Technology is our friend: UnderArmour buys MyFitnessPal
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February 12, 2015

UnderArmour buys MyFitnessPal

US sportswear company UnderArmour just bought MyFitnessPal and Endomondo - two software companies. In my understanding, this may be a turning point for the whole industry when we look back at it in 5 or more years: The moment where the sportswear industry understood that market mechanics may change dramatically, due to digitization.



(This is an extended version of a quick & dirty post I made on my "microblog" where I collect interesting links in a rather high frequency, but I figured it would make sense to dig a little deeper into this, especially from a European perspective.)

When I grew up, in the 70s and 80s, you had a choice to make: Wether you were a Puma or an adidas person. adidas was more expensive and offered more status, but Puma had Diego Maradona and some other icons.

Performance and fashion
Diego image: https://nostanding13.wordpress.com/2014/05/15/puma-guaranteed-to-score/
Run DMC: http://www.highsnobiety.com/2013/07/31/run-dmc-adidas-originals/
It was then that I started to understand that sportswear companies always served two different purposes: They were fashion companies on the one hand, and sports performance companies on the other hand. And one would benefit the other. Not immediately in my case though: For performance, regarding my never promising and never serious football career, I chose Puma, being - in my opinion - the greatest Maradona fan on earth. For fashion, it had to be adidas, since the adidas "Allround" was the iphone of our time, and I had to belong to the "established" group of fashionable kids who managed to persuade their parents that, at the time incredibly high, a price of over 100 Deutsche Mark for a street sneaker was in fact reasonable. adidas still had the background of a performance-enhancing company, especially with innovations on football boots, and the legend has it that Nike was more or less founded on a university paper named "Can Japanese Sports Shoes Do To German Sports Shoes What Japanese Cameras Did to German Cameras?" by later Nike-Founder Phil Knight - also focused on performance.
But many attribute the rise of Nike to the outstanding ability to use the sports image for fashion - with credible innovative sportswear being the DNA that enables a brand to sign sports icons, but to use them not for propagating the performance enhancement (this comes "built-in" and doesn't have to be mentioned): Nike understood to capture "the zeitgeist of American pop culture and marry it to sports. He [Phil Knight] found a way to harness the society's worship of heroes, obession with status symbols and predilection for singular, often rebellious figures. Nike's seductive marketing focuses squarely on a charismatic athlete or image, rarely even mentioning or showing the shoes." (Stanford alumni magazine, 1997).

In our current digital age, at the brink of jumping into a universal connectedness, where everything will create data, but also receive and act upon data, this zeitgeist may have changed: Maybe it will not only be about marrying the aura of Usain Bolt with fashion and status, but putting us, the customers, into the equation: Unlike in the 90s, sports and fitness have conquered larger age groups and larger parts of society, and the activity is less driven by admiring sports icons, but increasingly by quantifying and subsequently optimizing ourselves. Nike reacted quickly, partnered with Apple and ever since conducts the Nike+ iPod community. iPod? Yes, that thing still exists. But of course that game has evolved, too. adidas and their strategy to create sub-brands like Originals, Y-3, NEO etc. apart from their sports performance brand may seem reasonable if you consider that fashion vs. sportswear polarity, and you cannot judge on these decisions without being a real insider. But their micoach more or less failed, just like Nike's fuel band. Instead, we're waiting for good smartwatches, use brands like Fitbit, Garmin, Mio and Misfit, or apps like Endomondo and RunKeeper. When you are looking for tangible performance enhancement right now, no matter if you are running a marathon or just a few kilometers once or twice a week, you will be looking at apps and tech companies rather than a running shoe sole that may or may not be 2 grams lighter - at least this goes for the mass market. I myself - basically stopped doing sports during my whole 30s and picked up running and rowing together with smarter nutrition as late as last year at 42 - lost no less than 18kg of weight, using Nike and Asics shoes and running gear from Ultrasport. But I attribute the whole success to a variety of apps, not to a sportswear company: I could have used adidas shoes and Puma running wear, and I am convinced the results would have been the same. The glory in my case belongs first and foremost to MyFitnessPal.

Just a small excerpt of apps that cnnect to MyFitnessPal
The calory tracker meets community meets exercise tracker app is able to integrate a variety of other trackers in hardware or software form with a very smart API strategy that led to over 80 million users, many of them primarily using other tracking software like Endomondo, a Danish fitness app founded by Ex-McKinsey consultants who were fitness enthusiasts.

And now UnderArmour bought both MyFitnessPal at a price of 475 million USD and Endomondo at 85 million USD. Not Apple, Facebook, Yahoo!, Amazon or Google, not Withings or any other modern hardware and tech company. UnderArmour is hardly known in Europe except for US Sports enthusiasts or, like me, from in-game-advertising, for example in EA's Fight Night. But in the US, UnderArmour recently overtook adidas in sales.

Unlike the business with physical goods, the data business will move quicker across markets and leads to natural oligopoly (and not necessarily to a monopol like pointed out here in ReadWrite), because scale and compatibility will be major value drivers, and this will only be achieved in a market with few big players rather than many small ones. Sooner or later we will see this with fitness trackers and quantified-self apps, too. The question is whether a sportswear company will rise to the occasion and somehow manage to marry this with - think of the internet of things - connected shirts, shoes, hats and whatnot? If you just focus on today, and on the sales in the next few quarters, a 350mn endorsement deal from Nike for a superstar like Kevin Durant might seem like the right way to go, noticing that his signature shoe brings back 175mn in revenue (not profit) every year. But considering such numbers, buying MyFitnessPal for 475 mn USD does not seem to be such a big bet: In an age where nearly every sportswear product will be able to capture data with sensors, send it to servers somewhere, let intelligence interpret it and present something meaningful to users over a variety of interfaces, from graphs in smartphone apps to voices in your connected earplugs, a head start with 80 million users and an obviously smart and capable tech team in the Silicon valley cannot be such a bad idea.

Currently, Nike still dwarfs UnderArmour in both profit as well as market capitalization, but UnderArmour reports stronger growth and more dynamic. Their latest move may have revealed a part of their strategy that could turn out to be a critical moment in attacking the global sportswear market once we will not only have wristbands and phones that track our activities, but sportswear connected to them or with their intelligence built into it. In this future, endorsement deals with sports celebrities will still be important, just like an advanced gel in your shoe's sole or some fabric that prevents you from sweating too much. But I firmly believe that this will be considered nothing more than a commodity by the larger parts of the market. The credibility in performance that then spills over to fashion and lifestyle will come less from performance enhancements in the materials used. True innovation, and with it the power to disrupt the whole industry, will happen at something that the sportswear industry (like many others) did not have up to now and will have to understand rapidly: a user interface that actually gives a tangible meaning to what customers do with the respective products.