Google $2.1B Acquisition of Fitbit to Face Antitrust Scrutiny

Google is buying wearable fitness-tracking company Fitbit for $2.1 billion. But the deal already faces antitrust scrutiny as well as concern about the massive amount of personal private health data that Google will gain with the purchase. Google stated — and Fitbit chief executive James Park reiterated — that health data would not be used for Google’s advertising business, but that might not be enough for regulators. The 12-year old Fitbit pioneered wearables before the advent of smartwatches.

The New York Times reports that Fitbit, based in San Francisco, “had long enjoyed brand recognition that matched its bigger competitors.” But as bigger tech companies expanded into healthcare and fitness, it’s been increasingly difficult for the smaller players to stay afloat.

When Apple began selling the Apple Watch, which has health features, in 2015, “financial analysts wondered how long Fitbit could survive.” Fitbit continued to make its devices “more sophisticated” to compete with Apple, but “the Apple Watch now leads the market for wearable devices, with nearly a 38 percent share in the second quarter,” according to Canalys. Fitbit is second, with 24.1 percent share.

Fitbit 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, it also announced “disappointing sales results for its Versa Lite device, which was intended to compete with the broader capabilities of the Apple Watch.” Google is 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.

Bloomberg reports, “Google and Fitbit expect the deal to face protracted regulatory review in light of the current political focus on competition and privacy issues in the tech industry.”

Josh Hawley (R-Missouri) spoke for many when he asked, “Why should Google be permitted to acquire even more companies while they’re under DOJ antitrust investigation?” David Cicilline (D-Rhode Island), who heads the House antitrust probe, added, “Google is signaling that it will continue to flex and expand its power in spite of this immense scrutiny.”

Google and Fitbit “have given themselves a year to gain antitrust clearances, although that can be extended through May 3, 2021 — and Google would owe Fitbit $250 million if the deal fails due to antitrust issues,” said Bloomberg Intelligence senior litigation analyst Jennifer Rie. With the purchase, Apple and Google will “control more than half of the global smartwatch market.” Fitbit currently has 28+ million users.

Google is also under investigation by the Justice Department’s antitrust division for its June purchase of cloud services company Looker for $2.6 billion. Open Markets Institute fellow Matt Stoller believes that “doubling down on acquisitions while being investigated for anti-competitive practices will provoke a political backlash.”

Wired reports that Google’s acquisition of Fitbit is a “must-buy” to achieve its aim of “ambient computing,” by putting a computer on peoples’ wrists. Currently, Google’s only smartwatch property is the WearOS operating system, used by “an assortment of second-tier players.” Google will face numerous hardware and software challenges in the wearables market, beginning with WearOS, which, says Wired, “leaves plenty to be desired, especially compared to Apple’s watchOS.”

Related:
Google Health Is Finally Opening Up About Its Plans, and They’re All About Search, CNBC, 11/2/19