outcomes in its bid to move beyond hardware and into a recurring revenue stream.
This strategy was probably three to five years from realisa- tion, said Joe Wittine, an analyst at Longbow Research.
“These companies have all realised, ‘heck, we need to move on beyond just offering a bunch of data and offer some form of additional intelligence. If we identify some abnormality in your heart rate, would people be willing to pay for that service?’
“If it’s enterprise grade, you bet,” Wittine said.
Jawbone Health Hub could sell its future device to insurers, hospitals, and employers, said Jitesh Ubrani, an analyst at IDC.
The company would have to invest heavily in research and development to develop medical-grade devices that could measure important health indicators such as oxygen levels or blood glucose levels, he said.
“It’s a nail in the coffin for the way we know Jawbone today,” Ubrani said.
“We’ll probably know them very differently going forward. Within the medical industry, they might be recognised, but not by the consumer.”
A once-prized investment, Jawbone attracted investors such as Sequoia Capital, Andreessen Horowitz and Khosla Ventures. Originally, the company made namesake bluetooth headsets and later diversified into portable speakers and UP fitness bands. While initially popular, having won plaudits for design and functionality, the company was plagued by costly manufacturing problems and was sometimes forced to offer customers refunds. Jawbone also found it difficult to compete with Fitbit, Apple and cheaper Chinese devices and, ultimately, faced job cuts, product delays and executive flight.
With Jawbone having raised about $900m in equity and convertible debt funding, the liquidation will probably wipe out equity held by investors, meaning big losses. BlackRock, which lent Jawbone $300m in 2015, marked down the value of debt it held in the company by almost 98%, according to a July 5 filing.
BlackRock also holds a stake in the new firm, Jawbone Health, the filing shows.