Nikeplus Ecosystem Strategy
John Cristando
Bryan Lodigiani
Christopher Surdo
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Introduction
In May 2006, Nike and Apple, two of the most globally recognized brands, teamed
up to create a line of products that bridged the gap between sports, electronics and
entertainment. Prior to this partnership, Nike noticed that many of its customers who ran
liked to listen to music and track the results of their runs, but they lacked a product that
allowed them to do both. Nike contacted Apple to create a line of products under the name
of Nikeplus, with the first product being a Nike + iPod Sport Kit. This kit consisted of an
electronic sensor inserted under the inner sole of a Nike running shoe and a receiver that
connected to an iPod Nano. After a run users could upload their run results to a computer
via Apple’s iTunes and share data with other runners through the Nikeplus.com website
that complemented the Sport Kit.
Value vision underlying the initiative
Whether intentional or not, the creation of Nikeplus was really what Venkat
Ramaswamy calls a “co-creation” of value, benefitting the companies as well as the
consumer. Consumers received value from Nikeplus through new engagement experiences
and more productive outcomes. Nikeplus was used by consumers to track runs, store data,
take part in a social network of runners, reduce search costs for running buddies and
receive training tips. Nike and Apple’s benefit was more than just financial. The Nikeplus
innovation gave them a competitive advantage by building deeper relationships and trust
with the community of runners they created, learning information about customers that
did not previously exist and leveraging this new found customer information to mitigate
the risk in the introduction of new products. Nikeplus is a good example of how companies
can not only add value by thinking laterally and partnering with other firms to create
innovations but also how the consumer can be used to create value for the companies as
well.
Company rationale for partnership
Why did Nike and Apple enter into this partnership and what were their intentions?
Nikeplus was important to Nike because it allowed it to recover some of its reputation for
cutting edge technology. In 2004, Adidas launched Adidas I, a technologically advanced
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shoe which cushioned or dampened the shock to a runner depending on the terrain. It was
important to Nike to respond to Adidas and maintain its reputation as the technology
leader in sports apparel and footwear. Furthermore, Nikeplus allowed Nike to leverage the
growth of the hugely successful iPod Nano. For Apple, the partnership was important
because it would allow for a platform extension of the iPod technology so that it did not
become just another portable media player. Partnering with Nike on Nikeplus would also
help Apple create stronger brand identification.
Lastly, Nikeplus gave both Nike and Apple access to customers that they would be
unable to reach by themselves. Nike had access to the customers who wanted to track the
results of their runs but did not have access to the customers who wanted to listen to music
while they ran. On the other hand, Apple did have access to customers who wanted to
listen to music while they ran but did not have access to those customers who wanted to
track the results of their run. By partnering together, Nike and Apple could access the
customer segment who wanted to both listen to music and track results during their runs.
Customers who
wanted to listen to
music during runs
Customers who
wanted to track
results of run
Nikeplus
technology
Ecosystem map and analysis of risks
Nike and Apple were able to effectively manage the Nikeplus ecosystem in the
development and introduction of Nikeplus. Their control over the value chain, the power
of the Nike and Apple brands, and the product’s obvious value proposition to consumers
mitigated execution risk, innovation risk and adoption risk.
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The following diagram
illustrates the complexities of the Nikeplus ecosystem and how the partnership was able to
deliver the product to market within eighteen months of conception.
Apple
-Semiconductors
-Software
Piezoelectric
accelerometer
Receiver to
transmit to IPOD
Distribution
Channels
Focal Initiative:
The NikePlus
Nike/Apple existing
direct channels
Right sized battery
with 1K hours
External software
developers
Online
Operating software
-NikePlus device
-ipod nano
Complementary
new Nike shoe
Air Zoom Moire
Diverse retail
(specialty, big box)
Complementary
custom band for
other shoe brands
Consumer
Nike
-Precision molding
-Thin film technologies
Software upgrade
to Apple itunes
Development of
NikePlus website
18 MONTHS
Execution and innovation risk
Developing the product presented a significant hurdle as execution and innovation
risk was high. Nike and Apple were working together to develop the product, having to
coordinate with each other as well as multiple third parties that provided parts for each
component of the Nikeplus. The Nikeplus device consisted of four major components: the
piezoelectric accelerometer (which collected and processed the data on the runner), the
receiver to transmit the data to an iPod, a battery which was sized appropriately to fit in a
running shoe and which had sufficient power to support the data processing, and operating
software for the device and the iPod. Some of the technical issues that had to be overcome
were making sure the sensor was not too big for the Nike designers yet not too small for
the Apple designers, ensuring that the battery had sufficient life and working through the
difficulties behind the wireless technology.
