Health IT

Under Armour buys health apps My Fitness Pal, Endomondo. Now what will it do with them?

When Under Armour took the wraps off UA Record to aggregate data from several different fitness apps and wearables at CES last month, little did we know that it was building an ecosystem to cultivate the largest digital health community to date. Under Armour’s $475 million acquisition of weight management app My Fitness Pal and […]

When Under Armour took the wraps off UA Record to aggregate data from several different fitness apps and wearables at CES last month, little did we know that it was building an ecosystem to cultivate the largest digital health community to date. Under Armour’s $475 million acquisition of weight management app My Fitness Pal and an $85 million deal for Endomondo, a similar app that dominates the European market has established, amount to 120 million registered users. It amounts to the largest digital health and fitness community in the world, by the company’s reckoning.

What will Under Armour do with that community? Although the announcement has inspired plenty of speculation, Under Armour CEO and Chairman Kevin Plank spoke plainly on a conference call with analysts for its fourth quarter earnings Wednesday. He said he sees these fitness app users as a logical customer base for its apparel business.

“The reason we did what we did is we believe this will help us sell shirts and shoes…The more someone exercises, the more apparel and footwear they will ultimately buy.”

But he also added, “…We are developing a digital ecosystem that provides us with unparalleled data and insight into making every athlete better…Understanding the evolving needs of our athletes — how they interact, how they consume, and ultimately how they strive to live healthier lifestyles — will be key inputs to forging deeper relationships and becoming more relevant to how the consumer shops.”

It’s an interesting move for an apparel company that has been digitizing its product offer since 2011. That’s the year it unveiled a its E59 shirt embedded with fitness tracking sensors, in a collaboration with Zephyr Technologies, at the NFL Combine — a company that was later snapped up by Covidien. In December Under Armour acquired MapMyFitness in a $150 million deal. I can’t immediately think of another company outside of technology that made such a significant leap into the consumer health portion of digital health.

Jack Young of dRx Capital noted that the deal probably overvalues its newly acquired app users.

“On paper, they are paying ~$6 per [MyFitnessPal] registered user, and ~$4 per Endo user. Normally only a percentage of the registered [users] stays active, so the active user acquisition cost is most likely high. The common knowledge is that cost per download in this category is between $1 to $2. The question is what the lifetime value of these digital users and worth of the community are to UA.”

It will be interesting to see how soon UA Record also becomes a big data cash cow for Under Armour. Any companies interested in getting a better understanding of this community would likely pay quite a lot to derive insights from health and fitness data generated from 120 million people. It’s quite possible that UA has already done the math and between the additional revenue it projects it can add to its core business and revenue streams it can create by providing third party access to this community, it probably thinks it is well worth the cost, overpayment or not.

Still, Plank noted that the acquisition will super-size its IT unit from 50 to 400. Given the security risks that concern the Federal Trade Commission and the very real personal data vulnerabilities even at big companies like Anthem, shoring up data protection should be a priority.