nike-fuel-bandLate last week, buried in an avalanche of late-Friday afternoon malaise, Nike confirmed that following weeks of speculation and a Secret-leaked rumor that it really was getting out of the wearable hardware racket to focus on its athletic software.

As much as 80 percent of Nike’s 70 person hardware team will be laid off. (The consensus rumor was 55.) The company will continue to sell the FuelBand SE for now, but there is no greater admission of defeat that it could make.

The what-went-wrong debate is already well underway. Was it a lack of vision? Is Nike doing this to stay out of the way of a maybe-coming-soon iWatch? Does Nike not need the technology? Have smartphones improved their capacity to track our steps to the point where activity trackers are irrelevant?

Nike’s retreat doesn’t mean any one thing about the wearables space. But its resigned sigh of failure is a warning sign to any major company planning on setting up shop here. You need to think clearly about what utility you’re offering and then communicate that in block letters.

Wearable technology is a new, fledgling market sector with a lot of excitement around it. It took in $458 million in investment capital last year, spread across almost 50 early stage deals. For all the fun to be had guessing at where this roller coaster ends up, Nike’s dilemma shows that with wearables there is the hype and the promise of what’s coming and then there is the market reality. Nike came down from the mountain into the activity tracker market and launched with considerable pomp. Jimmy Fallon, Kevin Durant and Lance Armstrong endorsed it at its launch. At StartUp Grind this year, Fitbit CEO James Park laughed after Nike had launched the FuelBand in 2012: it spent more on marketing at that event than Fitbit did across the whole year. It was always more of a workout tracker, confused as a lifestyle device. Nike never marketed it clearly nor did they invest significantly in the technology needed to make it a success.

The boring truth with Nike’s retreat is that it simply didn’t do a very good job making and selling a device people wanted to own. A big budget and a buzzy new sector alone are nothing. Park said that the data he’d seen from the 2013 Christmas retail season gave Fitbit 77 percent of the activity tracker market, where Nike was languishing in single figures. There was $330 million in retail sales of these activity trackers in 2013, according to data released from the NPD Group in January. Fitbit accounted for 68 percent of that, Jawbone 19 percent and the Nike FuelBand just 10. People didn’t take to it. It was ugly and bulky, addressing the functionality problems of its rivals at the expense of user experience.

The market for activity trackers is young, but still the most mature in the wearables space. That a giant like Nike was its first victim, says a lot. It is a reality check for all. Something like Samsung’s smart watch gets a lot of press because it is futuristic and seems cool, but we don’t have a clear indicator of how well it is selling. Smart watches look neat and 007-ish, but consumers aren’t flocking out to get one. An entire generation of consumers have grown up watch-less and there’s no saying if they’ll go back.

Fitbit created a device with a clear service, took up contracts with major national retailers and then made sure they had a clear storefront presence that educated customers about the benefit of its product and how to use it.

Those that followed it, and those spouting new, fancier wearables, have a nasty habit of relying only on making a lot of noise about the future. Nike’s lesson to all of them with the FuelBand is that if people don’t like the technology and don’t see the benefit from it, there’s nowhere to hide.

[image via Nike]