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Google has announced it has entered into a definitive agreement to acquire wearables brand Fitbit as it further explores its options in the hardware segments.
While wearable fitness devices are certainly a long-slog away from Google’s core competencies, it has already shown it is able to gain traction in the hardware segments with the success of its smart speaker. With the Pixel smartphones, smart speakers, Chromebook, the Nest Thermostats and now Fitbit, Google is certainly spreading its wings.
“Three and a half years ago, I joined Google to create compelling consumer devices and services for people around the world,” said Rick Osterloh, SVP of Devices & Services.
“Our hardware business is still relatively young, but we’ve built a strong foundation of capabilities and products, including Pixel smartphones and Pixelbooks, Nest family of devices for the home, and more.
“Google also remains committed to Wear OS and our ecosystem partners, and we plan to work closely with Fitbit to combine the best of our respective smartwatch and fitness tracker platforms. Looking ahead, we’re inspired by the opportunity to team with Fitbit to help more people with wearables.”
Although this has been a rumour which has been circulating for a while, it certainly looks like a sensible move for the internet giant. This is another example of Google doing what Google does; throws money at an idea which it likes.
The core Google business model is a relatively simple one. Its services are some of the best available, however to continue growth it needs to ensure these services are being pushed into new ecosystems. For example, it started as a desktop application, before buying Android and dominating the mobile space, then when the voice user interface started to gather steam, it brought out a range of smart speakers. Each of these moves takes the core Google services into a new domain, and Fitbit is no different.
The wearables segment has constantly promised the world but delivered only a fraction, though there does seem to be gathering momentum. Smart watches and other wearable devices are becoming more popular, and it does offer Google another opportunity to interact with the consumer in a different environment.
Google currently has a voice assistant which allows for the voice user interface, Fitbit devices will soon enough be powered by Google’s Wear OS, while it has been doing some promising work in gesture control also. These elements would all link back to Google’s other services, such as the Mapping product or search engine. Fitbit looks like an attractive investment because it offers Google another opportunity to make money in another domain.
Despite being an incredibly sound brand, Fitbit has been suffering in recent years. It found fame and success in delivering a niche wearable device for fitness enthusiasts, though as the wearables segment slowly evolved, it did not. Other more complex devices evolved to offer fitness elements, stealing some of the shine from the Fitbit. Its own attempts to create smart watches have been hit and miss.
Fitbit does need to evolve its product beyond the niche fitness devices which it produces today, but to develop something which is competitive in a market with the likes of Apple, it will take cash. Fortunately, this is something Google can contribute with abundance. However, Google will have to make sure it lets Fitbit be Fitbit.
Google will have to make sure it leaves the Fitbit team on its own to hire the right people and design the right products. Google’s heritage is in software after all and wearables need to marry substance and style. We suspect a horde of software engineers might not be the best suited to get too involved.
Should Google leave the Fitbit team to create an excellent product, just like it left Nest on its own, and marry the devices to its wider service ecosystem, this could be a very crafty acquisition.
As Apple continues to progress in the wearables market, Google parent Alphabet is rumoured to be looking at buying Fitbit.
The goss comes courtesy of Reuters, which has been hanging out with people who reckon they have inside knowledge of the matter. The story had almost nothing else to say on the matter, other than it not being a done deal yet and somewhat redundantly stressing that it’s sources are anonymous because they don’t want to be sacked for leaking stuff.
Stories like this often come from official, but clandestine channels with one or both of the companies in question. One reason for the acquiring company to do such a things is known as a trial balloon, in which it leaks a rumour to see how the market reacts. In this case Fitbits shares were up 27% at time of writing, but that’s probably just in anticipation of the typical premium paid for an acquisition. Perhaps more telling is the fact that Alphabet’s chares are up 2-3% on the rumour.
Google tends to buy device companies to contribute to the associated ecosystem around them, rather than a strategic aim to develop that line of business as a profit centre in its own right. The Android wearables market seems to have stalled, while Apple makes steady progress, so maybe Google had decided it’s time to intervene. Then again this could be a false alarm, in which case anyone who flogged their Fitbit stock today will be feeling pretty smug.
Analysts believe Apple has increased its smartwatch shipments by 50% to capture a bigger share of an expanding market. The gap between the Apple Watch and the chasing pack is widening.
Unlike the contracting smartphone market, the smartwatch market is still experiencing fast growth, although the absolute volume is still small. According to data published by the research firm Strategy Analytics, 12.3 million smartwatches were sold in Q2, up by 44% from 8.6 million a year ago.
