Google acquiring Fitbit opens up a Pandora box of opportunities for the Alphabet subsidiary
With the smartphone market saturated to the brim in almost all markets and the revenues from smartwatches pegged to grow at 22.5% CAGR in the next 5 years, it was rather obvious for companies to get their ammunition in place to capitalize on the next stream of cash flows. While this argument is an easy sell in the context of any OEM, it’s not so obvious with Google at the center of it all!
If history is any indication of how Google has evolved as a smart device company, the acquisition of Fitbit wasn’t surprising. For Pixel to be what it is today, Google had to acquire Motorola’s mobility division, sell it off to Lenovo, before acquiring the smartphone division from HTC to be able to carve a niche for itself in the smartphone market. If you look at why Google persisted at controlling even the hardware, and be successful at that, it is because Android phones have always got a lukewarm feedback on the lines of software experience. In other words, devices powered by Android were mostly inconsistent due to un-optimized software overlays included by Google’s partners (OEMs) like LG, Samsung and Huawei . With Android having gotten all the more fragmented in the last few years, it was imperative for Google to set right the perception of android and reinstate its position as the most capable and user friendly smartphone platform. With the Pixel line, Google was able to fully control everything from the hardware, to the software and user experience in addition to owning the customer relationship, instead of leaving it to the mercy of their partner OEMs. We are once again seeing a similar trend now in the wearables space.
Google’s smartwatch seat is still left vacant!
In Android land, there is no particular smartwatch that is as good if not better than the Apple watch, especially on how well it ties into the Apple ecosystem. Today, Apple leads the global smartwatch race by a fair distance, followed by Samsung being a distant second. While a lot of its platform success has contributed to Apple’s success with the Apple Watch, what’s more startling is that the second placed Samsung runs on its proprietary Tizen OS. Tizen powered Samsung watches easily connect with Samsung’s smartphones, powered by Android. With this approach, Samsung have in a way eliminated the need to have an Android powered smartwatch. Same is the case with Fitbit, which has its own legion of fans and has built an excellent fitness and health led ecosystem (For record, the Fitbit app has over 10 million downloads on the Play store).
Android today has a huge untapped opportunity for Google more so because there is no “Google solution” to smartwatches, and it is forced to partner with the likes of Huawei, and the likes, who while on Google’s platform, could not bring out a compelling value proposition for its smartphone customers to invest on smartwatches. Besides, smartwatches were never prioritized as much as smartphones since the OEMs themselves didn’t believe it had a compelling enough reason to sell. For OEMs its about profits from device sales, but for Google the prime opportunity lies in putting a smartwatch in the hands of every Android phone user.
In today’s context, leading companies are locking customers to their platforms and selling the world to them. With the Apple offering blending well with its range of devices, Google seemed to lack an Android equivalent on the wrist.
The relevance of smartwatches and the suite of bundled services they can offer can eventually push a premium android device user to make the switch to Apple ecosystem, due to the lack of an Android equivalent. To Google’s disadvantage, its relatively easier to move from Android to iOS than vice versa, because Apple ties you to a lot more devices and services that are only available on Apple’s platform, while on the contrary Google’s apps are readily available on iOS, and hence an average customer doesn’t lose much in the process. So getting its ecosystem in order is critical for Google.
Capitalizing on a potential 3 trillion-dollar opportunity
Smartwatches have risen from being ‘pager-like’ for smartphone notifications, and share fitness information that is grossly inaccurate to even an enthusiast, to being a health consultant on the move. With sensors getting smaller and more accurate, and software extremely well optimized to interpret and normalize the data from the sensors, smartwatches today, actually have a meaningful role to play in our day to day lives.
With several news reports crediting the Apple Watch in anticipating potential strokes / heart attacks by identifying irregularities in heart beats, smartwatches for a lot of customers have become a godsend.
In I/O, Google talked about investing in AI for healthcare, and with smartwatches having the potential to provide the necessary intel on citizens’ health to Google, buying two smartwatch companies in quick succession makes absolute business sense, more so when the company aspires to reinvent the $3 trillion US healthcare industry.
Google’s approach towards smartwatches - Thinking smartwatch first
Personally I believe, Google needs to adhere to the rules of the game that it created. Their Appleisque approach in the context of smartphones may not be the right approach since Google’s business model is different. While Google’s objective of putting a smartphone in the hands of every individual has been fairly successful, Google needs to power a bulk of this vision by being an ODM for which its product portfolio and supply chain needs to mature quickly. Google can spoil the party for other OEMs by adopting a wearable first approach and launch smartwatches across multiple price points and position it effectively to boost adoption. If Google can successfully do that at an unprecedented pace, the smartwatch penetration will go berserk with Google stripping the wrist real-estate off mainstream sports watches and fitness trackers. The Fitbit acquisition in this context is priceless!
Google has already reclaimed close to 15% smartwatch market share with the acquisition of Fossil (smartwatch division) and Fitbit. With 2.5 billion active android handsets, if Google gets its act right, they can be the biggest catalyst in driving the smartwatch revolution. The smartwatch race is for Google’s to lose in the next decade!!
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