The companies developed some of these technologies in-house but also relied on
outside developers and manufacturers. In addition, the two firms had to coordinate with
each other. Since Nike and Apple are both technology-driven companies, each was able to
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contribute in a meaningful way to product development. The partnership leveraged Nike’s
expertise in precision molding and Apple’s expertise in semiconductors and software. With
so many parts and parties involved in creating the Nikeplus device (the focal initiative), the
partnership’s careful execution enabled it to meet its aggressive timeline of eighteen
months.
Once Nike and Apple accomplished the focal initiative, innovation risk declined as
they progressed within the ecosystem. The complementary piece to the Nikeplus device
itself would be something that attached the device to the runner. For this, Nike developed a
shoe in-house called the Air Zoom Moire. Given Nike’s expertise in fitness technology, this
was not a difficult task for the firm. Nike developed a shoe that consisted of a compartment
within the sole that would store the device. Nike wanted to also present an alternative to
the Air Zoom Moire to consumers. If consumers were required to purchase this special pair
of shoes, the total cost of the Nikeplus would reach $200. Without having to buy the shoes,
the device itself would cost only $29. As a result, Nike coordinated with outside parties to
develop a band that would attach the Nikeplus to the laces of running shoe brands other
than Nike. Establishing this complementary product proved critical in driving significant
consumer adoption of the product. Once the means to holding the device was established
through these two alternatives, Nike and Apple were in a position to push the product
through their distribution networks.
Adoption risk
Distribution channels
Adoption risk did not pose a significant problem for the Nikeplus. This product was
viewed as an exciting opportunity for distribution channels because of the consumer
demand expected as these strong brands combined forces. Nike and Apple chose various
distribution channels for this device. Both firms had direct distribution through companyowned retail locations and company websites.
In addition, Nike and Apple sold the
Nikeplus to a diverse range of retail outlets such as specialty running stores, electronic
stores, and “big-box” retail. They also leveraged online channels such as Amazon.com. The
similarities in the customer bases for all of these parties made these relationships a win-
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win situation for everyone involved. Providing sufficient value to these channels enabled
Nike and Apple to gain adoption of Nikeplus in their multiple channels.
Nikeplus.com and iTunes
To ensure strong consumer adoption, Nike and Apple had to achieve effective
distribution, offer the device at an attractive price, and provide a positive experience for
the consumer. Effective distribution was accomplished by leveraging the firms’ brands and
the profit opportunity associated with the device. Nike and Apple could offer an attractive
price through an efficient production system and through offering the consumer the option
of not having to purchase a customized Nike shoe for the device. To create a great
customer experience, however, the firms had to innovate further outside of the device.
iTunes required a software upgrade to make it compatible with the Nikeplus. Likewise,
Nike created a new Nikeplus website synchronizing with iTunes where runners could track
their runs and interact with other runners in an online community. With these additional
innovations, Nikeplus went beyond serving a beneficial function for consumers, and
became an “experience.”
External software developers
Nike and Apple gave software developers access to data through open sourcing.
This was important to the companies because if developers were able to design software
around Nikeplus then Nike and Apple would be able to sell more gear. An example of one
piece of software designed for Nikeplus was an application called Twiike, which would
automatically post a runner’s run to his / her Twitter account once that run was loaded
onto Apple’s iTunes.
End consumer
Nike was also able to mitigate some of the adoption risk by the end customer
through its positioning of the product. Instead of positioning Nikeplus as a revolutionary
product that would change the way runners run, they instead positioned it as an
incremental innovation. Throughout the product’s early phases, Nike and Apple constantly
conveyed the message that people are already listening to music and tracking results while
running; Nikeplus just makes it easier for them to do so.
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Public perception
Nike and Apple also had to manage the public perception of Nikeplus as issues arose
throughout the life of the product. For example, a report was released six months after the
launch of Nikeplus alleging the transmitter that was placed in the sneaker raises privacy
concerns because it could be read up to 60 feet away. Managing technology challenges like
these were critical to both Nike and Apple in order to achieve successful adoption of
Nikeplus.
Apple and Nike were able to deliver the Nikeplus product to the market in only
eighteen months from conception. Both firms’ competencies in technology facilitated this
in addition to effective coordination ensuring that they were on the same page in terms of
what the product should look like and represent. Outside of the core partnership between
the two, they also effectively managed third party relationships within the ecosystem by
providing sufficient value to these parties such as outsourced manufacturers and retailers.
Assessment of strategy deployed to align the actors
There are a few notable elements of the alignment between Apple and Nike. In
some instances, alignment was achieved by the specific actions the companies took during
the development of the partnership. Additionally, there were pre-existing characteristics
of both companies that promoted alignment from the start, even before any partnershipspecific actions were taken to support alignment. This is not surprising, as companies that
share similar cultures are naturally more inclined to work together. Four key aspects of
Nike and Apple’s alignment are worthy of mention: (1) the similar customers that each
company served, (2) the realization of the benefits from creating a community of runners,
(3) the long-term view of the partnership and (4) aligning risk with reward.
