Google: Trying to Fit In?

On 1st November 2019, FitBit Inc. announced in a press release that "it has entered into a definitive agreement to be acquired by Google LLC for $7.35 per share in cash, valuing the company at a fully diluted equity value of approximately $2.1 billion."

In the same press release, Rick Osterloh, SVP, Devices and Services at Google said, "Fitbit has been a true pioneer in the industry and has created terrific products, experiences and a vibrant community of users." Rick also talked about "bringing together the best hardware, software and AI, to build wearables to help even more people around the world."

Have FitBit and Google finally done what this ad by the former preaches?

The above summarises the acquisition: Google trying to make a noteworthy foray into the wearables market, and FitBit, trying to redeem themselves from the stagnation that has befallen this once disruptive firm. Let's look at what this deal means for both parties.

FitBit, the one to bring about the disruption in the wearables market, has been on a downward spiral for the past couple of years. In fact, in 2019 Q1, it had a market share of a mere 5.9% of the total wearables' shipments, as compared to 25.8%, 13.3%, 10.0% and 8.7% of Apple, Xiaomi, Huawei and Samsung, respectively. This has come down from 6.8% in the same quarter the year before, making the YoY growth out to be 35.7%. This is in comparison to Huawei and Samsung, who have had >100% YoY growths in the same period. Samsung built Tinzen, its own OS to be used in its smartwatches, while Huawei, which dabbled with Google's WearOS for its Watch 2, is currently using its own LiteOS for the more recent Watch GT. Apple Watch, despite being the undisputed market leader, also had a 49.5% YoY growth in that period.

Even after acquiring Pebble back in 2017, for a dirt cheap 23 million dollars, FitBit still hasn't been able to really make its mark in the Smartwatch category and has been losing out to the likes of Apple, Samsung, Huawei, etc. Its share price has also gone down by ~80% since its IPO in 2015!

This created an ideal atmosphere for Google to swoop in as well. Google has been trying to enter the wearables and smartwatch market, but haven't really been successful in making a significant impact. Thus, Google's expertise in AI, ML and other up and coming technologies, coupled with FitBit's hardware and algorithms should help in creating the product to rival the likes of Apple Watch, Galaxy Watch, etc. Google could also incorporate Google Assistant in the next FitBit, just as, Alexa has been used in the latest FitBit Inspire.

Rick sees this acquisition as “an opportunity to invest even more in Wear OS as well as introduce Made by Google wearable devices into the market.” WearOS has been a bittersweet (read mostly bitter!) proposition for Google, because of which they bought an anonymous smartwatch technology from Fossil, which had come to the latter's possession on acquiring Misfit in 2015. Still, Google hasn't been able to hit it off, and with FitBit's 28 million active user base, finds an opportunity to do so.

This also provides an opportunity to Google and its parent company Alphabet Inc.,to make its mark in the Health Analytics domain. This is a hot topic in the tech industry currently, and the data gathered from wearables and smartwatches would surely help in generating interesting and innovative insights. We should also not forget the huge treasure trove that is FitBit's historical data. Taking that into account, even 2.1 billion seems to not be that big an amount!

However, with such a huge amount of data comes great(er) responsibility; that of security and maintaining the privacy of data.

In recent times, Google has been embroiled in quite a few data breach allegations, the most notable being the Nightingale fiasco, in which it has been accused of mishandling health data and even breaching HIPAA regulations. Google's acquisition of Nest and its usage of the data of Nest users have also not been looked at in a positive way in certain quarters.In fact, after the announcement of the acquisition, FitBit users concerned with their privacy, started enquiring on their tweets on how they could delete their past data and whether they could choose not to share their personal data with Google. This has elicited responses from both FitBit and Google.

In their press release, FitBit has highlighted that "Consumer trust is paramount to Fitbit. Strong privacy and security guidelines have been part of Fitbit’s DNA since day one, and this will not change. Fitbit will continue to put users in control of their data and will remain transparent about the data it collects and why. The company never sells personal information, and Fitbit health and wellness data will not be used for Google ads." Rick Osterloh, in his personal blog has emphasised "privacy and security are paramount. When you use our products, you’re trusting Google with your information. We understand this is a big responsibility and we work hard to protect your information, put you in control and give you transparency about your data. Similar to our other products, with wearables, we will be transparent about the data we collect and why. We will never sell personal information to anyone."

In the long run, data security, prevention of data breaches and ethical sharing of sensitive data are few things that Google must address properly, by keeping proper checks and balances in place, thereby reassuring the users and not lose out on such a huge user base.

All in all, with 5G coming up, and Google's ability to fully utilise and work with newer technologies, this seems to be a really good deal.

5G would lead to faster streaming of data, which in turn, would help in efficient tracking and monitoring. This has the capability to cause a paradigm shift in the wearables tech market, and should lead to further innovation and healthy competition between the leaders.

The acquisition, however, is supposed to materialise not before next year, subject to customary closing conditions, including approval by Fitbit’s stockholders and regulators.