For a moment, it looked like the story would have a happy ending.

As struggling smartwatch maker Pebble discussed selling itself to Fitbit, a larger competitor in the wearable technology market, the chatter among the Pebble team was that they would continue working on their product under the wing of a new, more stable corporate parent.

Fitbit’s co-founder James Park even visited Pebble’s offices and, following a brief introduction from Pebble CEO Eric Migicovsky, talked reassuringly about how excited he was to welcome Pebble into the Fitbit family.

But within a month it became apparent that Fitbit’s $40 million acquisition wasn’t a lifeline for Pebble, it was a fire sale.

Choice assets and employees were cherry picked, the rest discarded. Most employees out of Pebble's staff of about 100 were laid off, their stock suddenly worthless.

It was a sad ending for a company once seen as a brilliant example of Silicon Valley chutzpah, a scrappy startup that had forced tech giants like Apple, Samsung, and Google to play catch-up.

But it also capped a tumultuous year of poor sales, supplier problems, failed acquisition talks, and a general lack of consumer interest in smartwatches, according to several sources that Business Insider spoke to. 

"By the time we got into late spring and june of this year, I was like, OK, it does not look good," one Pebble insider said. "I didn't think we were going to make it to 2017. It was dragged out forever."

At a time when Silicon Valley is racing towards the next big thing, from artificial intelligence to self-driving cars, the demise of Pebble is a stark reminder that even the most promising and buzzed about innovations don’t always survive the harsh realities of the marketplace.

Early success

According to the sources Business Insider spoke to, the signs of trouble for Pebble began to appear early on, though they were often ignored among the excitement of a nascent smartwatch business that many believed would be as big as smartphones.

Pebble burst on to the scene in 2012 after launching what was then the most successful Kickstarter campaign in history, raising $10.2 million to fund the production of the first smartwatch. Pebble proved there was interest in the wrist-worn gadgets, well before Apple introduced the Apple Watch and other big tech companies followed suit.

The first Pebble launched in early 2013 to positive reviews. Although it appealed mainly to techies, the product was a solid first attempt at a modern smartwatch. The watch could display notifications like incoming texts and calendar alerts and run a bunch of apps ranging from ESPN to Evernote. Pebble continued to launch new products, including the Pebble Time, the first device with Pebble’s new take on a smartwatch operating system.

But things started getting hairy in 2015 when Apple, the world's largest technology company, released its long-awaited smartwatch. 

Migicovsky was unfazed by the new competition, telling Business Insider shortly after the Apple Watch was announced that he wasn't worried Apple might cut into his sales. "I think it will drive a lot more interest and a lot more volume at Pebble." 

The Apple Watch did initially boost interest in Pebble, as consumers viewed Pebble's product as a cheaper, more capable alternative.

But sales eventually began to shrink, sources say. Apple's brand was so strong, recalls one insider, that it sucked up all the oxygen. 

And Apple's decades of product-building experience gave it another big advantage.

Sources familiar with Pebble's supply chain said the company had difficulty paying suppliers building the products in Taiwan throughout 2015, especially payments related to production of the Pebble Time Round. In some cases, these suppliers would call for payments on outstanding purchase orders and get no response from Pebble. Some of those outstanding orders still remained unpaid by the time Fitbit entered acquisition talks with Pebble. Some people close to the company also blamed Pebble's supply chain team for playing favorites, attempting to move a lot of production from Taiwan-based Quanta Computer to Compal Electronics.

Pebble continued to raise money through Kickstarter, sales of current products, and other private sources. But it wasn't enough to fund the production of new products.  

The expected wave of consumer demand for smartwatches never materialized; even Apple appeared to be having trouble convincing the world that a smartwatch — like the iPhone — was another must-have gadget. The market was not as big as everyone had hoped, and the market was getting crowded.

Layoffs and deal talks

When Pebble's head of sales sent an email to his team after the Black Friday/Cyber Monday holiday shopping weekend in 2015, there was no more ignoring the magnitude of the problem. Sales during the biggest shopping weekend of the year were down from the year before. If things didn't improve, the email warned ominously, adjustments would have to be made. 

Pebble's business never fully rebounded, and internal discussions began after the holiday shopping season about what changes needed to happen so that the company could survive. In March of 2016, Pebble laid off 25% of its staff, as Business Insider first reported.

Pebble began searching for more outside investment or a possible buyer. One insider said they were asked to compile internal data about sales, which fueled speculation Pebble was trying to sell itself. By May of 2016, Migicosvky admitted to the staff that the company was trying to sell, but that a deal had recently fallen through. That deal turned out to be from chipmaker Intel, which wanted to buy Pebble for about $70 million.

