Usually these M&A posts involve a private startup being purchased, but this past week, we witnessed a different type of deal — Google acquired Fitbit, which had been a public company for nearly four years. Fitbit was started in a previous startup era, raised about $65M in venture capital, went public in 2015, and reached heights of over a $4B market cap.
1/ High End And Low End Disruption – Fitbit ended up owning nearly one quarter of the wearables market. If you’re selling cars, that would be amazing; unfortunately in digital wristwear, that is a relatively new market, and Apple’s rate of product innovation with Watch (new series launched this fall) ended up taking over one third of the market at higher price points and margins. On the other end, Xiaomi’s Mi Band sold for a fraction of the cost, putting pricing pressure on Fitbit’s potential user base. For Fitbit to even maintain that percentage in the face of the Apple freight train is remarkable.
2/ Consolidating Hardware And Time – Another watch-enthusiast brand — Pebble — was unceremoniously folded into Fitbit after launching in 2012 to rabid fanfare. Pebble was one of the first-movers in the category, creating loyal fans and producing real innovation in the frontier days of this space. Ultimately, the company couldn’t make it, sold to Fitbit, and a piece of the consumer industry consolidated. Now with Fitbit (and bits of Pebble) rolled into Google’s orbit, we will soon likely see technology from all three companies fused into new products and services rolled out by Google.
3/ Looming Ecosystem Wars – I use my Apple Watch every day. For those who haven’t experienced this, it may sound trite but it is really helpful with lots of little things — a glance for a key alert or text, adjusting volume in the house, and being around the home and keeping my phone in the home office while I’m outside or playing with the kids. Google’s set up with Android and any watch connection likely doesn’t offer the same level of seamless connectivity. Adopting Fitbit’s loyal audience of users and tying in Google Mobile Services (GMS), Google Assistant, other AI services forthcoming from Google (or laid out in the company’s recent announcements around ‘Ambient Computing.’) This is especially true given how far behind AndroidWear or whatever it is called is relative to the competition.
4/ Data Aggregation, The Wrist Interface, And Google Mobile Services – Building off the ecosystem argument, one of the biggest appeals of investing in the Android/Google ecosystem is the ability to get fully integrated Google Mobile Services (GMS), such as turn-by-turn navigation, on the phone. Now, imagination a new interface on your wrist which can not only collect more data for Google (though there are some potential hurdles here), but can also use that data to anticipate services to push to you. Higher-level, one could imagine Google leveraging this rich, sensitive user-data to help with Verily and/or DeepMind efforts.
5/ Tilt Your Wrist And Pour One Out For A True Survivor – Despite difficult headwinds, Fitbit still logged $1.5B in revenues (with 100M devices sold, about 25% still in use). That’s really impressive considering who they are competing against. Say what you want about Pebble or Fitbit, but those of companies survived much longer than should have, considering others who tried and failed, such as Jawbone, Basis Science, Misfit, Lark, Mio Global, Microsoft Band. Consumer hardware is tough — after a bunch of home/IoT exits like Nest, Ring, and Dropcam, it’s hard to see what makes the cut, especially in this post-WeWork environment.