Google Acquires Fitbit for $2.1 Billion, Setting Stage for Wearables Showdown Among Five Tech Giants

Just days ago, media outlets broke the news that Alphabet, Google’s parent company, was set to acquire Fitbit (NYSE: FIT). This Friday, the rumor became reality as Google and Fitbit simultaneously announced that they had reached a definitive agreement. Under the terms of the deal, Google LLC will acquire Fitbit for $7.35 per share, in a transaction valued at approximately $2.1 billion. The acquisition is expected to close in 2020, subject to customary closing conditions, including approval by Fitbit shareholders and regulatory authorities.

In recent years, the market gap between Google and Apple in the wearable device sector has widened. Meanwhile, Chinese brands Huami (Xiaomi) and Huawei have also achieved remarkable results after years of deep engagement in this field. The acquisition disclosed on Friday signifies Google’s intent to strengthen its lineup of wearable hardware products. According to an IDC report, the top five wearable device vendors in the first quarter of 2019 were Apple, Xiaomi, Huawei, Samsung, and Fitbit, in that order. With Fitbit now under Google’s umbrella, Google is poised to issue a strong challenge to the top four players.

In Q1 2019, the top five wearable device vendors were Apple, Xiaomi, Huawei, Samsung, and Fitbit.

VCBeat recently analyzed the gradually heating wearable market; click here to read the article.“Apple, Huami, and Huawei Place Heavy Bets! 14 Investments in Half a Year, Health Wearable Devices Back on the Fast Track”Read this article to gain a preliminary understanding of the current development of the wearable market.

Fitbit is a major player in the wearable device sector, andJawbone(The company has been liquidated) Together considered a pioneer and benchmark enterprise in wearable devices.

In March 2007, Fitbit was founded in San Francisco, marking its 12th anniversary. In 2009, prior to the advent of smartwatches, Fitbit launched its first-generation wearable wrist device, the Fitbit Tracker. The product received widespread acclaim upon release and, leveraging features such as message notifications and activity tracking, became hugely popular across North America within less than three years. According to NPD’s market report on fitness tracking devices for the third quarter of 2014, Fitbit’s market share had reached 69%, far surpassing the 14% held by Jawbone, which ranked second.

At that time, Apple, Huami, and Huawei had not yet entered the market.

Fitbit went public on the New York Stock Exchange on June 18, 2015, becoming the first publicly traded company in the wearable device sector. On August 5, 2015, Fitbit’s stock price reached its all-time high of $51.90.

However, the market landscape shifted after Apple launched the Apple Watch in 2015. Apple has continuously added new health features to its Apple Watch, such as activity tracking, heart rate monitoring, and electrocardiogram (ECG) capabilities, making it a direct competitor to Fitbit. Although Fitbit also introduced more feature-rich smartwatches to compete with Apple, it has struggled to keep pace with the tech giant. Meanwhile, Fitbit faced significant setbacks in the mid-to-low-end segment. As Huami and Huawei entered the market in 2014 and 2015, respectively, their low-priced fitness bands and smartwatches swept through the Chinese market, leaving Fitbit with little competitiveness in China.

Furthermore, following the initial hype, market enthusiasm for wearable devices cooled significantly. One reason was that wearable devices at the time offered overly limited functionality, resulting in low user stickiness. Meanwhile, although wearables appeared to collect substantial amounts of data, such data held little additional value. In its NPD DisplaySearch Wearable Device Market and Forecast Report released in early 2014, Enboyuan also predicted that the wearable device market would begin to cool from 2016 onward, and would not recover until wearables became essential items or the industry underwent consolidation.

Intensifying market competition and declining user stickiness have led to Fitbit’s steady deterioration, with its market share—once at the top of the wearable device sector—continuing to slide. In Q1 2019, Fitbit’s shipments reached 2.9 million units, representing a year-on-year increase of 35.7%. Although Fitbit’s growth rate was not slow, its competitors grew even faster; Samsung overtook Fitbit during that quarter, relegating it to fifth place. While Fitbit’s ongoing decline can partly be attributed to its own product issues, a major factor is that the top four vendors are all smartphone giants with strong ecosystem-building capabilities.

