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Google to Buy Fitbit for $2.1 Billion Google to Buy Fitbit for $2.1 Billion
(about 3 hours later)
SEATTLE — Google said on Friday that it is acquiring Fitbit, the maker of fitness-tracking devices, for $2.1 billion to close the gap with Apple in the growing market for wearable electronics and to add muscle to its expanding hardware business.SEATTLE — Google said on Friday that it is acquiring Fitbit, the maker of fitness-tracking devices, for $2.1 billion to close the gap with Apple in the growing market for wearable electronics and to add muscle to its expanding hardware business.
The deal is likely to face regulatory scrutiny from agencies already investigating Google for antitrust concerns, because Fitbit collects sensitive health and activity information from users through the device. Heading off a potentially thorny point, Google said it would not use health data gleaned from Fitbit devices in its core advertising business.The deal is likely to face regulatory scrutiny from agencies already investigating Google for antitrust concerns, because Fitbit collects sensitive health and activity information from users through the device. Heading off a potentially thorny point, Google said it would not use health data gleaned from Fitbit devices in its core advertising business.
“You will always be in control of your data, and we will remain transparent about the data we collect and why,” Fitbit’s chief executive, James Park, said in an email to his company’s customers on Friday morning. “We never sell your personal information, and Fitbit health and wellness data will not be used for Google ads.”“You will always be in control of your data, and we will remain transparent about the data we collect and why,” Fitbit’s chief executive, James Park, said in an email to his company’s customers on Friday morning. “We never sell your personal information, and Fitbit health and wellness data will not be used for Google ads.”
The planned sale of the 12-year-old Fitbit to Google is a reminder of how difficult it can be for a smaller device maker to thrive as larger companies start competing for the same customers. Over the last 10 years, innovative start-ups like Nest, Beats, Dropcam and Flip have all been acquired by Silicon Valley’s biggest companies.
Fitbit pioneered wearable technology before the emergence of so-called smartwatches, which can send messages and take calls as well as keep track of athletic activity. The company, which is based in San Francisco, had long enjoyed brand recognition that matched its bigger competitors, thanks in part to catchy, aspirational advertising.Fitbit pioneered wearable technology before the emergence of so-called smartwatches, which can send messages and take calls as well as keep track of athletic activity. The company, which is based in San Francisco, had long enjoyed brand recognition that matched its bigger competitors, thanks in part to catchy, aspirational advertising.
The 12-year-old company’s wrist devices celebrated — with a light buzz and a flashing display — what some fitness experts thought was an arbitrary if laudable goal: walking or running 10,000 steps in a day. Fitbit’s wrist devices celebrated — with a light buzz and a flashing display — what some fitness experts thought was an arbitrary if laudable goal: walking or running 10,000 steps in a day.
But over the past few years, the biggest tech companies have expanded aggressively into health products and services. Financial analysts wondered how long Fitbit could survive after Apple started selling its own wearable device, the Apple Watch, in 2015. Since then, Apple has been adding new health features to its Apple Watch, like a hearth monitor app, making it a direct competitor to Fitbit. But over the past few years, far bigger tech companies have expanded aggressively into health products and services. Financial analysts wondered how long Fitbit could survive after Apple started selling its own wearable device, the Apple Watch, in 2015. Since then, Apple has been adding new health features to its Apple Watch, like a heart monitor app, making it a direct competitor to Fitbit.
Fitbit has made its devices more sophisticated to compete with Apple in recent years, essentially offering many of the same smartwatch capabilities as the Apple Watch. But it has not been able to keep pace with the Silicon Valley giant. Fitbit has made its devices more sophisticated to compete with Apple in recent years, essentially offering many of the same smartwatch capabilities as the Apple Watch. But it has not been able to keep pace with the tech giant.
The Apple Watch now leads the market for wearable devices, with nearly a 38 percent share in the second quarter, according to data from the tech analysis firm Canalys. Fitbit had the second-highest share with 24.1 percent.The Apple Watch now leads the market for wearable devices, with nearly a 38 percent share in the second quarter, according to data from the tech analysis firm Canalys. Fitbit had the second-highest share with 24.1 percent.
The competition has taken a toll on Fitbit. The company had $1.5 billion in revenue in 2018, down 6 percent from the year before, squeezing out a net profit of $48 million. In July, Fitbit lowered its guidance for the rest of the year after announcing disappointing sales results for its Versa Lite device, which was intended to compete with the broader-ranging capabilities of the Apple Watch. The competition has taken a toll on Fitbit. The company had $1.5 billion in revenue in 2018, down 6 percent from the year before, squeezing out a net profit of $48 million. In July, Fitbit lowered its guidance for the rest of the year after announcing disappointing sales results for its Versa Lite device, which was intended to compete with the broader capabilities of the Apple Watch.
Google is dipping into its $121 billion cash pile to acquire Fitbit and expand its lineup of hardware products, which already includes smartphones, tablets, laptops and smart speakers. In a statement on Friday, Fitbit said Google was paying $7.35 per share in cash, or about $2.1 billion. Fitbit shares surged 15 percent on the news. The deal is expected to close in 2020, although no specific date was provided.Google is dipping into its $121 billion cash pile to acquire Fitbit and expand its lineup of hardware products, which already includes smartphones, tablets, laptops and smart speakers. In a statement on Friday, Fitbit said Google was paying $7.35 per share in cash, or about $2.1 billion. Fitbit shares surged 15 percent on the news. The deal is expected to close in 2020, although no specific date was provided.
