Legal

–          IP rights safeguard company innovations against theft by rivals. However, it does not offer immunity against duplication.

–          Pebble’s ideas were copied and improved by rivals such as Boxall (2018), but it retained its technologies which it sold to Fitbit.

Environmental

–          Wearable and smartwatches are being improved to predict weather patterns and climate change.

–          These factors are aimed at enhancing the quality of lives for customers.

–          Firms that fail to integrate these features are unable to meet changing customer expectations (Mills, 2016).

Strengths

–          Pebble had a differentiated and unique idea to pioneer the smartwatch trend.

–          Cult like following by tech savvy consumers.

–          Intellectual property as well as high-skill technicians and engineers

Table 2: Pebbles SW of SWOT Analysis

• Classical Theoretical Perspectives

Deterministic Framework

An analysis of the external environment, as elaborated in the previous arguments, justifies the deterministic argument, which posits that business owners such as Migicovsky’s reaction to the demise of Pebble was constrained by environmental constraints and exogenous industrial factors beyond his control (Levy 2016). This statement is backed by the organizational ecology (EO) and industrial organization (IO) perspectives. These two perspectives assume that external factors have power over the success and demise of organizations and that organizational failure can result from external factors over which the owner has no control (Mellahi & Wilkinson 2014). Applying the two perspectives to the case of Pebble justifies the reality that industrial organization (IO) coupled with shocks resulting technological and demographic changes led to the failure of Pebble. Levy (2016) explains that the shocks from technological changes arose from aggressive incumbents who used their massive resources to introduce better smartphones interoperable to their operating systems. For instance, Apple introduced its smartwatch version that could easily interface with their iOS. This strategy significantly disadvantaged Pebble, whose system also worked on the iOS operating system. As a result, Pebble lost its key competencies.

The organizational ecology (OE) perspective argues that other organizations affect the possibilities of failure or success of other organizations. This argument evolves from the fact that the organizational ecosystem supports mutual interaction among firms (Berryman 1983). In the case of Pebble, the ecosystem is varied in the sense that some organizations are more prominent in size, and others are aged. These firms influence the industry life cycle and a population density which ultimately creates mortality hazards. Stables (2020) explains that the high population density in the smartwatch industry, as well as the availability of cheaper options from Chinese manufacturers such as Huawei, and Xiaomi made it hard for Pebble to compete. Besides, the liability of smallness and young age, created intensive competition and a strain on resources, making it hard for Pebble to break-even and succeed in the long term.

• Comparison

Jawbone was a privately held American manufacturer of wearable products and consumer technology. It was founded in 1999 and rose to become a prominent brand in fitness tracking (Smith, 2019). Under the leadership of Hosain Rahman, as CEO, the company produced wireless technology, wireless speakers, and Bluetooth headsets and further advanced to developing quality wearable technologies such as wristbands. Jawbone marketed its wearables as the Internet of Things. Before its demise, it was considered the unicorn of wearables and this reputation helped raise funding amounting to $3 billion from venture capitalists in the Silicon Valley (McNeill, 2016). Regardless, Jawbone began its liquidation in 2017, thus sharing the fate of Pebble (Hern, 2018). As a result, this section uses the root cause analysis to compare the two companies.

• 
  Root-Cause Analysis for Jawbone

Figure 2: Jawbone’s Root-cause Analysis

As evident in figure 2 above, Jawbone’s failure was caused more by internal than external factors. McNeill (2016) argues that after many years of operations, the firm had gained skills and experience to enable it survive the intensive competition in the wearables industry. However, internal factors led to its demise. Internally, Jawbone failed to execute projects such as fitness tracking and health tracking. The delayed launch of these products in 2011 led to considerable loss of revenue which marked the beginning of financial struggles. Amankwah-Amoah (2016) notes that firms with small sizes such as Jawbone need to operate lean processes to minimize wastage and optimize profits. Failure to balance these two could lead to losses and ultimate closure of business. In addition, Jawbone failed because of poor management of product development which lead to high rate of failure of its products, overpromising and underdelivering as evident with the failed production of a waterproof fitness tracker (Smith, 2019). All these factors led to financial challenges which were exacerbated by the failed launch of health devices. The internal factors are culminated with a lack of managerial cognition. The management failed to anticipate these challenges and eliminate them, thus compromising the financial capability of Jawbone.