Major companies in the smart device sector have built ecosystems through continuous product line expansion, making it increasingly difficult for small device manufacturers to survive. Over the past decade, innovative startups such as Nest, Beats, Dropcam, and Flip have all been acquired by tech giants in Silicon Valley.

For more than two years prior, Fitbit’s stock price had lingered below $7, hitting a low of $2.81 in August this year. The company has struggled to meet investor expectations, facing challenges of declining sales and profit margins. However, the situation changed dramatically following the first reports in September that Google might acquire the company.

In the open letter regarding this acquisition, Fitbit co-founder and CEO James Park stated, “Twelve years ago, we established a bold corporate vision—to make everyone in the world healthier. Today, I am immensely proud of the achievements we have made toward realizing this goal. We have built a trusted brand that supports more than 28 million active users worldwide, who rely on our products to lead healthier, more active lives.”

The above passage summarizes Fitbit’s past achievements. First, Fitbit pioneered a niche segment in the smart health device market, genuinely delivering new health-related applications to consumers. Second, it boasts 28 million active users. To date, Fitbit has sold over 100 million devices, leveraging data to provide users with unique, personalized health and fitness guidance.

Additionally, Park stated, “Google is the ideal partner to help us achieve our mission. Leveraging Google’s resources and global platform, Fitbit will be able to accelerate innovation in the wearables category, scale more rapidly, and make health more accessible to everyone. I am excited about what lies ahead.”

Indeed, aside from Apple, which other company possesses superior resources to Google in the smart device sector? Meanwhile, the market response has been highly positive: on Friday, driven by this news, Fitbit’s stock price surged 15%, reaching $7.14 per share, with a total market capitalization of $1.845 billion.

Google has long struggled in the smartphone and wearable smart device sectors. Since launching its Pixel-branded smartphones in 2016, Google has vigorously pushed its hardware agenda, yet its market appeal has consistently fallen short of expectations. The company also spent years attempting to break into the wearable device market through its Wear OS platform, but failed to make a significant impact.

Google’s strategic moves over the years reveal that the company has placed greater emphasis on software than on hardware. However, in recent years, Google has gradually begun to intensify its efforts in the hardware sector. Acquiring companies with established technologies, experience, and mature talent pools is the fastest way for Google to enter this field, as demonstrated by its planned acquisition of Fitbit. In 2017, Google acquired the research and design team from HTC’s smartphone division for $1.1 billion to develop its Pixel phones. In January 2019, Google purchased smartwatch-related intellectual property rights from Fossil for $40 million.

Smartwatches represent one of Apple’s most important market segments and a notable gap in Google’s product lineup. For years, Google has made progress in this space through partnerships leveraging Wear OS and Google Fit, but it needs a larger market presence. Analysts believe that by acquiring Fitbit, Google has become the closest competitor to Apple in the market.

Google has benefited greatly from this acquisition.

Excellent brand awareness.Android Wear is not a branded product, whereas Fitbit has been cultivating the market for 12 years, selling over 100 million units and establishing strong brand recognition.

Excellent wearable hardware.Fitbit’s hardware capabilities have always been exceptional, and its acquisition will provide a solid foundation for the future development of Google’s wearable device product line integrated with Android. Naturally, Fitbit’s strong focus on fitness tracking can be seamlessly integrated into Google’s existing Google Fit app, offering a viable alternative for integrating Google Watch with the iPhone. On the other hand, Google’s technological prowess can help make Fitbit’s smartwatches (such as the Versa) smarter while enabling deeper software integration with Android.

Intellectual Property.In January this year, Google acquired certain smartwatch intellectual property rights from the watch brand Fossil for $40 million. Following its acquisition of Fitbit, the combination of Fitbit’s and Fossil’s intellectual property is expected to ultimately meet the requirements of Wear OS.