5.7 million pieces of Apple Watch were shipped in the quarter, up by 50% from 3.8 million in the same quarter last year, giving Apple, the run-away market leader, a 46.4% market share, up from 44.4%. The biggest market share gain, however, was registered by Samsung. The Galaxy Watch maker more than doubled its volume to 2.0 million from 0.9 million in Q2 2018 and took over the number two position on the leader board with a 15.9% share. Samsung’s gain was primarily at the expense of Fitbit, which saw its market sharing plunging from 15.2% a year ago to 9.2%.
“Fitbit has struggled to compete with Apple Watch at the higher end of the smartwatch market, while its new Versa Lite model has struggled to take-off at the lower end,” Neil Mawston, Executive Director at Strategy Analytics, commented on the competition dynamics. “Fitbit will have to move fast to execute a recovery, because Samsung, Garmin, Fossil and other competitors are keen to grab a slice of its valuable health and fitness customers.”
The research firm does not publish the value and value share of the smartwatch market, but it should be safe to estimate that Apple’s leading position would be more commanding if calculated in monetary terms, considering that Apple Watch is generally priced 40% higher than the Galaxy Watch with similar features, which in turn is generally more expensive than the smaller competitors.
Although Apple does not break down sales income to product lines, “Wearables, Home and Accessories”, the business unit that includes the Watch, reported the highest growth (+48%) among all the business units in Apple’s Q2 results, and has overtaken the total revenues from the iPad unit.
Tim Cook, the CEO, is also banking high hopes on the Apple Watch for future growth. In a January interview by CNBC, Cook claimed the Apple Watch has democratised health care. “We are taking what has been with the institution and empowering the individual to manage their health. And we’re just at the front end of this,” Cook said. “But I do think, looking back, in the future, you will answer that question: Apple’s most important contribution to mankind has been in health.”
The latest smart watch numbers from analyst firm Counterpoint reveal Apple is still the dominant player but Fitbit is giving it a run for its money.
Total global smart watch shipments grew 37% year-on-year but it’s rapidly turning into a two horse race. Apple hijacked the market as soon as it took the segment seriously but its initial success seemed to stall. Meanwhile Fitbit more recently made the strategic decision to diversify beyond fitness bands and that move seems to have paid dividends.
Apple still dominates with a 41% of global shipments, but that’s down from 48% a year ago. Meanwhile Fitbit has managed to propel its share from 8% a year ago to 21% in Q2 2018, thanks to the apparently popular Versa smart. Everyone else is miles behind, with one-time leader Samsung now bordering on irrelevance.
“Back in Q4 2017, Apple stepped up its strategy in the smartwatch segment by enhancing the features of smart watches into broad-based functionalities, including some health and fitness tracking capabilities,” said Satyajit Sinha of Counterpoint. “Moreover, Apple is catalysing the trend of ‘smart watch as a standalone wearable device’ with adoption of cellular connectivity, which is driving the new wave of cellular connected wearables globally, great news for mobile operators.”
It doesn’t look like the market got the memo about standalone smart watches, however. As Sinha’s colleague Neil Shah notes, people seem reluctant to pay the premium just for the opportunity to talk to their wrist like a nut-case.
“Despite initial hype and traction of cellular based Apple Watch Series 3 in the first two quarters, Apple iPhone users are actually choosing the Series 1 as a non-cellular option over Series 3 non-cellular model which is surprising to many industry watchers,” said Shah. Not all industry watchers mate. The strong inference here is that Apple hasn’t done much to improve on the Series 1 other than whack in an expensive and largely redundant modem.
As indicated the Apple Watch Series 1 is the best selling model, followed by the Fitbit Versa. Given that Chinese vendor Amazfit has the third best selling brand despite only having a 4% total market share, that implies these two models are by far the biggest sellers. Unsurprisingly the Fitbit Versa is significantly cheaper than any Amazon Watch, so it wouldn’t be surprising to see it continue to grab share in the coming quarters.
Fitbit might not be turning in the results of yesteryear, but riding the wave of Versa to beat analyst expectations demonstrates there might be mass-market appeal for the brand.
Total revenues stood at $299.3 million for the three months ending June 30, and while this is still considerably down on the $353.3 produced in the same period for 2017, it beats expectations from analysts. The success for this period has been attributed to Versa, the team’s attempt to break away from the fitness-tracking niche and enter into the mainstream smartwatch market.
