In-Depth: Runkeeper's bid to take on Under Armour

By Jonah Comstock

It’s been almost a year since Under Armour announced its acquisition of Endomondo and MyFitnessPal for a combined $560 million, a year and change after buying MapMyFitness for $150 million.

This acquisition spree was the biggest the connected fitness space has seen since its inception. Not only did it put apparel companies like Nike and Adidas on notice (it’s not a coincidence that Adidas bought Austrian fitness app Runtastic later that year for $240 million), but it triggered something of an existential crisis for the other popular fitness apps that weren’t bought. Instead of facing off against a field of relatively equally-matched startups, they’ve found themselves competing with a 20-year-old, multi-billion-dollar apparel business.

Six months after UA's acquisition spree, one of these software-focused fitness tracking companies, Boston-based FitnessKeeper, makers of the app Runkeeper, restructured  and laid off 30 percent of its workforce. For its part, the company said those lay-offs were not related to market conditions. But since then, CEO Jason Jacobs has reacted in a characteristically bold way, declaring his intentions to compete with Under Armour not only in the fitness space, but eventually as an apparel maker as well.

“It’s who can get there first,” Jacobs told MobiHealthNews. “Can the digital natives like Runkeeper, who are technology companies at the core, that have been cloud-based and personalized and mobile, that have these huge user bases and relationships with the consumer, can they figure out apparel more effectively than the apparel companies can figure out digital?”

He thinks they can.

The changing face of retail

From Jacobs’ perspective, the shift in the fitness tracker market and the apparel market isn’t driven by Under Armour or solely by the rise of connected fitness. It’s also a result of the way online commerce platforms like Amazon are eroding the traditional retail business, a trend that's been going on for some time.

“With these brands, their [business model] is shifting a lot where their main customer has been the retail store and they had a wholesale model,” Jacobs said. “They’re all looking to shift actively to direct-to-consumer, and they’re looking for more touchpoints in between point of sale, so it’s more like an ongoing relationship and less of a transaction. And when you look at the Runkeepers of the world, we’re already embedded in a relationship, so we already have that, but we’re tapping into almost none of the spend. So it became very clear to us, as some of these different things have been converging, that retail should be flipped on its head, so it should be more of a relationship. And given the trusted advisor status we have with the end consumer, we’re in a great position to help them navigate the landscape and get the right products at the right time.”

So it’s not a matter of opening a Runkeeper store at the Mall of America next door to Under Armour. For Jacobs, it’s about being at the forefront of a changing retail world. For many retail sectors, the role of brick and mortar stores has shifted toward being showrooms where customers go to review their options and try on clothes -- before going home and ordering those clothes online. Now that commerce is moving from online to mobile, where the opportunity exists to integrate it with Runkeeper's app.

Runkeeper’s model for selling apparel, and it has already begun to do so with partners like New Balance and Saucony, is to build toward a retail relationship with people who are already using their running app.

“So it’s not blasting the consumer with specials or discounts or things like that, it’s more about doing cool experiential campaigns where you can earn the ability to get something special or suggesting things we know you already need,” he said. “So a few months ago we put... a shoe tracker in [to the app], because we heard from some consumers they had a hard time keeping track of how many miles are on their shoes and if they go too long without changing their shoes they can get hurt. So we put in a shoe tracker, but now we know what kind of shoes they wear, how many miles are on their shoes, and when they’re due for a new pair of shoes. So we could, for example, surface a discount of 20 percent on a pair of shoes that we already know that they wear at a time when they need a new pair of shoes and the consumer finds great value in that and the brand finds great value in that as well.”

Following the acquisitions of Endomondo and MyFitnessPal in early 2015, Under Armour's CEO Kevin Plank discussed a similar running shoe tracking feature that MapMyFitness users had access to in 2014. Plank said that as of February 2015, 300,000 MapMyFitness users had opted to tell Under Armour when they buy new runnings shoe. That data helps the company better understand what happens to running shoes at mile 300 or 400, he said. That kind of information can help UA develop better shoes, help runners choose the best one for them, or remind them to buy one at the most effective time or after the right number of miles.

In other partnerships, including one with Swedish electronic musician Avicii, Runkeeper has created special edition shirts that are only available to users who complete fitness challenges.

Runkeeper is building its apparel business mostly through partnerships at the moment but it's also quietly building an online store and may shift more resources in that direction as time goes on. Brand will continue to play a role in the athletic apparel space, and Runkeeper isn’t going to ignore the time-honored tradition of letting loyal users advertise their brand by wearing it.

“We’re very, very serious about commerce and apparel across a long, long period of time,” Jacobs said. “But there’s a lot of work we can do in the meantime in a really low-risk way just surfacing third-party gear that we trust to our consumers in elegant ways in key moments when they need those products or have earned them due to physical achievement.”

Under Armour’s data-based strategy

It’s all well and good for Jacobs to talk about innovating retail, but at the end of the day his company is still the David in this David and Goliath story. And it’s not as if Under Armour isn’t also exploring the possibilities at the intersection between fitness apps and retail. On their latest investor call, just this week, CEO Kevin Plank spent a good amount of time on the company’s Connected Fitness offering.