Google has pushed aggressively into hardware since 2016, when it started introducing smartphones under its own Pixel brand. But it has not gained significant traction. The smartphones are generally well reviewed, but they are still an afterthought to Apple and Samsung. It also sells a range of other home devices, including digital thermostats and smoke detectors that came with the 2014 acquisition of Nest. Google has pushed aggressively into hardware since 2016, when it introduced smartphones under its own Pixel brand. But it has not gained significant traction. The smartphones are generally well reviewed, but they are still an afterthought to Apple and Samsung. Google also sells a range of other home devices, including digital thermostats and smoke detectors that came with the 2014 acquisition of Nest.
A hole in Google’s product lineup are watches, a segment dominated by Apple. By acquiring Fitbit, Google acquires a recognized brand and the closest competitor to Apple in the market, said financial analysts. Watches, a segment dominated by Apple, are a hole in Google’s product lineup. By acquiring Fitbit, Google acquires a recognized brand and the closest competitor to Apple in the market, said financial analysts.
In a note to clients, Michael Pachter, an analyst at Wedbush Securities, said “buying Fitbit makes more sense than trying to build yet another competitor to Fitbit.” However, he added that this was another example of Google “tilting at windmills” because the company was “uniformly bad at consumer products in our view, and appears to us to be intent on spending whatever it takes to prove our view wrong.”In a note to clients, Michael Pachter, an analyst at Wedbush Securities, said “buying Fitbit makes more sense than trying to build yet another competitor to Fitbit.” However, he added that this was another example of Google “tilting at windmills” because the company was “uniformly bad at consumer products in our view, and appears to us to be intent on spending whatever it takes to prove our view wrong.”
Because Google has been the subject of antitrust investigations in Europe and the United States, regulatory concerns hang over the deal. In a filing with the Securities and Exchange Commission, the two companies said Google would pay Fitbit a $250 million breakup fee to Fitbit if the deal fails to secure antitrust approval. The Justice Department declined to comment on the deal. Because Google has been the subject of antitrust investigations in Europe and the United States, regulatory concerns hang over the deal. In a filing with the Securities and Exchange Commission, the two companies said Google would pay Fitbit a $250 million breakup fee to Fitbit if the deal fails to secure antitrust approval. The Justice Department and the Federal Trade Commission declined to comment on the deal.
So far, much of the antitrust scrutiny directed at Google has focused on the search and advertising side of its business. How Google presents its search results could be subject to antitrust laws because it handles more than 90 percent of searches worldwide, according to some estimates.So far, much of the antitrust scrutiny directed at Google has focused on the search and advertising side of its business. How Google presents its search results could be subject to antitrust laws because it handles more than 90 percent of searches worldwide, according to some estimates.
But regulators may also look at the company’s acquisition of other businesses. In June, Google bought the data analytics company Looker for $2.6 billion in a bid to catch up with its rivals in the business of cloud computing.But regulators may also look at the company’s acquisition of other businesses. In June, Google bought the data analytics company Looker for $2.6 billion in a bid to catch up with its rivals in the business of cloud computing.
During Google’s earnings conference call with analysts on Monday, Sundar Pichai was asked whether the regulatory scrutiny made it difficult to pursue new businesses or acquisitions. Mr. Pichai fell back on Google’s standard antitrust defense that it helped to lower prices and expand choice, while noting that there were still opportunities where it was the new entrant bringing competition to the industry. During a conference call with analysts on Monday, Sundar Pichai, the company’s chief executive, was asked whether the regulatory scrutiny made it difficult to pursue new businesses or acquisitions. Mr. Pichai fell back on Google’s standard antitrust defense that it helped to lower prices and expand choice, while noting that there were still opportunities where it was the new entrant bringing competition to the industry.
John Blackledge, an analyst at investment bank Cowen, said he did not expect the deal to face regulatory opposition because the acquisition focused on hardware and Fitbit was a relatively small company.
Google and its parent company, Alphabet, already have a wide range of health care initiatives. Alphabet’s life sciences subsidiary, Verily, has worked for years on improving devices to measure blood sugar as well as developing smart lenses for dealing with age-related vision problems. Earlier this year, it hired David Feinberg, the former chief executive of hospital operator Geisinger Health System, to spearhead a consolidated health care division.Google and its parent company, Alphabet, already have a wide range of health care initiatives. Alphabet’s life sciences subsidiary, Verily, has worked for years on improving devices to measure blood sugar as well as developing smart lenses for dealing with age-related vision problems. Earlier this year, it hired David Feinberg, the former chief executive of hospital operator Geisinger Health System, to spearhead a consolidated health care division.
Any push by Google into health data raises privacy concerns, because the company already knows what you search for, where you are and what interests you hold.
In 2017, a British government watchdog agency ruled that DeepMind, a London-based A.I. lab owned by Alphabet, had violated patient privacy in gaining access to medical records from the country’s National Health Service.
In November, after saying that it would not link patient data with Google accounts, services or products, DeepMind said it was transferring the unit that processed the records to Google, prompting complaints from privacy advocates in Britain and elsewhere.
David Yaffe-Bellany and David McCabe contributed reporting.David Yaffe-Bellany and David McCabe contributed reporting.
This is a developing story. It will be updated.