Can a combined Google/Fitbit take on the Apple Watch?

Google gets serious about wearables, but is it too late?

In January 2014, Google announced plans to acquire Nest for $3.2 billion; the acquisition was completed the following day, but since then, Nest’s integration has been a controlled burn. Initially, the company existed as a subsidiary of the newly-formed Alphabet Inc., but in early 2018, Google tightened its grip and integrated it directly into its hardware division.

Over the next year and a half, Nest became the face and name of Google’s smart home offering, a division that’s grown quickly as Google Home/Google Nest has become one of the top two players in the U.S. smart home category, rivaled only by Amazon’s Alexa/Echo offerings.

All the while, wearables have been an also-ran: Google has clearly had an interest in the category, launching Android Wear in 2014. The company partnered with some of consumer hardware’s biggest names, including Motorola, Asus, Sony, Huawei and LG, but to little fanfare. A year ahead the release of Android Wear (now Wear OS), Apple brought its own smartwatch to market, effectively leaving the competition in the dust.

The Apple Watch would soon eclipse the rest of the wearable industry; numbers from Canalys in August 2019 show Apple at 37.9 percent of the total North American wearable band market. Fossil, the only Wear OS partner to crack the top five, is in a distant fifth, with 4.1%.

Samsung and Garmin have found success with their own offerings, but both are far behind Fitbit at second place. Founded in 2007, Fitbit would eventually become synonymous with fitness trackers. A humble startup when it showcased its first product (an eponymous 3D pedometer) on stage at our TC50 event in 2008, Fitbit’s rise has been an unqualified success.

Fitbit predicted and eventually came to define the wearable zeitgeist, finding itself at the forefront of the next big wave in consumer electronics after the smartphone. As the mobile category has plateaued, wearables continue to grow at an impressive pace. Let’s take a moment to appreciate what has been an impressive run.

The last few years, however, have been far rockier as Fitbit stumbled and sputtered. By CEO James Park’s own admission, the company failed to embrace smartwatches quickly and fully enough, and as it has so many times in the past, Apple entered and dominated the space, leaving Fitbit reeling with an uncertain future.

But today, that chapter comes to a close as Google acquires Fitbit for $2.1 billion, which works out to $7.35 a share, significantly lower than its summer 2015 high of $51.90, but still notably higher than its low of $2.81 per share in August 2019. The truth is, there’s still value in the brand, thanks in part to Fitbit’s own resilience; Fitbit’s purchase of Pebble, Vector and Coin was a Hail Mary that paid off in the form of the Versa, an Alexa- and Spotify-enabled smartwatch that put it back in the conversation.

The success of that product, coupled with a streamlining of Fitbit’s wearable line, has helped it maintain its position among top wearable brands, even as it’s weathered significant market pressure from high-end manufacturers like Apple, and on the low end from Chinese manufacturers like Xiaomi.

The past year and change have also found Fitbit getting more serious by inking several partnerships with healthcare companies and insurers, a tacit acknowledgement that Fitbit is, ultimately, a data company. The tremendous scads of information the company has collected over more than a decade make it hugely valuable to both those companies and a player like Google, which has been making its own serious health plays in recent years.

On the consumer front, Google no doubt believes that Fitbit can inject new life into Wear OS. Google recently made a sizable investment in the category, buying a chunk of IP from Fossil for $40 million, but that pales in comparison to this $2.1 billion deal. Google has clearly seen the writing on the wall, as Apple’s hardware focus has shifted from the iPhone to Apple Watch. (Google’s own Pixel devices haven’t exactly set the world on fire either, for that matter.)

Wear OS has been stagnating for years, and this was very much a shit-or-get-off-the-pot moment. Google just did the former to the tune of $2.1 billion. It’s a move that will, to some degree, mirror Google’s purchase of HTC IP, which informed the most recent version of its Pixel handset. Whether Fitbit exists as more of a Nest or an HTC under the Google banner remains to be seen, but I anticipate more of the former.

For one thing, Fitbit is being acquired outright; it’s a proper purchase, rather than a piecemeal sell-off of IP by a company struggling to stay afloat. For another, there’s still value in the Fitbit name. While I expect the combination of this acquisition and the Fossil IP purchase to culminate in the release of a kind of Wear OS flagship Pixel Watch, enough people still associate wearables with Fitbit that it makes sense for Google to retain the brand. Hell, there’s far more brand name recognition here than there was when Google bought Nest.

I suspect this wasn’t how either Google or Fitbit was hoping things would play out as recently as a year or two ago. Google was clearly interested in growing its wearable category organically in-house. But once again, the company needed help from a big acquisition or two to jumpstart its hardware ambitions.

Fitbit made its own acquisitions in pursuit of growing of building its own smartwatch. The Versa was a success, but stumbles — including the poorly-selling Versa Lite — likely only added to weariness among shareholders. Fitbit did appear to be righting the ship, but perhaps not at the rate desired by those in charge of financial decisions.

As with any acquisition, there’s bound to be turbulence as Google assimilates its new purchase, Fitbit customers adapt to big and small changes in the user experience and the acquired company seeks to find its footing in an already mature category.

Beating Apple at its own game will take full integration. Fitbit already spurned Wear OS when it purchased Pebble to build its own operating system and app store, so if the company is going to succeed, it needs to build a seamless experience and truly become the Apple Watch for Android users.

A Google/Fitbit alliance certainly has the money and talent to pull it off; now, all it needs is the commitment and follow through.