Exclusive: Nike fires majority of FuelBand team, will stop making wearable hardware

The sportswear company has decided that only software has a future in Nike’s technology vision. That means cutting the FuelBand, including a slimmer version planned for the fall.

Nike is gearing up to shutter its wearable-hardware efforts, and the sportswear company this week fired the majority of the team responsible for the development of its FuelBand fitness tracker, a person familiar with the matter told CNET.

"As a fast-paced, global business we continually align resources with business priorities," Nike spokesman Brian Strong said in an email. "As our Digital Sport priorities evolve, we expect to make changes within the team, and there will be a small number of layoffs. We do not comment on individual employment matters."

The company informed members of the 70-person hardware team -- part of its larger, technology-focused Digital Sport division comprised of about 200 people -- of the job cuts Thursday. About 30 employees reside at Nike's Hong Kong offices, with the remainder of the team at Nike's Beaverton, Ore., headquarters.

Nike's Digital Sport hardware team focused on areas like industrial design; manufacturing operations; electrical and mechanical hardware engineering; and software interface design. Products included not only the FuelBand but also the Nike+ sportwatch and other, more peripheral sport-specific initiatives.

Of those 70 employees, about 70 percent to 80 percent -- or as many as 55 people -- were let go, the person said, asking not to be identified because the information was confidential. Some of the employees will be staying on at Nike through May. It's unclear how many current employees, if any, have been internally recruited to join other Nike divisions. Nike Digital Tech, responsible for Web software, was not affected.

As early as this fall, Nike planned on releasing another iteration of the FuelBand -- an even slimmer version -- but cancelled the project. And it appears to have shelved all future physical product projects under the Digital Sport helm, the person familiar with the matter added.

Nike will not, however, stop selling the second-generation FuelBand SE for now, the company confirmed. "The Nike+ FuelBand SE remains an important part of our business. We will continue to improve the Nike+ FuelBand App, launch new METALUXE colors, and we will sell and support the Nike+ FuelBand SE for the foreseeable future," Strong said in a follow-up comment.

In fact, word of the firings made its way to Secret, an anonymous social network for gossip centered on the tech industry, as far back as a week ago. "The douchebag execs at Nike are going to lay off a bunch of the eng team who developed the FuelBand, and other Nike+ stuff. Mostly because the execs committed gross negligence, wasted tons of money, and didn't know what they were doing," the post read.

As CNET reported on April 10, Nike had serious discussions in the last few months -- after the release of the FuelBand SE tracker last November -- about exiting the wearable-hardware market. The shoemaker isn't throwing in the towel on technology. Rather, it's turning away from hardware and realigning its focus exclusively on fitness and athletic software, a strategic shift that would still benefit the company in the long run, analysts said. Nike's FuelBand SE currently sits at No. 35 on the CNET 100 leaderboard.

There's increasing competition in the market for wrist-worn fitness trackers, and Nike's digital app ecosystem, Nike+, has grown less reliant on wearables as smartphone sensors have improved. In other words, it makes less and less sense for Nike to stay in the hardware race when its physical wearables are not bottom-line needle movers, especially as companies like Apple and Google prepare to join the fray.

Just last week, Nike announced the launch of its San Francisco-based Fuel Lab. The testing space, born from its accelerator program, will join Nike's slew of other innovation-branded R&D havens where companies will be able to design hardware products that incorporate the company's proprietary point-based workout metric, NikeFuel.

Essentially, it will be a incubator for FuelBand successors, as long as they plug in to Nike+, for which Nike is publicly releasing an API this fall.

As Nike redirects its wearable efforts toward software, it's avoiding the competition from a bevy of new devices that will further crowd the market, namely the Apple "iWatch" and devices running Google's recently unveiled Android Wear operating system, designed exclusively for watches and other wrist-oriented wearables.

As Apple enters the fray, Nike has a potential partner. Apple CEO Tim Cook, who was seen wearing a FuelBand at the company's launch of the iPad Mini in October 2012, sits on Nike's board, and has for the last nine years. That relationship has been fruitful, helping Nike enter the wearable market as early as 2006 -- with the Nike+iPod shoe-sensor package -- with a strong brand partner.

A partnership, say analysts, would be a no-brainer. "Apple is in the hardware business. Nike is in the sneaker business. I don't think Apple sees Nike as competitive. It's likely that an Apple hardware offering would be supportive of the Nike software," Jim Duffy, a Nike analyst with Stifel, Nicolaus & Company, said when speaking with CNET last week. "Nike would be content to let Apple sell devices, as long as they would be supportive of the apps."

"Partnering with industry-leading tech companies is nothing new for Nike," Nike's Strong said. "We have been working with Apple to develop products since 2006, when we introduced Nike+ Running, and Nike has since created iOS Apps including Nike+ Training Club, Nike+ FuelBand and Nike+ Move."

Of course, it was always inevitable that Cook's wrist would eventually sport an Apple-made device, and no other. Whether that particular device carries Nike software may be the next defining step for Nike in the world of wearables.