Fitbit's Vast Health Data.Fitbit’s databases for activity, exercise, and sleep are among the largest health databases in the world. Additionally, it features a leading health and fitness social network that provides users with personalized guidance. Fitbit’s fitness tracking devices monitor users’ daily step count, calories burned, and distance traveled, while also measuring floors climbed, sleep duration and quality, and heart rate.

The company has been collaborating with health insurance providers and pursuing acquisitions in the healthcare market to diversify its revenue streams. Analysts suggest that the majority of Fitbit’s current value may lie in its health data.

Any move by Google to leverage health data will raise privacy concerns, given that the company already has access to users’ search histories, locations, and interests. Both parties to the acquisition have inevitably issued statements regarding the use of this database, affirming their continued commitment to safeguarding the privacy of health and fitness data and emphasizing that “Fitbit health and fitness data will not be used for Google ads.”

Medical and Health Applications.After acquiring Pebble, Vector, and Coin, Fitbit is shifting much of its focus to healthcare, with several key partnerships in the sector. While Google and its parent company Alphabet have already made moves in the health space, Fitbit has gone further than Alphabet in building relationships within the healthcare industry, having taken steps in detecting arrhythmias and sleep apnea.

Rick Osterloh, Senior Vice President of Devices and Services at Google, stated in an open letter: “Fitbit has long been a true pioneer in the industry, creating compelling products and experiences and fostering a vibrant user community. By working closely with Fitbit’s team of experts and integrating the best AI software and hardware, we can help drive innovation in wearables and develop products that benefit more people around the world.”

Acquiring Fitbit presents an opportunity to deepen investment in Wear OS and introduce Google-branded wearable devices to the market. Ostro believes that although Google’s hardware business is still relatively young, it has already established a robust foundation of capabilities and products, including Pixel smartphones, Pixelbook laptops, and the Nest line of smart home devices. “We plan to work closely with Fitbit to combine the best of our respective smartwatch and fitness tracking platforms. Looking ahead, we see an opportunity to collaborate with Fitbit to inspire more people through wearable technology.”

Michael Pachter, an analyst at Wedbush Securities, stated, “Acquiring Fitbit makes more sense than attempting to build another competitor to Fitbit.” Fitbit’s accumulated expertise in products and data will enable Google to rapidly advance its position in the wearable device sector.

However, most of the market conditions described above pertain to overseas markets. In China, both Fitbit and Google’s Pixel and Nest hold negligible market share. Fitbit’s dominant position in the fitness tracking sector is being gradually eroded by products from domestic companies such as Huami and Huawei.

The transaction is expected to be completed in 2020, subject to approval by standard regulatory authorities and shareholders. As Google has become a focal point of antitrust investigations in Europe and the United States, the deal has drawn significant regulatory scrutiny. To date, many antitrust reviews of Google have centered on its search and advertising businesses. In filings with the U.S. Securities and Exchange Commission, the two companies stated that if the transaction fails to secure antitrust approval, Google will pay Fitbit a $250 million breakup fee.

This acquisition may well be Fitbit’s best outcome, while also ushering in the prelude to an impending clash among giants in the wearable device sector.

Reference Link:

VCBeat: Apple, Huami, and Huawei Make Major Bets! 14 Investments in Six Months, Health Wearables Back on the Fast Trackhttps://vcbeat.top/MzM3ZTBlYzNhYTIzZDMzYTI5OTNjNTVjMmNiZjEyZjQ=

fitbit，Fitbit to Be Acquired by Google，https://investor.fitbit.com/press/press-releases/press-release-details/2019/Fitbit-to-Be-Acquired-by-Google/default.aspx

google，Helping more people with wearables: Google to acquire Fitbit，https://www.blog.google/products/hardware/agreement-with-fitbit

The NewYork Tims，Google to Buy Fitbit for $2.1 Billion，https://www.nytimes.com/2019/11/01/technology/google-fitbit.html