“Our performance in Q2 represents the sixth consecutive quarter that we have delivered on our financial commitments, made important progress in transforming our business, and continued to adapt to the changing wearables market,” said CEO James Park.
“Demand for Versa, our first ‘mass-appeal’ smartwatch, is very strong. Within the second quarter, Versa outsold Samsung, Garmin and Fossil smartwatches combined in North America, improving our position with retailers, solidifying shelf space for the Fitbit brand and providing a halo effect to our other product offerings.”
Overall, Fitbit sold 2.7 million wearable devices across the quarter, with the average unit price increasing 6% year-on-year, primarily down to the newer product releases. Those devices released in the last twelve months accounted for 59% of total revenues, providing confidence in the brands ability to diversify from the niche which has served it so well through the underwhelming years for wearable devices.
Fitbit launched the Versa on 16 April and boasted about selling one million devices just over one month later. The product is more in-line with what you would have expected from a smartwatch device, moving beyond the fitness tracking niche Fitbit has become known for. Just looking at the device demonstrates the shift, though what’s on the device is what counts, as it features all the apps we have become accustomed to. It is a big move from Fitbit, and it looks to have worked.
Perhaps this is a positive sign for the wearables industry on the whole. For years, Fitbit appeared to be the only wearables brand which could survive as devices failed to meet the expectations of consumers. Maybe the consumer was not ready for the wearables craze, but the simplicity of Fitbits fitness trackers worked. In being able to move out of the niche and into mass-market appeal, this might be a sign the general public is ready to embrace wearables on the whole.
Looking at the share price, it is still way down on the peak from 2015, some 87%, but there have been signs of recovery across 2018. There is a notable dip in the last 5-6 weeks, though should Fitbit be able to maintain this venture into the mainstream market, we can only see the share price going up.
While everyone else seems to struggle to make any money in the floundering wearables market, Fitbit has boasted of shipping more than one million Versa devices since general availability began on April 16.
Fitbit’s Versa smartwatch has been marketed as a ‘personalized daily health and fitness companion’, featuring an on-device health dashboard, tetherless connectivity, mobile payments, Android quick replies and healthy battery life. Aside from having a use which is appealing to a niche, but dedicated demographic (fitness and health fanatics), pricing the product at $199.95 makes Versa accessible. With more than one million shipments inside seven weeks, it seems Fitbit might be onto another winner after a couple of difficult months.
“With Fitbit Versa, we are delivering on our promise to offer a true mass appeal smartwatch with engaging new features,” said James Park, CEO of Fitbit. “The positive response to Versa shows that we are filling this void and well positions us to gain share of the fast-growing smartwatch market.”
Despite Park’s positivity, the company has been struggling in recent months. The firm announced sales of $247.9 million for the quarter in May, and while this number was up on analyst expectations, it was short of the $298.9 million generated during the same period of 2017, and even further behind the $505.4 million in Q1 2016. Fitbit had defied the trends in the wearables community for years, but it seemed time had caught up. That said, the numbers being quoted for the Versa device seem to offer hope.
For years Fitbit has seemingly been one of the few companies who was able to make headway in the struggling wearables market. In truth, the technology was not, and probably still isn’t, ready. Standalone connectivity was a big step forward last year, if a device was tethered to a phone what was the point, but the simplicity and niche appeal of the Fitbit exercise devices made it a lucrative venture for the team.
Another positive move for the team seems to be the launch of a new female health tracking feature, which has been downloaded by 2.4 million users. Entering into the services market is certainly a good move for Fitbit, as the last six months have shown how dangerous the product market can be; Versa was needed to recapture momentum, though recurring revenues through apps is a sensible supporting revenue stream.
This is not the moment of euphoria for wearables, Nokia’s plight with Withing’s demonstrates Fitbit is the exception not the rule. The product is still reliant on the development of other technologies before it becomes a genuine feature of the connected economy. Standalone connectivity was an important step forward, but the voice interface will be another one, as will eSIMs, gesture control and specific connectivity plans for the devices.
Fitbit might be able to make this space work right now, but there is still some way for everyone else.
Declining revenue for fitness tracker brand Fitbit is a perfect example of the fight the wearables segment faces in the battle to remain relevant in the super-connected era.
