In the smartwatch wars, Pebble technology is the scrappy startup pitted against large, established players with deep pockets. That is why, the company’s partnership with Best Buy (announced earlier this week) is a big deal. According to the announcement, black Pebble smartwatches will be available at the electronics retailer’s stores across the United States this Sunday onwards (Canada availability has yet to announced).
The partnership is a win for Pebble, which was partly financed through Kickstarter due to lack of funding from venture capitalists. It also marks a push by the niche technology startup into mainstream markets.
That push is a two-part equation.
Distribution Channels Are One Part Of The Equation
Eric Migicovsky, the Canadian founder and chief executive officer of California-based Pebble technology, told me that Best Buy approached Pebble to discuss “retail possibilities” during their product’s crowdfunding campaign last year. Those discussions fructified into the present partnership more than a year later.
This is the first major retail partnership for Pebble. And, I do not think it is the last one. While Migicovsky refused comment on possible partnerships with other retailers, I suspect we might see the Pebble smartwatch at more big box stores soon.
This is because distribution is vital to expand the market for Pebble’s smartwatches and leverage its first-mover advantage in this product category.
Pebble’s crowdfunding roots and an online-only distribution strategy had constrained the smartwatch’s reach to early adopters and technology enthusiasts. And, this was proving to be a problem.
Back in May, Sarah Rotman Epps, emerging technology analyst at Forrester, told me that Pebble’s audience was niche and limited. According to her, the enthusiastic crowdfunding response to Pebble’s smartwatch last year did not translate into market validation for the product. “Their technology can be easily replicated by large consumer technology players, such as Apple and Samsung,” she said.
To drive growth, innovation and profits, the Y-combinator-backed company needs to refocus its efforts on the mainstream market. Getting their product out to as many markets and customers is key to this strategy. Apple followed this playbook during the PC revolution. In recent times, 3D printer manufacturer Makerbot broke ranks from its open source roots to cater to growing consumer demand for their products.
However, Apple and Makerbot were dominant players in a world of open-sourced startups; Pebble is already competing with established companies.
According to reports, Apple has patented the iWatch trademark in several countries and is expected to launch the product in late 2014. Apple’s arch rival in the smartphone wars – Samsung – has followed suit and Sony has already released two versions of its Android smartwatch.
The arrival of big organizations will prove to be an unequal playing field for Pebble as the former use their financial muscle and relationships with suppliers and distributors to drive price cuts or engage in protracted strategic wars. For example, although it is similar in functionality to Pebble, Sony’s smartwatch has already begun undercutting Pebble’s price. Wider product outreach will help Pebble brand itself in a particular price range.
App Ecosystems Are The Other
In May, Pebble received a fresh infusion of venture funding led by Charles River Ventures. Then, Migicovsky told me that the funds would be used to hire engineers and developers and build a core of Pebble OS to support third party developers.
The last part of that sentence is important because it outlines the other part of Pebble’s market strategy. In the absence of significant product differentiation between major industry players, so far, Migicovsky is relying on a fertile app ecosystem to drive Pebble’s popularity.
Pebble has already developed a customized version of FreeRTOS (an embedded operating system) that uses Bluetooth to connect with both iOS and Android devices. This is unlike Sony’s product, which works only with Android devices. “Pebble becomes better for our users as more apps are written,” says Migicovsky. According to him, the company’s open SDK has resulted in 1,100 apps so far.
Still, that number seems trivial when you compare it to the thriving market for iOS and Android apps. Again, established players hold the advantage here. With their distribution and marketing reach, Apple and Google are preferable platforms for mobile developers. Pebble needs to aggressively push its developer ecosystem until they enter the smartwatch market in a year or so.
Too Much Growth, Too Fast?
Even as it develops distribution channels and app ecosystems, Pebble also needs to iron out its operational issues for a successful mainstream debut.
The company has struggled to deliver orders on time and its customer support has been criticized. After it’s partnership deal with Best Buy was announced, Pebble’s customers and backers thronged discussion forums to complain about the partnership for customers and backers, who had pre-ordered (and not yet received) the watch months in advance.
Migicovsky is unfazed with the complaints. Because Pebble charges a customer’s credit card only after their watch is ready to ship, he says that those who pre-ordered Pebble have not paid in advance. Availability of Pebble at a local Best Buy, thus, makes it quicker and easier for such customers to buy the watch, he adds.
Part of the reason for the company’s logistical problems may be due to it’s rapid evolution and growth. In less than a year, Pebble technology has grown from three employees to 26. It has established and rapidly scaled a contract manufacturing facility in China to manage demand for its watches. In the process, it faced production issues and learned some lessons.
Starting with an initial shipment of 1,400 watches, the company claims to have shipped 100,000 watches to date (though, considering that they are running behind schedule in servicing customers, there is reason to be skeptical of this claim).
Migicovsky calls these growing pains “pretty normal” and is focused on execution.
“There are rumours swirling around [about possible entry of major players],” he says. “But the fact of the matter is that you can go to a Best Buy and buy a Pebble smartwatch this Sunday [in the U.S.]”