Fitness tracker firm Jawbone goes out of business, leaves customers hanging, in a case of ‘death by overfunding’
Things have gone all wrong for Jawbone, valued at US$3.2 billion just three years ago, as it goes into liquidation and does a disappearing act on its customers
Tech companies have gone out of business before, but they usually leave traces for consumer contact.
Jawbone, however, a maker of fitness trackers and Bluetooth speakers which is in the process of liquidating, is taking a different tack.
Visitors to its website – including the Hong Kong one that is in Chinese – see a company that looks like all is well, and is promoting products – except that there are no links to buy them. In the US, a phone number contact directs callers to a general voicemail box. Customers complain in online review forums of leaving many messages in e-mail and phone form that haven’t been answered.
How Jawbone is handling it “isn’t responsible”, says Gartner analyst Angela McIntyre. A Jawbone spokesperson had no comment.
Early this month tech industry website The Information reported on the liquidation proceedings, saying that co-founder and chief executive Hosain Rahman is starting a new company to make health-related hardware and software services.
Unlike Jawbone, several recent examples exist where makers of past tech fizzles did much more to reach out to their customers.
Pebble for instance – which stopped making new Pebble Watches in 2016 and has since seen some of its assets acquired by Fitbit – has a webpage alerting consumers what to do, and how to apply for refunds if they’re Kickstarter backers.
In late 2016 Lily, makers of the Lily camera – a drone that promised simple flight operations and had booked over US$30 million in pre-orders – shut its doors and promised refunds to backers. The Lily website is down, but Lily has a Facebook page with links for filing refunds.
Other recent product discontinuations include Amazon’s Fire phone, which failed commercially, and the Samsung Note 7, which was recalled. Both were by big companies that stayed around, with processes to contact the company – and in Samsung’s case, get a refund or a new phone.
Despite persistent reports that Jawbone, a San Francisco start-up once valued at US$3 billion – and the beneficiary of US$950 million in venture capital funding, according to data company Pitchbook – was on shaky ground, its demise did catch the industry, as well as ordinary consumers, by surprise.
After all, Jawbone had more than enough money to take on its major competitor Fitbit and other health-tracking devices in the “wearables” market.
That may have ended up being its biggest problem, however.
Top-tier venture capital firms Sequoia, Andreessen Horowitz, Khosla Ventures, and Kleiner Perkins Caufield & Byers, and then sovereign wealth fund the Kuwait Investment Authority, invested hundreds of millions of dollars into Jawbone, lifting its valuation to US$3.2 billion in 2014.
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Ultimately, all that money couldn’t save the consumer electronics company, which began liquidation proceedings in June this year after its fitness-tracker product failed to take off. It now ranks as the second largest failure among venture-backed companies, based on total funding raised, according to the research firm CB Insights.
Jawbone’s fall after raising more than US$900 million provides a stark example of how the flood of cash pouring into Silicon Valley can have the perverse effect of sustaining companies that have no future, technology executives and financiers say.
The irony is that Jawbone could have been a suitable acquisition target some years ago, these same people say, had it just kept its valuation lower by raising less money from venture capital and sovereign wealth funds.
“They are basically force-feeding capital into these companies,” says Sramana Mitra, a tech entrepreneur and consultant, and founder and chief executive of startup accelerator One Million by One Million. “I expect there will be a lot more deaths by overfunding.”
The Jawbone case also underscores the risks that non-traditional start-up investors such as sovereign wealth funds face as they ramp up investments in Silicon Valley. The Kuwait Investment Authority led a US$165 million investment in Jawbone just last year, when its prospects had already dimmed to the point that most of its original investors were unwilling to put up new funding.
Analysts say Fitbit has been way ahead in the wearables market for some time. In 2016, Fitbit shipped 22.3 million devices, and McIntyre guesses Jawbone saw “less than 20 per cent of that”. Gartner estimates that 34.7 million fitness trackers were sold last year, including from companies such as Garmin and Samsung.
Startup failures are not uncommon, but a billion-dollar company that has raised huge pools of money going belly up remains a rarity.
In this, though, Jawbone ranks behind the solar technology company Solyndra, which became the largest failure among venture-backed companies when it filed for bankruptcy in 2011.
Some investors say failures like Jawbone won’t seriously dent startup funding in the near term. Venture capitalists last year raised a record US$41 billion.
“Everyone is trying to find a way to play in the tech economy,” says Rich Wong, a partner with venture firm Accel. “It’s inevitable”, he adds, that there will be big-ticket failures.
Meanwhile, The Information says the Jawbone founders’ new firm will take care of customer service. Jawbone has just yet to show any sign of that yet.
Jan Dawson, an analyst with Jackdaw Research, says consumers should think long and hard before buying products, and really research the company.
“Stories about Jawbone having troubles have been out there for the last year and a half,” he says. “The writing has been on the wall if you cared to look.”
While Jawbone’s existing customers seem out of luck, Jawbone’s competitors may gain some advantage.
Julie Ask, an analyst with Forrester Research, says the wearable market is a tough nut to crack for small companies. She sees upsides for established players like Apple and Samsung, who “have the scale to produce and distribute hardware, plus they have the services element”.
Additional reporting by Reuters