For years it seemed Fitbit was the only brand out there which could actually make money from the long-suffering wearables segment. The promise had been wonderful for the devices, but in reality, brands were constantly chasing the fictional pot of gold. Even Apple, with its legions of cult-like iFollowers, strained to make the technology lucrative, and it seems Fitbits run of good-fortune is lacking fitness.
For the last three months, Fitbit bagged $247.9 million in revenues, up slightly on analyst expectations, but quite a bit short of the $298.9 million generated during the same period of 2017. This compared to $505.4 million in Q1 2016 and $336.8 million in 2015. It seems the boomtime for fitness trackers has ended, but someone forget to tell the management team.
“The strong growth and defensibility of our business continues to be powered by product innovation, the network effects of our community, our expanding global distribution, and investment in our brand,” said James Park, Fitbit co-founder and CEO. “Based on the first quarter’s performance and momentum, we are confident about the remainder of the year, which is reflected in our increased guidance.”
Prospects for the rest of the year might well be good, but you can’t argue with the figures. The devices are simply not in high-demand as they were in yesteryear. Fitbit should be worried, as should the rest of the industry; if Fitbit can’t make the segment work, what hope is there for anyone else?
The smartwatch and overall wearables segment has struggled for years to make any meaningful impact on the technology world. In truth, there was little point to the devices; smartwatches did not do anything a smartphone couldn’t, and until recently, weren’t able to function without being tethered; consumers were not prepared to make the swap. There is little point in a smartwatch. However, Fitbit found a niche.
In creating an affordable device, with a specific purpose and targeted at specific audience, Fitbit discovered success. This was not a connectivity device, nor was it a fashion statement, it was simply a fitness tracker. It was a sensible strategy, as sportspeople are often open to spending on premium devices which serve a purpose. It was a niche and limited usecase for Fitbit, but it worked. Some might also have hoped the normalization of the technology in this niche might have created momentum for other, more profitable usecases focused on connectivity. But what does the latest dent in Fitbit spreadsheets mean for the segment on the whole?
We suspect the wearables euphoria was pumped too early. There are usecases for the technology out there, but it is by no-means going to be a revolution because the practicalities of the devices are lacking. Wearables could well make an impact on the communications world in the future, but we suspect this won’t be reality until the voice interface has taken hold.
Unless smartwatches offer something smartphones don’t, they will probably be viewed as a replacement. However, with the touch interface still commonplace, the screens on watches are not practical for everyday use. The voice interface is starting to gather some momentum, which could make the concept of a screen redundant when it comes to communicating (i.e. dictating messages, voice commands to answer calls, a virtual assistant reading out written content) and offer a place in the world for wearables.
Fitbit struggles should be viewed as a significant concern for the rest of the wearables segment. There might be a time for the devices, but now is not that time.
Long-time wearables king Fitbit has belatedly got into the smartwatch game in a bid to fight back against Apple and Xiaomi.
As you would expect, the Fitbit Ionic comes at the smartwatch category with a distinctly health-and-fitness bias. A prominent feature is an SpO2 (peripheral oxygen saturation) sensor, which can apparently tell how much oxygen there is in your blood. This seems to be the sort of thing health/fitness fanatics like to obsess over so it’s likely to be a crowd-pleaser.
First and foremost Fitbit needs to make sure that side of things is beyond reproach and hopefully better than anything other smartphone vendors have to offer. But for this move into smartwatches to be a success Fitbit needs to ensure it’s at least adequate when it comes to other presumed benefits of such a device, such as smartphone syncing and contactless payments.
The Ionic runs on Fitbit’s own OS, presumably derived largely from the Pebble acquisition. Apparently it can receive smartphone notifications, but doesn’t really offer much in the way of further interaction. It does support contactless payments, but via Fitbit’s own pay service. Other USPs include longer than average battery life and an Adidas-branded special edition.
“With Ionic, we will deliver what consumers have not yet seen in a smartwatch – a health and fitness first platform that combines the power of personalization and deeper insights with our most advanced technology to date, unlocking opportunities for unprecedented health tracking capabilities in the future,” said James Park, co-founder and CEO of Fitbit.
Even if we take all that hyperbole at face value the Ionic faces the same challenge as the rest of the smartwatch category: providing sufficient utility to justify the price. At a price point of $300 it doesn’t significantly undercut its competitors and it lacks the reassurance of being aligned to a major mobile platform. Right now it’s not obvious why consumers should either pay the premium (basic Fitbit bands start at $20) or risk moving to an unknown platform.