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Cloud innovation allows Fitbit to bend the insurance cost curve

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Like my last articles on the innovative companies Starbucks and Nest, this blog post is a profile of a company that you likely know and maybe even patronize. However, there is an aspect of this company’s story that is not so well known and involves innovation on the cloud.

cloud fitnessI came to Fitbit because of my friend Steve Levy. His birthday was upon us and we needed to purchase a gift for a smart techie type. After thinking a bit on what to get him, we came to activity trackers—the wearable, wireless-enabled devices that measure data such as the number of steps walked, quality of sleep and other personal metrics.

Fitbit, like any new company, started out not thinking to change an industry, but wanting to make the best widget; in this case, the best pedometer. Like many startups, Fitbit chose the cloud to enable its product development. And in late 2009, Fitbit shipped its first pedometer.

According to a recent article on Inc., Fitbit started slowly by selling its product only on its website and then gradually added retailers. Today, its application is one of the top downloads from the Apple Store, according to Fitbit CEO James Park in the Forbes article, “How Fitbit Survived As A Hardware Startup”:

Fitbit is the No. 1 app for fitness in Apple’s AAPL -0.87% App Store, which he said is amazing because you need a $100 device to use it. NPD now says Fitbit has 77% of the market for full body activity trackers…

Did you know that there is another side of the pedometer business?

Like Nest, Fitbit has found a lucrative side business as a data broker. Fitbit discovered that your data combined with the data of thousands of other people can tackle bigger problems—just as we saw with Nest. This time, the problem is cutting your company’s health care budget rather than sparing the local electric company from having to build another power plant.

The new data broker model

Fitbit sells the information that it collects about your health to insurance companies. This way, insurance companies will be able to compare rates and activity levels in different regions and adjust their rates appropriately. This is similar to the way that some auto insurance companies know how you are driving and provide discounts for driving safely. The key is in getting enough people to participate.

Bending the insurance cost curve

Fitbit is in a position to be a consumer-oriented product, given its leadership position. It can potentially “bend the cost curve” by as much as 13 percent (year-over-year reduction in medical trend, what insurers charge employers based on the risk profiles of their employees) according to the PWC article “Factors affecting 2014 Medical Cost Trend.”

While this is very exciting, it will take a few years before we can categorically state that Fitbit devices and analytics are responsible for lowering health care costs. What we know today is that our data is being mined and shared across a growing web of connected things and the cloud is behind the scenes empowering the innovation engine.

Do you have a Fitbit device? Let me know what you think; you can find me on Twitter @GeryMenegaz.

GTS Chief Architect

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