Similar Customers
An important element of the project that contributed to alignment was the similarity
of Nike and Apple’s target markets. Nike and Apple are iconic brands known for innovative
design that serve a customer base that trends younger and ‘cooler’ than the general
population. This is significant because it allowed scope for continued product and process
innovation. The two companies had similar needs in terms of what they wanted to deliver
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to customers. This is in stark contrast to the Pixtech alliance in which process innovation
was difficult to achieve because of the different target markets of the companies involved.
It should be noted, however, that when news of the Apple and Nike partnership first
emerged, some observers did not see much overlap in the pools of customers the
companies’ attracted. At the time, Nike was still responding to the public outcry over its
labor practices in Asia. Some analysts questioned the logic of Apple willingly linking itself
with Nike. Apple had long cultivated an image as the “charming outsider,” in the words of
one commentator. But by the mid 2000s it was clear that this vision of Apple was
becoming a relic of the past as the company moved aggressively into mass market
consumer electronics. This fact, along with Nike’s good faith response to criticisms of its
labor practices, help explain why Apple was willing to work with Nike.
Creating a community of runners
In order to have a significant impact on the customer, Nike and Apple both agreed to
create an entire customer experience that went beyond the actual Sport Kit which involved
the Nikeplus.com website and the integration of iTunes. Both companies realized how
much the success of the Nikeplus line depended on this complete customer experience and
also how much more they could benefit by creating an online community of runners. The
companies used the Nikeplus.com / iTunes community to (1) sell Nikeplus products as well
as lines of their other products and (2) better identify customer needs so that they could
design more products around those needs.
Long-term view of partnership
Nike and Apple expected their partnership to become more valuable over time, as
they learned more about how customers were responding to the products they were
creating and introduced new products that satisfied unmet needs. For example, they
eventually began incorporating Nikeplus technology into fitness equipment and health
clubs, created Nikeplus products that measured heart rate and expanded the Nikeplus
application to other iPod devices besides the Nano. It is likely that Apple and Nike didn’t
pursue these opportunities at the outset of the project because they wanted to tackle less
complex undertakings first. Instead, they first focused on meeting the basic need of making
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it easier for runners to enjoy music and track their workouts. This innovation simplicity
also gave Nike and Apple flexibility in the design of the product as it matured in the market.
This decision by Apple and Nike brings to mind one of the lessons of HP and the
Kittyhawk. If innovations are to be commercially successful, managers must not lose sight
of what their customers truly want (and what they are willing to pay for). Nike + iPod was
not a perfect technological tool that gave runners everything they could ever possibly want.
Why then did the Nike + iPod technology succeed when there were more accurate and
sophisticated products on the market such as the Garmin Forerunner? It succeeded
because, like the iPod, it met major customer needs and provided a streamlined user
experience, all at a lower cost compared to competitor products.
Aligning risk with reward
In 2006, Apple was riding the growth of the highly successful iPod while Nike was
losing its reputation in the marketplace as the technology leader in footwear and apparel to
Adidas. Needless to say, Nike had more to gain from this partnership than Apple did and
therefore took on more risk. Nike was responsible for marketing, leading endorsements
and running the Nikeplus.com website. Nike realized that partnering with Apple was an
unbelievable opportunity to uphold its reputation as the technology leader in footwear and
apparel. Apple certainly wanted to see Nikeplus succeed but they knew people were still
going to go out and buy iPods without Nikeplus, maybe just not as many if the project was a
flop. But by taking on more risk of the Nikeplus innovation, Nike also reaped more of the
rewards.
Results and Impact of Nikeplus
In measuring the actual rewards from Nikeplus that Nike was able to garner,
Nikeplus products posted sales of $56 million for Nike in 2008, which is peanuts at a
company that posted close to $19 billion in total sales. However, the true benefits to Nike’s
bottom line are somewhat harder to gauge.
Many say that Nikeplus renewed the
popularity of Nike’s running shoes. SportsOneSource, a market research firm, said that in
2006 Nike accounted for 48% of all U.S. running shoe sales, but by the end of 2008 its share
was 61%.
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Furthermore, Nike realized that they could replicate the success of the Nikeplus
innovation across other categories. The basic idea behind Nikeplus was using technology
to enhance someone’s performance and coupling this with a community angle that
provided social interaction. In 2008, Nike teamed up with Dime magazine and Facebook to
create a Facebook application called Ballers Network that allows basketball players to
organize real-world games and manage their teams online.
For Apple, its foray into Nikeplus did ultimately allow it to extend the platform of its
increasingly successful iPod technology while also reinforcing its reputation for meeting
customer needs many customers did not even realize existed. For both companies, the
overall results of Nikeplus were in line with what they expected them to be. Clearly, the
Nike and Apple partnership to create Nikeplus showed that value for both the consumer
and partnering companies can be created and project expectations can be met if an
ecosystem to support such an innovation is managed properly.
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