Google announced its acquisition agreement of Fitbit on the 1st November 2019, a deal worth $2.1 billion and expected to close in 2020. Fitbit will strengthen Google’s so-far failed wearable technology strategy, but Fitbit’s journey has not been a fairytale ride either. Sales of its recent smartwatches have been lower than expected, and demand for its remaining product portfolio of its activity tracker is in stark contrast to the early days of the wearable technology hype cycle in 2015.
How come Google is buying Fitbit at this point?
For starters, Google is buying a leading company in a market that generated nearly $20 billion in global revenues in 2018, according to IHS Markit’s latest report on the sports and fitness technologies market. Forecast to exceed $50 billion in 2023, there is plenty of room for competition in the years to come – even with Apple currently holding a strong market position. The sports and fitness and smartwatches market are shaping up to become the next big arena for Apple and Google to compete in, and the situation is like the early days of the smartphone market. So far, Google has had to rely on other manufacturers to spread its Google Wear platform, but moving forwards, Fitbit’s legacy will aid in the company’s ability to design and manufacture wearable devices.
What will the future hold?
With the acquisition, Google will also be facing new competition in the shape of Garmin, Polar and Suunto, which hold strong positions within niche segments of the sports and fitness technologies market. This is namely within the multisport and outdoor watch categories; the latter revenues are growing at a double-digit growth rate through to 2023. Since the emergence of smartwatches, and especially the Apple Watch, the sports and fitness market has had the threat of disruption looming (see figures below). The value proposition of smartwatches has grown stronger due to better battery performance, LTE adoption and stronger app ecosystems, relative to dedicated multisport watches.
Is it too late?
The big question remains whether Google will be able to challenge Apple as the leading wearables company, and if the Fitbit acquisition was the correct strategic move to achieve this. Although Apple has a dominant position in wearables today, it is limited to its own ecosystem, whereas Google will continue to offer its software to the broader market. This remains Google’s biggest potential, although historically within wearables, it has been its biggest weakness.
For questions or inquiries, please contact Roeen.Roashan@ihsmarkit.com
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