Google Will Acquire Fitbit for $2.1 Billion and Strengthen its Google Assistant Wearables Strategy

Google announced in a blog post this morning that the company has entered into an agreement to acquire Fitbit, a pioneer in fitness tracking. Rick Osterloh, senior vice president of devices and services at Google, said of the acquisition in the announcement:

“We believe technology is at its best when it can fade into the background, assisting you throughout your day whenever you need it. Wearable devices, like smartwatches and fitness trackers, do just that—you can easily see where your next meeting is with just a glance of an eye or monitor your daily activity right from your wrist.”

Reuters reported earlier this week that Google was in acquisition talks with Fitbit. However, the article noted that Fitbit’s status as a wearable fitness tracking giant was at risk saying, “A deal for Fitbit would come as its dominant share of the fitness tracking sector continues to be chipped away by cheaper offerings from companies such as China’s Huawei Technologies Co Ltd and Xiaomi Corp.” These concerns didn’t scare off Google likely because of how strategic the wearables category has recently become.

An announcement by Fitbit today said Google LLC will pay $7.35 per share in cash, a figure that values the company at $2.1 billion. The company reports that it has sold over 100 million devices worldwide and “supports an engaged global community of millions of active users.” It also stated that Fitbit “will continue to remain platform-agnostic across both Android and iOS.”

The War for Your Body

Google is not new to wearables. It has Wear OS which is designed to bring Google services to wearable devices such as watches. However, this is a tool for device makers. Google has been using Wear OS to build an ecosystem of wearable device makers that employ its software similar to the Android OS in the smartphone segment.

The problem for Google is that its partners in this market are not growing fast enough nor do they control meaningful market share. Data from Strategy Analytics underscores Google’s challenges in this segment. In Q2 2019, Apple Watch commanded 46.4% of worldwide sales market share up from 44.4% a year earlier. Samsung, with its Gear line of watches built on Tizen, held the second position with 15.9% of sales in the quarter up from just 10.5% in Q2 2018.

Google Wear OS partners are found in the “other category.” The largest of these device makers is Fossil Group. Canalys says Fossil commanded just 4.1% share in Q2 2019 for the North American market, down from 4.3% in the previous year’s second quarter. The trend lines threaten to make Wear OS irrelevant.

Google acquired Fossil smartwatch technology in January as a signal about its intention to focus more on the segment. That is where Fitbit became more interesting. Tucked into third in worldwide Q2 market share was Fitbit according to the Strategy Analytics report. Fitbit commanded 9.8% market share in Q2 2019 compared to 15.2% in the comparable 2018 quarter. That is not good news for Fitbit which saw its share price in August down 61% from its 52-week high. But, that might be good enough for Google because it wants to get into the game and compete more effectively with Apple and Samsung.

The War for Your Voice

This move by Google isn’t about device sales. It is about who gets to control the application and services stack on the digital devices consumer use every day. You should note that the number one feature, in fact, the only feature promoted on the Wear OS landing page today is Google Assistant. Wearables have minimal screen real estate and few physical buttons so voice assistants are expected to become the dominant tool for navigation on the devices. And, it is likely that only one voice assistant will be available per device.

Apple and Samsung offer Siri and Bixby respectively as their voice assistants. Samsung even made a big deal this week how Bixby Capsule (i.e. voice app) developers can add watch support with a single line of code. Google doesn’t want Assistant to be locked out of a category that grew over 40% last year. Fitbit offers Google a platform to reinsert Assistant into the wrist wearables market and provide continuity of experience for users that already favor Google for smartphones and smart home devices.

A Slap on the Wrist for Alexa

The collateral damage from Google’s move is likely to be felt most acutely by Amazon. Fitbit’s new Versa 2 watch introduced in August included Alexa access for the first time. This offered the potential for Amazon to reach a large number of on-the-go users which is a critical gap in the company’s Alexa strategy given its lack of a smartphone platform.

There is no indication yet about how a Google-owned Fitbit will adjust its relationship with Amazon. However, it is a good bet that Alexa’s reign on Fitbit will brief. That means Amazon is likely to need another wearable strategy to support its Alexa ambitions.

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