It's not clear why the deal fizzled, although it was Intel that ultimately walked away, not Pebble. (The Pebble side wanted the deal to happen.) One source close to Migicovsky said they were told that Intel's offer was initially higher than $70 million, but was lowered after due diligence.

"Something rubbed him the wrong way and he was uncomfortable," the source close to Migicovsky said regarding the failed Intel deal.

A high-profile collaboration with Japanese watchmaker Citizen also proved disappointing. 

Pebble had hoped to learn from Citizen's expertise building and designing traditional watches. But throughout the development of the Time Round — a version of the Pebble watch with a circular screen that the two companies collaborated on — the Pebble team felt that Citizen lacked the technical chops in software and hardware development to be of much use, according to sources. Plus, Citizen typically took a lot longer to develop and launch products, often a year or more, which didn’t jibe with Pebble’s desire to push out new products faster.

In the end, Pebble thought Citizen's designs were too thick and chunky and ultimately went with a design from internal Pebble employees. Pebble did pay Citizen about $50,000 for its work, according to one source with direct knowledge of the deal.

Citizen did not respond to a request for comment. While TechCrunch reported that Citizen considered acquiring Pebble for roughly $740 million in 2015, no deal ever happened. One source directly familiar with Pebble's acquisition talks said Citizen never discussed buying Pebble, and accused someone of spreading a false rumor to TechCrunch.

Facing the music

Following the failed acquisition talks and the round of layoffs, Migicovsky leveled with his remaining employees late this spring. If they wanted to stay and see Pebble through to the end, their shares in the company would be doubled. If they wanted to cut their losses and leave, they would receive a severance package. While some took the buyout offer, most Pebble employees stuck with the company, hoping new products like the Pebble Time 2 watch and Pebble Core, a tiny device that lets you listen to Spotify music offline, would reinvigorate sales.

In fact, Pebble Time 2 and Pebble Core were on track for their launch at the beginning of 2017. As recently as a week before discussions with Fitbit began, Pebble employees were visiting their manufacturing partners in Asia and finalizing production plans for the new devices, sources say.

In a recent interview with Steven Levy of Backchannel, Migicovsky said he spent the summer months scrambling across the globe, trying unsuccessfully to raise money from private equity funds and other private investing groups. 

Pebble was out of time and out of money. In October, at least one bank that gave money to Pebble called in its loan, unconvinced Pebble would be able to raise more funding or sell enough product to solve its cash flow issues and debt to suppliers.

Keep your resumes

Once Migicovsky decided to sell the company, sources close to him say that his main goal was to find a buyer that would honor the consumers on Kickstarter who backed the Pebble Time 2 or Core — either by refunding their money or building the product. 

Fitbit turned out to be the only suitable buyer willing to do that. While the Time 2 and Core products have been canceled, Kickstarter backers will at least get their money back.

Other aspects of the Fitbit deal have not unfolded as expected, however.

The original deal discussions had Fitbit, which makes wearable products focused on health and fitness, acquiring all or most of Pebble, including the staff, several sources told Business Insider. But something changed as the deal was negotiated and Fitbit ended up buying only the software technology that runs Pebble's products and hiring certain employees. 

One source speculated that Fitbit was worried about its stock price after delivering a disappointing sales forecast for the fourth quarter, which caused its stock to tank about 30%. Taking on all of Pebble could’ve looked extra risky to Fitbit investors.

A Fitbit spokesperson declined to comment.

On the day Fitbit’s team came to visit Pebble’s office about a month before the acquisition closed, many Pebble employees had concerns about what would happen to upcoming products. One source said Fitbit largely dodged those questions and that their true intentions didn’t come to light until they began interviewing Pebble employees.

During the interviews, Fitbit quizzed Pebble employees on their roles at the company, but in the end Pebble employees learned there was no interest in the hardware team. Fitbit didn't even ask for resumes, according to one source, instead just pulling in their LinkedIn profiles. Once it became clear these interviews were going nowhere, Pebble hardware employees were encouraged to apply to open positions on Fitbit's website.

By the time it was all over, most Pebble employees were sent home with severance packages. Many others took the Fitbit offer, and several former Pebble employees now list Fitbit as their employer on LinkedIn. As for Migicovsky, he'll be working at the startup incubator Y Combinator next year.

Pebble's software may live on within Fitbit products, but it's now up to other companies to prove whether Pebble's pioneering product represents the future of computing or just an interesting footnote in history.

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