The fishbone model further notes that external forces contributed to the failure of Jawbone. The environmental factors include rapid technological advancements, and customers demanding more features than Jawbone was capable of offering at that time (Insight, 2017). Ecological disadvantages resulted from deep pocketed incumbents and rapid increase in intensity of rivalry.

• Meso Factors

The deterministic perspective argues that organizations fail because of environmental constraints and unfavourable exogenous industrial factors. This view further assumes that managers and business owners have little control over the industrial factors causing their failure (Insight, 2017). An analysis of the case of Jawbone reveals that shocks resulting from technological changes triggered its collapse. Incumbents with deep pockets and resources, quickly adapt the new technologies introduced by Jawbone, which was cash strapped. The external pressure exerted on Jawbone by powerful incumbents, controlling the iOS and Android operating systems, forced the Jawbone out of the market (Insight 2017). The failure is further blamed on the price sensitivity of the customers who prefer cheaper and functional alternatives. Given the intensity of financial investments required of start-ups to differentiate their products, it becomes unrealistic to produce quality goods at lower prices.

On the other hand, the incumbents copy and duplicate key features because they have established processes to support cost-effective production. This argument is justified by the failure of many start-ups, including Pebble which was purchased by Fitbit. Then Google acquired Fitbit (Khalid 2019). Besides, changes in customer behaviour, taste and the many numbers of players in the market added to the complexity of the industry, making it hard for Jawbone to thrive.

• Comparing Causes with Pebble

Just like Pebble, Jawbone failed because of both internal and external forces. Both companies were unable to withstand the complexity of the smartwatch and wearable industrial organization. Also, organizational ecology (OE) contributed to the failure of Pebble and Jawbone (Insight 2017). OE uses the natural selection model to explain how the industrial ecology in the wearables and smartwatch industry led to the demise of these two firms and other start-ups, including Fitbit. A high population density defines the ecology within the wearables and smartwatch industry compared to the relatively low number of tech enthusiasts in the global market. The industry life cycle is in the maturity stage, which makes it hard for the new entrants to survive. The OE is complicated further by the liability of newness, liability of adolescence, and liability of smallness which increases their mortality rate for firms such as Jawbone and Pebble (Agarwal et al., 2002). New and adolescent firms have low stock of assets mostly acquired from angel investors, loans and venture capitalists. Repaying these liabilities contributes to small capital outlay. Assuming that Pebble and Jawbone joined the industry in the introduction or growth stages of the industry life cycle, they would have had a higher chance of survival than when they participated in the maturity stage since the incumbents have heightened barriers to entry. The OE and IO perspective, therefore, justify that environmental factors drove the failure of Pebble and Jawbone as opposed to internal factors. Contrary to this viewpoint, Smith (2019) argues that internal factors such as poor strategy might have contributed to the demise of the two organizations.

• Voluntarist Perspective

Internal causes of organizational failure are captured under the voluntarist perspective and can be explained using organizational psychology (OP) and organization studies (OS) viewpoints. Unlike the deterministic view, voluntarists blame managers for the demise of organizations (Agarwal et al. 2002). Internal factors that could contribute to business failure include tenure and homogeneity of top management and managerial perceptions.

As much as both Pebble and Jawbone collapsed partially because of internal factors, the key take is that Pebble’s collapse was more of psychological factors. In contrast, organizational factors triggered Jawbone’s failure. Levy (2016) explains that Eric Migicovsky became doubtful of his ability to lead during turbulent times. As much as Pebble had competent engineers and technologies, the CEO became rigid when threatened by incumbents. The CEO needed to have reacted faster to the threat posed by Fitbit, Apple and Huawei to continually be ahead of the innovation curve (Akana et al. 2019). For instance, he should have led the company into producing more advanced smartwatches than its rivals, especially Apple. Instead, the decision to produce multiple products with distinct features confused customers, who begun to prefer the complete package of wearable and smartwatch capabilities provided by rivals. The fear of failure triggered psychological factors such as self-doubt and denial, which led the CEO into seeking a buyer for Pebble (Levy 2016). The once over-optimistic start-up experienced tadpole failure as a result of the psychological impact of competition on the CEO. Jawbone’s failure can be blamed on organizational factors, especially the failure in feasibility. Canal (2017) reports that Jawbone’s problems begun when the management failed to properly execute its move to fitness tracking and health devices in 2011. Failure in the execution of the transformation led to product failures and subsequent financial struggles.

