Google Acquires Fitbit: What it actually means to wearables and the industry

2019-08-27 09.26.12-1

Google has just announced the acquisition of Fitbit for a cool $2.1 billion (USD).  The move will undoubtedly drive change in the industry, though, not as much as one might think – at least initially. Don’t worry, I’ll explain in a moment. Like any acquisition, it needs to actually be approved by regulators, but that’s largely just a formality for this particular instance. Google & Fitbit expect that to occur in 2020, which is when the real work can begin.

It’s probably best to start off with where these two companies’ products fit in the market today. Fitbit, of course, being one of the biggest wearable players, though sliding in the last few years as Apple, Samsung, Xiaomi, and Huawei (and to a lesser but still visible extent Garmin) have seen their sales increase significantly (keep in mind that global IDC tracking isn’t a great indicator of North America/European sales). Apple sells approximately 20-25 million Apple Watches per year (and more than double that for the entire ‘wearables’ category). Whereas Fitbit has been in the 13-20 million ballpark the last few years.

Google meanwhile hasn’t sold their own watch device. Instead, they have Wear OS (previously known as Android Wear). That’s an operating system that’s largely focused on the higher end smartwatch with a similar battery profile as the Apple Watch. Meaning, it’s designed to roughly last 1-2 days. Exactly how long it lasts depends heavily on the exact partner hardware. For example, Polar’s M600 (Wear OS) fitness-focused watch tends to last longer than some other companies’ thinner watches. And similarly, we saw Apple decrease actual battery life this year in the Series 5 from past years. Again – it all depends on the hardware under the covers.

Battery aside – Fitbit and Google do have wearables overlap, but it’s kinda messy overlap. For example, Fitbit’s top-end device – the Ionic (priced $200-$250 depending on tidal and moon phases) has music, GPS, and contactless payments. Wear OS devices in that category tended to start from the same price point and increase depending mostly on materials used. Fossil had countless watches all in that price range. However, Wear OS wasn’t situated well for the less expensive all-day activity trackers that made Fitbit popular.

The battery demands of Wear OS (like WatchOS from Apple) simply didn’t allow that. They are blow-torches in the battery department in comparison to the much longer-lasting Fitbit (and Garmin/Suunto/Polar/etc…) wearables. A large part of that is the screen – Wear OS devices tended to have far more vivid screens. And as we saw this year with Fitbit, Apple, and Garmin introducing always-on screens like Samsung has had – when enabled, it more than halves the battery life.

Next, if we look at the health side of things- while Google has their health platform, it doesn’t have anywhere near the depth of Fitbit from a social fitness tracking standpoint. Nobody really does. That’s why Fitbit has succeeded to date: Their platform is engaging. Even looking to Apple, for example, one can see the huge lack of social engagement between Apple Watch users. You can do basic competitions, but the methods and challenges that Fitbit has exceeds everyone where.

What does it mean for FitbitOS & Wear OS?

So the real question here is: Which OS wins?

The easy answer is ‘Wear OS’, and to an extent, Google says that as well. Their SVP of Devices and Services, Rick Osterloh noted that this “an opportunity to invest even more in Wear OS as well as introduce Made by Google wearable devices into the market.”

But the challenge with that broad-brush statement is somewhat twofold:

A) Wear OS isn’t viable for Fitbit’s non-smartwatch activity trackers
B) Wear OS is still a battery beast

Not to mention that Wear OS still has relatively little uptick in apps (just like Fitbit does). Sure, the app stores are full of apps, but very few that you’ll actually use beyond a cursory one or two time glance.

Realistically – Google and Fitbit are going to have to keep both platforms running, likely for many years. But that might not be all bad. Take the lower end wearables (the Inspire and Charge families), there’s no reason to even bother trying to port Wear OS onto these devices. Instead, Fitbit/Google will likely keep them on the platforms they’re on (the core Fitbit platform that was there prior to FitbitOS proper). They can add in things like Google Assistant down the road (they added Alexa to the Versa 2 this past summer) and since there’s no apps on these, much of the benefit of Wear OS is negligible or non-existent.

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Meanwhile, you’ve got the Versa and Ionic lineup. These have strong overlap with Wear OS and are likely to be canned from an operating system standpoint. At first glance, you might assume that FitbitOS is newer than Wear OS (or Android Wear). But in reality, one has to remember that FitbitOS is essentially just a spin-off of the Pebble operating system (remember, Fitbit bought Pebble). In fact, some of those lead Pebble engineers are still there leading this platform.  But, I can’t see any scenario where they keep FitbitOS. There’s simply no reason to.

All of the fitness and lifestyle type interfaces and functionality that run on a Versa or Ionic type watch can easily be ported over to run on Wear OS. Sure, there will be differences, but because Fitbit’s products are fairly modular and also less deep in individual functions than say something like a Garmin watch, it’ll be easier to stock replace pieces like the music player or even basic run tracking. Wear OS does those just fine today – and not appreciably different than Fitbit.

So in short – I’d argue FitbitOS goes away, Wear OS continues, and basic Fitbit trackers stay the course on their proprietary platform as they have for more than a decade.

