Success Of Google’s Fitbit Acquisition Hinges On Its Ability To Counter Privacy Concerns

Fitbit wearables.

Google’s announcement last week that it would acquire Fitbit for $2.1 billion was not particularly surprising for many observers who follow the smart home, wearable and IoT category. After all, Google has demonstrated on several occasions that it was willing to “buy” itself into the hardware business. It acquired Nest Labs in 2014 for $3.2 billion with the strategic desire to leverage Nest’s know-how in the smart home space. This ultimately led to products including smart speakers, smart displays, streaming devices, thermostats (the original Nest smart home device), security systems and smart doorbells under the Google Nest brand.

It’s all about the OS

Google’s Wear OS has struggled to gain traction.

Not surprisingly, the acquisition announcement immediately ignited substantial privacy concerns in the media due to Google’s overwhelming position as the dominant online advertising player. These are not new concerns. Nest reactedto these same concerns in 2015 by committing that its products would never share data with other Google business units unless customers “opt-in” and permit it to do so.

Patrick Moorhead, Principal Analyst at Moor Insights & Strategy, and I are in full agreement that privacy considerations in the wearables space are the single toughest barrier that Google will have to overcome for the Fitbit acquisition to be successful. Google isn’t alone in facing these types of privacy concerns with consumers, but its position in search and online advertising makes it particularly vulnerable. On the other hand, Apple has been able to address these privacy concerns deftly, and consumers have rewarded the company with a record $6.52 billion in “accessories” revenue performance (which includes wearables) in its most recently reported quarter.

Google acquisition should unleash Fitbit’s potential

Privacy considerations aside, Google’s purchase of Fitbit should allow it to push the envelope in wearables design. The Fitbit product teams will now have access to more development resources and a fundamentally more capable OS platform. It’s something that’s badly needed at Google since success in the wearables category has largely eluded the company. Recall that Google has invested five years working on the category—Android Wear was announced in 2014, a full year before the first Apple Watch was announced. The cynic in me wonders if the deal is purely a scheme to get Google Assistant on a wearable device that is worn every day by millions of users. The hopeful side of me believes that this acquisition will inject some badly needed fuel into Fitbit (whose revenue has stayed stubbornly flat in the $1.4-$1.5 billion range over the past three years), which will allow it to invest, innovate and expand its product line. As is the story of all acquisitions, only time will tell.