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Google revives its wearables strategy with Fitbit deal

Last week, Google announced its intention to acquire Fitbit, one of the world’s largest wearables makers, for $2.1 billion. The deal will put Google in deeper competition with Apple and Samsung in the fiercely competitive wearables landscape. The move is also a further step by Google into the healthcare market, and comes at a critical juncture for the company’s wearables strategy, which has drifted for some time with little sign of clear direction (see Instant Insight: Google Acquires Fitbit).

Fitbit, which has over 27 million active users, was one of the trailblazers of the wearables category. Its devices were once synonymous with the fitness-tracker market, and rode on the “wellness” wave that has become so widespread in Western geographies in recent years. Over time, its devices added capabilities well beyond basic fitness tracking, allowing users to record activities like running, cycling and swimming, and to record and analyse heart rate and sleep patterns.

However, Fitbit has struggled as the wearables market has become increasingly crowded. Its smartwatch devices haven’t sold as well as the company hoped, and the Apple Watch has proved a formidable opponent at the top end of the market. Fitbit’s attempt to offer more-affordable fitness trackers has been scuppered by Chinese rivals such as Huami and Xiaomi with their low-cost products.

Over the past few years, Google been a part of the wearables market through its Wear OS platform, which powers a range of devices including Fossil smartwatches and Mobvoi’s TicWatch line-up. But the operating system has badly fallen behind rivals including Apple’s watchOS and Samsung’s Tizen, with a perplexing lack of improvements or developments offered by Google. The company failed to even mention Wear OS at its Google I/O event in May 2019 or at the recent launch of its new Pixel 4 smartphone, creating the impression that Google had all but given up on the category.

However, the acquisition of Fitbit is a clear statement of intent from Google, giving it a better foothold in the market, and simultaneously preventing others from moving into the space or expanding their market share. It could also bring lots of other benefits.

One of them is that Fitbit provides a clear route for Google to make its own wearables hardware. It should be noted that that this isn’t Google’s first wearables-related acquisition: at the beginning of 2019, Google paid $40 million for technology and talent from Fossil Group’s research and development team. With these assets, Google could now be well placed to create health-centric devices with longer battery life that can gather lots of health-related user data.

There are numerous advantages that could follow from this. The acquisition will produce revenue from wearables sales, and also stands Verily — a life sciences subsidiary of Google’s parent company Alphabet — in good stead to use this health data in its research for disease detection and monitoring. As a business that’s already experienced in handling big data and getting value from it, Google could generate revenue from this better than Fitbit did.

However, Google will need to overcome some hurdles. In addition to the cultural and logistical problems posed by any acquisition, Google will need to pull together its existing wearables assets with those it bought and then smoothly fold them together into its ecosystem of devices. It will be fascinating to see what strategy Google chooses. Although many would consider Apple to be a rival, the Apple Watch has such a stranglehold on the top end of the market that if Google is to seriously challenge this dominance it will need huge investment in its hardware and software. In the short term, we believe that a quick win for Google would be to integrate Fitbit functionality and tracking into Wear OS devices and to draw on the strength of the existing Fitbit brand to move further into the consumer health and fitness market.

The $2.1 billion buyout puts one of the largest names in wearables under Google’s umbrella and could provide a much-needed shot in the arm to Google’s strategy. The challenge now is to ensure that the acquisition is a successful one; Google has a mixed track record in hardware acquisitions and will need to heed the lessons of its past — take, for example, its questionable decision-making after buying Motorola in 2012. Google has the ingredients to make the deal with Fitbit a success; it must now put them together and cook up an appetizing offering in the wearables market.