What does this mean for Fitbit users?

And this is where things get a bit messy. See, they say almost nothing about existing Fitbit users in their press release except this single line item:

“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.”

At first you might think – great, that means all is well, right?

Not so fast. What’s missing in this entire press release is any commitment whatsoever to maintaining the Fitbit platform or ecosystem. Bizarre as that omission might seem (since that’s what Fitbit is so well known for), it means Google is keeping all options on the table – including burning down that ecosystem to fold into other projects (which historically the company tends to do for acquisitions, they’ve acquired at last 229 companies as of today).

In fact, when I asked Fitbit’s PR team about any commitment (at all) to existing Fitbit users – they said:

“The release and blog post are the comments for now.”

In other words – ‘no comment’.

That could be taken both ways. But I know better. We all know better.

When it comes to acquisitions, if a company plans to keep something – they say it (and usually say it loudly and proudly – like they did above with the security/privacy bits). If a company has even the slightest thought of not keeping it, they say nothing. And if the company plans to burn it down, they definitely say nothing.

This is a pretty big deal for neither Fitbit or Google’s statements to address.

They do however offer one other line item around compatibility, which is:

“Fitbit will continue to remain platform-agnostic across both Android and iOS.”

And that makes sense. After all, Wear OS works today on iOS and Android devices, and there’s no reason to shift away from that. Most companies in this segment find that they have 60-70% iOS market share for consumers of these types of devices (as compared to far higher global Android market share). Thus, ditching iOS support would be a self-inflicted wound.

Impact on their competitors?

Interestingly, Garmin was asked this very question on their earnings call this week by Robert Spingarn of Credit Suisse. CEO Cliff Pemble said the following:

“So we’ve seen the speculation obviously around Fitbit and Google. It’s really hard to say what we can think about that without any kind of formal announcement and whether or not it’s even a real thing.

We believe that Fitbit’s customer base is very different from ours and our product focus is also different. So it’s not something that we believe impacts us and we’re not worried about it.

In terms of other opportunities, we look at every opportunity basically in terms of what it can bring to Garmin both in terms of technology or product lines. So we would evaluate any of those opportunities based on that and what we can achieve with it going forward.”

Of course, he brushes off the concern – but what he states in the middle paragraph is mostly untrue. Fitbit and Garmin have always had huge overlap at the low-end, and have always competed head to head there. They’ve referenced Fitbit as a competitor in their earnings calls and sales guidance for years.

However – there’s also some nuances to what he says. What he’s probably trying to say is that ‘A Garmin customer is less likely to become a Fitbit customer, whereas a Fitbit customer is more likely to become a Garmin customer’.  Meaning that the athlete-focused feature set of a Garmin watch is easier to ‘upgrade’ into from a Fitbit device, but harder to go back to a Fitbit device once on a Garmin (speaking purely from a feature standpoint). They have overlap, but the bulk of Garmin’s *revenue* comes from their mid-range and higher-end devices, not from the activity trackers that they still compete with Fitbit on.

The other two players this impacts are Apple and Samsung.

But predicting how it’ll impact them is a tricky beast. Obviously, this will give Wear OS strength over time, but not immediately. Apple’s integration between phone and watch is second to none. The cleanliness of that integration is in many ways the cleanliness of Fitbit as an ecosystem. Whether or not Google can find a way to port not just the overarching fitness platform to Google proper, but also retain that cleanliness remains to be seen.

I don’t see this making any appreciable negative impact on Apple (or Samsung) anytime soon. I could, however, see this having a detrimental effect on Fitbit sales near-term, whereby people actually end up on an Apple Watch (or other competitor) due to uncertainties around Fitbit. As I often say, the ‘Best Buy’ effect. Meaning, consumers of this type of device are often heavily reliant on advice from someone in a brick and mortar store like Best Buy, who can easily make an off the cuff statement when asked by a consumer which device is recommended – only to have that person respond ‘Well, Fitbit just got bought by Google and we don’t know how that’ll end up’. The person turns and buys a competitor device instead.

Wrap-Up:

I’m never one to want to see less competitors in the space. But I’m not sure there was any other realistic option here. No, Fitbit wasn’t going to die this year or next year, or even in 2021. However, they were facing an issue of not being innovative anymore, which in turn causes loss of market share. Their Versa 2 launch this past summer was a prime example of that – where the global reaction was ‘shrug’. Combine that with the continued shift from lower-end activity trackers to highly integrated smartwatches like an Apple Watch, was becoming the perfect storm for the company.

They couldn’t really seem to fully lock and complete the various projects they’d announced. Whether that was the sleep tracking that took over a year to get out the door, or even broader music streaming services adoption. It was like things were stalling, as if the ship was just getting too heavy.

I think this acquisition though gives Fitbit a second life – but also gives Google a second life in the wearables realm. Remember, aside from Fossil, almost nobody was rolling out new watches with Wear OS. It had kinda sputtered.

I’m hoping we look forward to Fall 2020 with a Google Watch announcement. Something that can compete with Apple Watch in the mass market arena, but perhaps also have the flexibility to compete with companies like Garmin and others in the athletic focused space.

With that – thanks for reading!