• Strategize

Guided by the analysis, it is notable that Pebble had a reliable and robust team of experts. This ranges from its technical team and engineering who ensured the firm produced innovative and differentiated products. However, the problems leading to failure resulted from external and internal factors such as aggressive competition from Fitbit and Apple’s smartwatches, among others. Pebble failed to keep up with the rapid evolution of the wrist-worn wearables market since the market matured fast. Trahms, Ndofor and Sirmon (2013) report that when the consumer electronics markets reach maturity phase of the industry life cycle, there is increased competition for market share, lower profit margins and higher product bar. As the margins lower, the profit margins thin, making it hard for the new entrants to survive. Given the low prospects of sustainability and long-term survival, an exit strategy would be most viable. According to Koi-Akrofi (2016), an exit strategy is a carefully planned approach to terminating a company or relinquishing ownership to either minimize damage or maximize benefits. Designing a successful exist strategy could lead to substantial profits for the business owner. On the contrary, the lack of a plan could lead to losses.

Pebble should consider a planned exit rather than a sudden exit. Wennberg et al. (2010), however, notes the dilemma in deciding whether to use the internal or external exit strategy. Internal exit means selling the firm to partners, managers, family or employees while external exit could entail liquidation, IPO, recapitalization, financial buyer and merger & acquisition (M&A). Considering the high skill level of the employees at Pebble, the best exit strategy would be a merger and acquisition by a larger and successful incumbent such as Apple, Amazon, Nike or Google (Akana et al. 2019). These are deep-pocketed firms that have interests in wearable and fitness technologies. They are likely to consider an offer for Pebble’s patents, intellectual properties and expertise. The option for M&A is beneficial in several ways.

Once Pebble is acquired by a larger firm, it will become a subsidiary firm answerable to a parent organization. However, it will retain a significant level of autonomy which will enable it to pursue its goals. Secondly, the parent organization will allocate substantial funding to the acquired firm to boost it and help the new firm contribute to its strategic goals (Koi-Akrofi 2016). In the case of a possible acquisition of Pebble by Apple, the former might want to redesign the latter and embed it with features to make it a stronger competitor with a higher value proposition than its rivals. This approach will boost both firms, therefore, creating a more reliable brand. Third, the M&A deal will accommodate both the owner of the acquired firm and its employees. Ong (2017) notes that Pebble had experts who were admired across the industry for their innovativeness. As a result, acquiring these employees would be beneficial to Apple as it will gain from their expertise. On the other hand, Pebble will still maintain its reputation, assuming that the parent firm will not change its name. The venture capitalists will continue to benefit from the returns made as agreed between the parent and the subsidiary.

On the downside, there is the possibility of conflict in interests between Pebble and the parent firm. The management at Pebble might want to pursue ambitious projects, while the parent firm wants returns on investments. This could cause disagreements. Secondly, mergers and acquisitions often trigger challenges in merging cultures (Trahms et al. 2013). Conflicting organization cultures could significantly affect the productivity of both firms.

• Conclusion

This consultative essay uses root cause analysis and other analytical frameworks to examine why Pebble failed despite the previous success and its cult following. This report acknowledges that both Pebble and Jawbone failed because of external and internal factors. In particular, both companies experienced unfavourable and aggressive competition from incumbents, who fought back to retain their market share. These views are supported by the IO and OE frameworks, collectively known as the determinist perspectives. They explain how the structure and composition of the IT industry disadvantaged Pebble and Jawbone. The voluntarist perspective, which uses the OS and OP frameworks, were also used to highlight internal factors that caused the failure of Pebble and Jawbone. The report proposes that Pebble considers a merger and acquisition with a renowned technology brand such as Apple as a suitable exit strategy.