The birth of a true Apple Watch competitor

Google has struck a $2.1bn deal to buy fitness-tracking pioneer Fitbit, in order to team up to take on Apple’s fast-growing wearable-tech business. Google announced the acquisition in November 2019, and the deal is expected to go through in early 2020 following the Fitbit shareholders’ approval of the third of January. Could this mean we’ll finally see an actual Apple Watch competitor?

About Fitbit

Fitbit Inc., incorporated on March 26, 2007, is an American provider of health and fitness devices headquartered in San Francisco, California.

Its products include activity trackers, wireless wearable technology devices that measure data such as the number of steps walked, heart rate, quality of sleep, steps climbed, and other personal metrics involved in fitness. The company also branched into smartwatches to keep pace with rivals Apple and Samsung.

One of the main strengths of Fitbit is its platform that combines connected health and fitness devices with software and services, including data analytics, motivational and social tools, personalised insights and virtual coaching through customised fitness plans and interactive workouts.

Since 2010, Fitbit has sold almost 100 million devices worldwide and has over 28 million active users. The company is amongst the leading companies in the wearable market, which includes well-known firms such as Apple, Xiaomi, Huawei and Samsung.

Number of Fitbit devices sold worldwide from 2010 to 2018
Number of active users of Fitbit from 2012 to 2018

From 2010 to 2015, Fitbit’s revenues increased from just over 5 million U.S. dollars to more than 1.8 billion U.S. dollars. In the years following this rapid expansion, the company has experienced a period of decline, with its total revenue figure decreasing to 1.5 billion U.S. dollars in 2018. Forecasts suggest that total shipments of wearable electronic devices will reach 220 million units in 2019 as Fitbit looks to regain its footing within the growing industry.

About Google

In 2014 Google released Wear OS, a Google’s Android operating system version designed for smartwatches, but the Mountain View giant had decided not to make the hardware itself, leaving that to third-party manufacturers.

Google’s strategy however seems to have changed in the last year. In January 2019, the tech company bought some of Fossil’s smartwatch technology and hired some of the engineers who created it. The move prompted speculation that we would finally see a Google Watch soon, confirmed by an official statement regarding the Fitbit buyout:

“Over the years, Google has made progress with partners in this space with Wear OS and Google Fit. But we see an opportunity to invest even more in Wear OS as well as introduce Made by Google wearable devices into the market.”

Rick Osterloh, Senior Vice President of Devices and Services at Google.

About Google’s purchasing offer

Fitbit is Google’s biggest acquisition in consumer electronics since it paid $3.2bn for smart home company Nest in 2014.

With its offer of $7.35 a share, Google has rekindled investor interest for Fitbit. After a $20 initial public offering in June 2015, Fitbit had reached its highest price of $47.49, followed by a sharp decline during the past four years until a $2.99 per share price. The announcement of the Google acquisition in November has pushed the share price up to $7.14 with a subsequent decrease to $6.64 due to the Fitbit’s disappointing quarterly results.

Fitbit’s stock price since 2015 IPO

Synergies

Google has greatly expanded its hardware portfolio in recent years to include Pixel smartphones, smart speakers, Nest thermostats and security cameras, and various entertainment devices. But it never released its smartwatch to rival Apple directly despite the fact that Wear OS has some advantages over Apple’s technology.

Launched in March 2014 Wear OS had more than a one-year head-start over Apple Watch and it is also a cross-platform system, working nicely with both iOS and Android devices, differently from Apple Watch.

Specifically, what Fitbit can give to Google, besides its hardware technologies and expertise, are its 28 million active users, and a 12-year history of selling more than 90 million of units, with a smartwatch market share of 11.3%, third place after Apple 47.9% and Samsung 13.4%.

On the other side, Fitbit stands to gain a lot too. What Google can offer is in fact a solid and tested operating system, able to perform well with both Android and iOS devices, backed by necessary resources and capabilities to further develop and improve it like the other big players such as Apple.

Furthermore, what Google does, better than any other company operating in the wearable sector, is Artificial Intelligence. Google Assistant is, in fact, without any doubts, much more developed than Apple’s Siri. That’s really important when talking about a device with a screen that’s typically around an inch and a half to make the device more user-friendly, avoiding the use of the small and uncomfortable touchscreen.

Privacy concerns

Politicians and privacy campaigners have called for Google’s $2.1bn deal for Fitbit to be blocked, over fears that the search giant will feed its growing healthcare business with the data of the 27 million people who use Fitbit fitness trackers.

The takeover, if it is passed by regulators, will give Google access to a huge amount of heart rate, activity and sleep data which it could use to create a new range of personalised health services. Worried about this scenario, both privacy and antitrust advocates have asked the Federal Trade Commission to block the purchase, arguing that health data are “critical” to the future of the digital marketplace.

“Google should not gain control of Fitbit’s sensitive and individualised health data that can be integrated with data from its current services to entrench its monopoly power.”

Several groups including the Open Markets Institute, Public Citizen and the Electronic Privacy Information Center.

It is clear indeed that through its vast portfolio of internet services, Google knows more about us than any other company, owning a huge amount of user data. The nature of the data (health) that Google would rise after Fitbit takeover has attracted the attention of the regulators, particularly sensitive to data protection and usage nowadays.

On its side, Google did not say whether Fitbit data would be used to inform other Google products, and privacy advocates fear that the data collected will not be ringfenced but will instead be used for a variety of applications across the company and also utilised to allow Google moving further into the healthcare sector.

This is not only the strategy of the Mountain View firm but strong trend affecting many of the large technologies companies such as Apple and Amazon, eager to disrupt the healthcare industry, which represents more than the 18% of the US gross domestic product.

Advisors

Sell side: Qatalyst

Buyside: Lazard

Author: Gian Pietro Bellocca

Bibliography

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