“Now let me complete the vision for Connected Fitness,” he told investors. “Beyond enriching lives, it will propel our business forward. This is not a tech initiative. This is a digital transformation and therefore a business transformation for Under Armour. Before Connected Fitness, we only had retail transaction information for less than 10 million people. That's stores and e-commerce combined. Now, we have daily activity level data from our community members, who logged nearly 8 billion foods and 2 billion activities last year alone.”

But listening to the call, it was easy to see Jacobs’ point. Plank didn’t get to Connected Fitness until he’d already talked about the most pressing issue for Q4, the quarter’s unseasonably warm weather. And while he fielded numerous questions about the weather, not a single investor on the call was interested in learning more about Connected Fitness. In short, it’s still just a part of their business, even if it is one they’ve thrown a lot of resources behind.

And on the call, Plank talked more about data collection than about consumer relationships.

“Not only do we have people going into our stores and visiting our e-commerce sites, but we also have a deeper understanding of our consumer based on information collected using Connected Fitness, including sleep, fitness, activity, nutrition, weight and ‘how do you feel?’. This gives us an unparalleled view of their life and needs,” he said.

We reported back in 2014 on how Under Armour had integrated MapMyFitness post-acquisition, and even then the narrative wasn’t around personalized consumer relationships so much as it was collecting aggregate data from users and using insights from that to change overall sales strategies. 

That may have changed with the announcement of Under Armour’s partnership with IBM Watson, also made at CES. This partnership specifically focuses on delivering personalized insights to users.

“IBM's Watson, a platform that executes cognitive thinking, will provide personalized insights in real-time to the user based on the information we collect through UA Record and will take the experience and service to a whole new level,” Plank said on the call. “By adding Watson's insights to UA Record, we deliver directions to help you reach your personal goals, whether you want to lose 10 pounds or simply just feel better. This is what differentiates UA Record from the rest of the fitness tracking apps and what gives us confidence in the consumer experience we're building to help change the way athletes live.”

Under Armour may not be integrating its mobile experience with its retail offering in all the same ways Runkeeper is, but it certainly seems to have the tools at its disposal to do so.

The hardware question

One piece of Under Armour’s overall strategy that’s been highlighted recently is hardware. Under Armour unveiled a full five devices at CES: It’s HealthBox, consisting of an activity tracker, a weight scale, and a heart rate strap; a pair of connected shoes called the Gemini 2 RE; and heart rate tracking headphones to be launched in partnership with Harman Kardon JBL.

Moving from the fitness app space into hardware also could be what got Runtastic noticed by its acquirer, Adidas. When it was bought, it was one of the only companies to move in that direction, from tracking app to tracking hardware maker with its Runtastic Orbit wearable and its connected scale. That said, we’re still waiting to see what Adidas will do with that acquisition, and how big a part Runtastic’s device business will play, if any.

For his part, Jacobs is as bearish on the wearable space as he has ever been

“I think those products are going to bomb,” he said. “You need a scale and you need a pedometer and you need a heart rate monitor, but there’s companies that have been making those products for their whole existence. Now the Apples and the Googles of the world increasingly integrate core fitness technology onto things that are companions to the phone and … we feel like fitness is a core use case for those devices. So it’s only a matter of time before the Apple Watch has GPS in it. We’re very bullish on Apple to do its job, Google to do its job and companies like Withings, the core consumer product companies to figure out those things. Hardware is another whole can of worms and while each of these categories will persevere, there’s going to be a lot of blood in the streets because that space really is getting commoditized while the value is in the community and the data.”

So can Runkeeper take on Under Armour?

According to Jacobs, a new category is emerging that blends both the traditional sports apparel companies like Nike, Adidas, and Under Armour and the newer consumer fitness startups like Runkeeper and Strava. Soon, those categories will be one, in which a company’s digital savvy is paramount to its success.

“I think Under Armour’s bet is really smart in terms of where the world is going, but it’s not like it’s visionary of me to say the next wave of fitness brands will be technology companies,” he said. “I mean Nike spent more than $500 million on this stuff and Under Armour’s now spent close to a billion with the three acquisitions and Adidas just made a quarter of a million dollar acquisition. Everybody sees it, but the hard part is the execution.” 

Jacobs thinks the market will bear more than one or two digital fitness brands.

“It’s not a single horse race,” he said. “It’s not winner-take-all where someone’s going to run the whole table. There’s going to be a pack of multi-billion dollar fitness brands, but every one of those companies is going to be a technology company at its core and it’s really hard for me to believe that 100 percent of those companies are going to be incumbents that transition and figure out digital, especially after spending so much time with these incumbents over the last several years and seeing where they are with those transitions.”

He pointed to the example of Nike’s digital fall from grace to show that being successful in apparel and recognizing the value of digital early on wouldn’t necessarily be enough to facilitate the transition.

“Nike saw it earlier than anyone else,” he said. “But I think they’ve realized that becoming a technology company is hard. And it’s especially hard if you work with a bunch of outside agencies to do your core software development. And given the investment they’ve made I don’t think anyone would claim, even them, that they are in the leadership position as it relates to digital today. I think the landscape is still open.”

Jacob’s bid for relevance following 2015's acquisition spree may seem like a longshot to many, but he’s deadly serious about taking them on.

“There’s going to be a new leadership pack in this next era. So these big fitness brands will all be technology companies at the core. How many will be incumbents and how many will be upstarts? I can almost guarantee you that at least one will be an upstart and at least one incumbent brand will go away.”