Search engine and online advertising giant Google has confirmed a $2.1 billion all-cash offer for fitness tracker brand Fitbit. Fitbit, is arguably the best known brand in the wearables market having first popularised fitness tracker technology, despite the company’s sales now being outstripped by rivals Apple, Huawei and Xiaomi. Many would argue the sophistication of the software Fitbit’s product has also been overtaken.
However, it is most probably precisely because Fitbit has hit a challenging period that Google has decided to swoop – smelling an opportunity to gatecrash what is becoming a valuable wearables market projected to reach 152.7 million units by the end of 2019 with 21.7% growth over last year, and 194.1 million units by 2023, with a compound annual growth rate (CAGR) of 6.2%. However, growth in the category is forecast to be driven by smartwatches with the market for health tracker wristbands forecast to remain essentially flat. The overall share of the wearables market accounted for by wristbands is expected to will decline from 41.2% in 2019 to 32.5% in 2023.
Google’s $7.35 a share offer for Fitbit, which is being recommended to shareholders by the company’s board, is a 19% premium to the company’s closing Thursday share price, ahead of the announcement. But the $2.1 billion bid still represent a price tag almost have of the $4 billion market capitalisation at which Fitbit first floated in 2015.
The relative attractiveness of the deal’s pricing can be presumed as the catalyst to Google’s first genuinely major hardware acquisition since it bought smart home appliances company Nest for $3.2 billion in 2015. The deal is expected to close next year with, on the presumption Fitbit investors play ball, regulatory approval the only blocker to be feared. However, that may not be a given with regulators in the United States and Brussels stepping up inquiries into whether the ever-extending reach of Big Tech’s heavyweights is resulting in anti-competitive behaviour. Democrat presidential candidates including Elizabeth Warren have threatened to break up companies such as Google and Facebook if elected, and possibly even to unwind their previous acquisitions.
From a regulatory and consumer standpoint the concern would be the amount of valuable healthcare data ownership of Fitbit would give Google possession of. Fitbit has sold over 100 million fitness trackers, currently has around 28 million active users and a huge historical and growing database of the weight, calorie count, sleep and menstrual cycles, heart rate and daily exercise personal information of users. That could, in theory, be used to better target advertisements served via Google’s platforms including its search engine, YouTube, Gmail and Google Maps.
Clearly pre-empting that concern, Google has already stated that it will not use the health and wellness data from Fitbit for its adverts and customers will be able to “review, move or delete their data”.
It’s not yet clear if Google will preserve the Fitbit brand or simply swallow up its technology and human talent into its own structures and brands. Its Wear OS, which like Android is an OS it sells via license to wearables manufacturers has strong smartwatch software but fitness tracking functionalities considered to be relatively poor. Fitbit, one the other hand, is strong on fitness tracking functionalities but has struggled to develop competitive smartwatch technology. The hope will be that by combining the strengths of both products, Google will have a much better wearables OS. Whether that translates into a new line of ‘Google’ wearables or an improved Wear OS, will remain to be seen.
Commenting on the agreement via a blog post published on the Fitbit website, co-founder and CEO James Park wrote:
“Google is an ideal partner to advance our mission. With Google’s resources and global platform, Fitbit will be able to accelerate innovation in the wearables category, scale faster and make health even more accessible.”
On behalf of Google, Rick Osterloh, the company’s senior vice-president of devices and services commented somewhat generally:
“Fitbit has been a true pioneer in the industry and has created terrific products, experiences and a vibrant Fcommunity of users.”