In a move set to intensify the battle among tech giants vying to capture consumers through devices other than smartphones, Google has agreed to buy smartwatch maker Fitbit Inc for $2.1 billion in an all-cash deal. While the acquisition will significantly expand the internet giant’s reach in the consumer electronics space, it comes with multiple risks.
None of these downsides are related to the price, however. $2.1 billion is peanuts for a company now sitting on Silicon Valley’s largest net-cash balance of $121 billion. Nor should Google dread resistance from shareholders. But, while hardware and software makers have been in better sync on phones, the same cannot be said for wearables yet.
Secondly, the deal is likely to face scrutiny from government regulators. Google is currently the subject of several antitrust investigations in Europe and the United States, facing regulatory threats to its massive internet-search and advertising business.
This could also make the addition of Fitbit problematic, particularly given all the health-related data it has accumulated. Both companies promised in their deal statements that this data won’t be used to help target Google ads, but regulators are unlikely to simply take Google’s word for it.
It may be noted that Google’s largest acquisitions so far have been its $12.5 billion deal to buy Motorola Mobility in 2011 and the $3.2 billion pickup of Nest Labs in 2014. These deals, however, haven’t furthered its dominance in online advertising with hardware expected to generate barely five per cent of the company’s advertising revenue this year, according to consensus estimates from Visible Alpha.
Analysts also say that the acquisition may not mean much for the Indian wearable market given the fact that despite being the earliest entrant in the market, Fitbit has struggled to maintain a hold. It has lost out to players like Apple, who dominates the premium segment with its Apple Watch devices, and Xiaomi, who caters the budget market with Mi fitness bands.
On the other hand, while Google already makes home devices under the Nest brand and has a healthy presence in that market, the company also has its own wearable operating system (OS) in WearOS, though it doesn’t have big market share there. In fact, only Huawei, one of the top three brands in the segment, has used the WearOS on its devices.
And, having lost its Android license due to the US trade ban recently, it’s unlikely that the Chinese multinational will continue to do so in the future. It, however, remains to be seen if this deal would help Google to improve adoption for WearOS.
Faisal Kawoosa, founder of techARC suggests another reason for why Google in interested in Fitbit: augmenting its growing Internet of Things (IoT) ecosystem. The company currently has a growing ecosystem of smartphones, laptops, and smart speakers, but is yet to build its own watch.
In a recent blog post however, Google has hinted this might change. At the end of the day, however, Google is primarily a data business, and the more ways it puts in place to collect data, the better it does.
One of Google’s costliest takeover
According to Google and Fitbit’s statements on Friday, the tech giant will pay $2.1 billion to take over the wearables major. It may be noted that Google’s largest acquisitions so far have been its $12.5 billion deal to buy Motorola Mobility in 2011 and $3.2 billion for Nest Labs in 2014.