We spoke to investors and analysts to figure out why Google is buying Fitbit, a company that hasn’t made much of a dent in the healthcare world.
By JOEL BERG | MedCityNews | Nov 1, 2019 at 5:50 PM
Google likely has many reasons for strapping on Fitbit but access to healthcare data may be the driving force behind the $2.1 billion deal announced Friday after the first rumors of the deal arose earlier in the week.
In buying San Francisco-based Fitbit, Google gains access to devices worn by – and collecting health data from – millions of people. The value was reflected in the deal’s price tag, which one venture capitalist —Michael A. Greeley, general partner and co-founder of Flare Capital Partners — called “extraordinary.” Fitbit burst on the scene when wearables were hot and exciting but suffered when users rapidly stopped using the wearables. But recently it has had a revival. In the healthcare world, Fitbit hasn’t made much of a dent but has offered wraparound services for its business customers that go beyond fitness tracking.
Still, the deal value is not to be ignored.
“It underscores that these assets are valuable,” Greeley said in a phone interview.
He added that the deal also validates more broadly the emphasis on connected healthcare, remote clinical data capture and the convergence of hardware and software.
“As an investor, I’m also pleased that it’s Google,” Greeley added. “Here is big tech coming, yet again, closer and closer to healthcare.”
Fitbit, of course, would not be the first foray by Google or its parent, Alphabet, into either healthcare or wearables. The company operates a life-sciences research arm called Verily Life Sciences and it offers a Wear OS operating system, which is an Android system for smartwatches and other wearables. It has also several joint ventures with traditional healthcare organizations like Dexcom and Johnson & Johnson.
It has also hired top talent from the healthcare world. In early 2019, Google hired David Feinberg, the former head of Pennsylvania-based Geisinger Medical System, often seen as an innovator in healthcare delivery. And in October, Karen DeSalvo, an Obama healthcare official, joined Google as its first chief health officer.
In announcing the deal, Google said it plans eventually to introduce its own wearable devices and invest more in Wear OS. It also acknowledged one of the concerns likely to arise from the deal, which is expected to close in 2020: the privacy of health data.
“When you use our products, you’re trusting Google with your information,” Rick Osterloh, senior vice president for devices and services for Google, wrote in a blogpost. “We understand this is a big responsibility and we work hard to protect your information, put you in control and give you transparency about your data.”
Osterloh said Google would be transparent about the data it collects and refrain from using health and wellness data to target Google ads.
“And we will give Fitbit users the choice to review, move, or delete their data,” he wrote.
Fitbit’s top executive said the company looked forward to driving innovation in the wearables sector. “I could not be more excited for what lies ahead,” said Fitbit’s CEO and co-founder, James Park, in a news release.
The Apple Watch will be among Google’s biggest rivals in the wearables space. But given Google’s history, Apple may not have much to fear, according to analysts at Wedbush Securities, an investment firm based in Los Angeles.
“Google is 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,” wrote Michael Pachter wrote in a research note published Friday. “Its Nest products, while best in class, generate revenues that constitute a rounding error to its results; Google Home is a laggard in the smart speaker space, and we expect a Google-controlled Fitbit to remain entrenched well behind Apple’s watches and other inexpensive competitive products.”
Indeed, Apple’s stock rose nearly 3 percent on Friday. But players in the healthcare space may have cause to be afraid, Greeley declared. Google and Apple devices could dent market share for companies making special-purpose wearables for specific diseases or conditions.
“We see a ton of wearables and they’re all kind of slicing the baloney very thin,” he said.
A senior associate with Wedbush’s equity research team who works with Pachter, was more sanguine.
“Unfortunately, there are loads of medical conditions that have yet to be addressed with wearables or any other medical technology,” said Alicia Reese, in a phone interview. “So, there’s a variety of ways many of these companies can still get involved without going head to head with Google.”
The promise of wearable technology is not limited to specific conditions. It also offers an opportunity for monitoring people’s health more closely and making care more proactive, according to Patrick Michael Plummer, a business professor at Penn State Mont Alto in southcentral Pennsylvania, in a phone interview. He specializes in the healthcare business.
“To me, Fitbit is, from the healthcare side of it, that last mile, or at least the starting point for it,” Plummer said, adding: “What else are you going to do that the consumer will pay for?”