Jawbone launches new UP4 band amid partner lawsuits, shipping delays

NEW YORK — Just as the Apple Watch arrives to take over many of the functions of a fitness band, Jawbone has announced a new line of bracelets with payment features just like an Apple product.

Jawbone today (16 April) announced the US$200 (S$271) UP4 band which will track fitness and sleep, and will also allow users to pay for their coffee by tapping their wrists against a payment terminal. The challenge of competing with Apple aside, there are increasing signs of trouble mounting for the gadget maker.

Two of Jawbone's long-term partners have sued the company since the beginning of March, saying it has failed to pay them money they are owed. In each case, the trouble started in the second half of last year. Avoca Technologies, a Canadian distributor of Jawbone's products, says that the company began reneging on agreements to compensate it after asking Avoca to discount various products. It has also refused to pay Avoca for defective merchandise. According to the complaint, Jawbone owes Avoca about US$220,000. Lorom Industrial, a Taiwanese manufacturer of cables, says that Jawbone has not paid for more than US$1.5m worth of goods delivered between June and November. Jawbone has been promising for months to pay up, but has not done so, according to the complaint. An attorney representing Lorom declined to discuss the case, and Avoca did not respond to a call for comment.

The actual money at stake may seem small for a company that has raised half a billion dollars in total funding. But these suits are not the first sign of something awry at Jawbone. Last August another supplier, Flextronics, sued Jawbone for failing to pay for US$20m in goods it received. "Upon information, belief, and statements made by Jawbone representatives, Jawbone's financial condition is perilous and currently insufficient to pay its debts," Flextronics wrote in its complaint. The companies settled the suit and Jawbone told Fortune magazine in February that it was merely a misunderstanding.

Jawbone is only just now catching up on the promises it made to customers during its last big product release, the UP3. The bracelets were supposed to be shipped last year, but have been delayed for months. On April 9 the company finally announced it would begin shipping next week. Mr Travis Bogard, the company's Vice President of product management and strategy, apologized in a post on Jawbone's blog. He said the delays were caused by problems getting the bands to be sufficiently waterproof. The company has walked back on its promise to deliver water resistance up to 10 meters.

Mr Jim Godfrey, a spokesman for Jawbone, said the company's manufacturing problems are behind it. He declined to comment on the lawsuits. Jawbone has acknowledged it is not profitable, but Mr Godfrey declined to discuss any specifics about the company's finances. "There are no issues," he wrote in an e-mail. "We would not be briefing you on these products, and launching new lines, if there were."

It is a tough time to be hawking fitness trackers. It was never clear that there was mainstream demand for their core function — the ability to track one's movement and other health indicators around the clock. As the technology matures, it has become easy to make cheaper versions of the band, and smartphone makers are increasingly incorporating many of their features into their devices. Last spring, Nike decided to stop making its FuelBand, one of the most popular wristbands at the time, to focus its technology efforts solely on software.

Jawbone has distinguished largely by design, and the new UP bands are smaller and more attractive than much of the competition. Still,"pure-play fitness trackers is a commodity market; it's not bringing in margins", says Mr J P Gownder, an analyst at Forrester. He says the best way for a company like Jawbone to succeed is to focus on software and services, while also adding smartwatch features to its core products. "If they start aping certain Apple Watch features at a lower price point, there might be something there."

The UP4, which Jawbone says will start shipping this summer, is the biggest step the company's bands have taken away from a purely fitness market. The device is essentially a UP3 with an embedded near-field communication (NFC) chip, allowing users to tap it against any NFC payment terminal to pay with their American Express cards. Merchants do not have to have any direct relationship with Jawbone. Like Apple Pay, the technology uses tokenisation, which creates a different credential for each payment, a feature that significantly increases the security of the transactions. Jawbone will not see any information about the purchases being made. The band will cost a US$20 premium over the UP3.

Jawbone is not the first company to offer wrist-based payments. Bionym, a Canadian start-up, offers a band that authenticates a user's identity via heartbeat and allows payments. Barclays offers a wristband to customers in England that can be used to pay from prepaid Visa and MasterCards. The appeal of the UP4 will be limited by Jawbone's exclusive relationship with American Express. Jawbone says it has no plans to work with other payment networks for now. Neither company would say whether Jawbone would get a cut of the transaction fees from purchases made with the UP4.

Representatives for Jawbone have consistently argued that the company is not in competition with the Apple Watch, or any smartwatch maker, for that matter. Instead, the company has begun pushing its apps onto various devices that have the sensors needed for fitness tracking. Jawbone already has an iOS app and is working on one for the Apple Watch as well, in the hope that Apple users will use its software to track their sleep and count their steps. The company is particularly bullish on the software it uses to analyse sleep patterns and recommend behavioural changes.

If Jawbone can do this well, it might matter less over time whether it can make money from hardware. It has been experimenting with selling premium data services to employers and connecting brands with users through its coaching software. But even though the company has been around since the beginning of fitness tracking, those efforts are still in the early stages. BLOOMBERG