5 REASONS FITBIT IS A GOOD FIT FOR ALPHABET AND 3 PRECAUTIONS
Now that it’s a done deal; retrospectively what may Alphabet potentially gain or lose by acquiring Fitbit?
On The Surface, There Is Great Potential In A Fitbit And Alphabet Deal
It has been reported and now confirmed Google's parent company Alphabet ( NASDAQ: GOOGL ) is seeking to acquire wearable activity tracker Fitbit.
Alphabet has been widening the scope of its healthcare business enterprises and assertively staffing up their ranks. By acquiring Fitbit ( NASDAQ: FIT ), they seemingly would add several degrees of upwards trajectory in their consumer health and telehealth/telemedicine capabilities.
The acquisition of Fitbit by Alphabet is valued at approximately $2.1 billion.
Five Good Reasons Fitbit Is A Good Fit For Alphabet
- Enables Alphabet to more effectively compete with Apple as well as Samsung and Garmin in the wearables, fitness and activity trackers product sector
- Provides an additional device to pair with its Google Pixel smartphones, assimilate with Wear OS items and potentially other Google products
- Establishes a pathway for telehealth applications aligned with other Alphabet, Google and Verily Life Sciences healthcare initiatives
- Prevents competitors like Amazon, Apple, Garmin, Microsoft, Samsung and others from acquiring the company and its technology to bolster their smartwatch and wearable product franchises and elevate their competitive status
- For corporate convenience, Google and Fitbit are practically neighbors; Google is based in Mountain View, California, Verily Life Sciences is located in South San Francisco and Fitbit is headquartered in San Francisco
Three Precautions
There are risk considerations for Alphabet to consider in buying Fitbit:
- Grossly overpaying beyond a reasonable premium for ownership of Fitbit; lengthening the time required to make back the money and move into profitable use of the acquired technology
- Acquiring technology that is highly functional now but soon to be outdistanced by new technology introduced by competitors like Apple, Garmin, Microsoft or Samsung; what is at stake digitally and financially for investing in today’s cutting edge technology today that is obsolete tomorrow?
- Buying Fitbit to build out existing capabilities and/or team up with Wear OS products ( Google’s line of wearables ) then learn its technology has a lower ceiling than anticipated thus requiring more funding to revamp or requiring entirely new technology development ( which siphons off the primary value of the deal )
Alphabet has all the business and technology savvy to measure up Fitbit’s strong and weak points before a deal but there is always a risk. Certainly, they have deeply vetted these potential issues and others in sizing up Fitbit. Now that Alphabet is indeed acquiring Fitbit, it will be fascinating to see how they provide competitive marketing and digital development lift to Fitbit-based products and integrate them with Wear OS, Google Pixel or other Google products.
Alphabet in the process of building a smartwatch / wearable brain trust intertwined with its Google device and healthcare enterprises
By bringing Fitbit on board, it will be stacked with smartwatch / wearable technology building blocks already in place from the Google Wear OS and the technology Alphabet fortified it with through a deal with Fossil Group ( NASDAQ: FOSL )which took place in January 2019. Fossil Group sold a selection of their technology to Alphabet for $40 million with hidden value in that the transaction covered bringing on the research and development team from Fossil that supported the technology.
Fossil Group not only markets its products but others as well like Misfit and Kate Spade. Reportedly some of the technical elements Alphabet acquired in the Fossil deal were picked up by Fossil when they bought Misfit. If this is true, Alphabet is winning out by Fossil re-gifting the Misfit technology to them for a modest sum of money and Alphabet will have avoided having to invest wholly in acquiring all of Fossil Group for it.
There is considerable excitement surrounding this possible acquisition by Alphabet and how it may have a wider impact across the smartwatch, wearable or fitness tracker technology sector
- Will another technology company offer a competing bid for Fitbit ( highly unlikely now that Fitbit has agreed to Alphabet’overture; however anything is possible ) and for those companies declining to bid, what opportunities did they miss by not buying Fitbit?
- Could the deal trigger a wave of other fitness trackers and wearable device manufacturer acquisitions in short order by Alphabet and Fitbit competitors like Amazon, Apple, Garmin, Microsoft or Samsung?
Moving forward, questions investors have for Alphabet which Alphabet has already answered for themselves
The bottom line in all of this is ROI. Alphabet has made a string of acquisitions, investments, partnerships and strategic hires aligned with building a robust healthcare enterprise. These need to produce innovative solutions whether its products or services in a highly competitive market sector plus generate profits. As the Fitbit deal progresses, then Alphabet must be looking near and far into the financial future of such a deal:
- How soon can they recover the initial funding investment to acquire Fitbit and generate true profit?
- Can Fitbit serve as a catalyst to drive sales of other Google products and vice versa?
- What is the cost and calendar curve to assimilate Fitbit as an integral element of marketing strategy and execution?
- If the intent is to expand Fitbit from a consumer to a clinical device ( i.e. for telemedicine purposes ) what are the additional cost, R&D and medical/regulatory approval commitments involved?
Great Expectations: Alphabet, Google, Google Cloud, Verily Life Sciences
Deploying the intellectual and technical resources of Alphabet and its Google, Google Cloud and Verily Life Sciences units to tackle complex healthcare challenges has great potential. Even without the addition of Fitbit, Alphabet is driving forward into healthcare and its corporate confidence in making a clinical and commercial difference is evident. Consumers, patients, nurses, doctors and other clinicians plus other stakeholders such as payers are anticipating great things from them.
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