October 29, 2019 Advisory Board's take: Why Google and Fitbit may be natural partners

Alphabet, Google's parent company, has made an offer to acquire Fitbit, sources told Reuters and CNBC on Monday, a move that could make Alphabet a major player in the wearable fitness tracker market.

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News of the offer sent Fitbit's stock soaring, CNBC reports. After jumping more than 18%, Fitbit's stock was halted, but later resumed trading and ended the day up 30.5%. A purchase from Alphabet could provide Fitbit with a "much-needed boost" in the market, CNBC reports, as the company has been losing its footing in wearables as Apple gains share. According to Strategy Analytics, Apple took over roughly half the global smartwatch market in 2018. Meanwhile, Fitbit cut its revenue forecast in July, citing lower sales than expected of its new Versa Lite watch.

This isn't the first sign that Fitbit is looking to sell, as Reuters also reported last month that the company was in talks with investment bank Qatalyst Partners about a potential sale.

Sources told Reuters that the negotiations between Alphabet and Fitbit do not mean a deal is certain, nor did the sources disclose the exact price Alphabet offered to acquire Fitbit.

Fitbit declined to comment, CNBC reports, while Alphabet did not respond to CNBC's requests for comment.

The deal would help Google gain a stronger foothold in both the wearables and the broader health market. Google does not currently manufacture a smartwatch, although it does license its Wear operating system to companies like Fossil. In January, Fossil said it would be selling its intellectual property related to smartwatch technology currently under development to Google for $40 million.

According to Bloomberg, Google is currently under both federal and state investigations for anti-competitive behavior because of its online advertising and data collection practices, meaning that "any acquisition the company does [is] likely to come under strict scrutiny" (Feiner/Sherman, CNBC, 10/28; Roumeliotis/Dave, Reuters, 10/28; De Vynck, Bloomberg, 10/28).

Advisory Board's take

Andrew Rebhan, Consultant, Health Care IT Advisor

Fitbit and Google, in many ways, seem like a complementary pair. The two have had a partnership since last year, with Fitbit using Google's Cloud Healthcare API platform to connect patient-generated health data (PGHD) with EHRs. And they are both fighting against the health care moves of Apple and other Big Tech firms—Google does not have any commercially available fitness tracker or smartwatch on the market, and Fitbit has been steadily losing market share to Apple and other competitors.

Google has a lot of moving parts in its health care business strategy. Its Google Fit platform is essentially an answer to Apple's Health app, and its sister company Verily has its Apple Watch counterpart in the Study Watch. While the Study Watch isn't publically available, it recently received FDA clearance for an electrocardiogram (EKG) feature and is being used across various clinical studies in its Project Baseline initiative.

However, it is still lagging behind Apple in many ways. Apple already has a strong foothold in the industry given its robust brand reputation and the fact that 100+ million Americans already have its Health app installed on their iPhones. In addition, Apple also has HealthKit, a mature development platform that functions as an aggregator for data from all Apple devices, including the Apple Watch. Leading EHRs have already built integration capabilities using HealthKit's open APIs and are importing PGHD from these devices. Therefore, Google may need to make a move on the scale of their proposed acquisition of Fitbit to close the gap with Apple when it comes to generating business with large-scale medical studies and population health programs.

In health care, data is the new oil.

In health care, data is the new oil. Google's potential lies in its ability to leverage machine learning, predictive analytics, and its Google Cloud platform to aggregate, store, and analyze big data to improve population health management—and it needs as much data as possible to make that happen. While Google dominates consumer search and navigation, it is still searching for ways to tap into data streams that paint a comprehensive view of patient health and wellness (something that goes far beyond just the medical record). Fitbit offers tremendous value given how much health data the company has acquired.

Moving forward, Google will likely continue to seek out new partnerships with academia, employers, life science firms, health care providers, and insurers. For example, Google recently announced a 10-year partnership with Mayo Clinic, and Alphabet has invested hundreds of millions of dollars in Oscar Health over the past few years. These business moves are not isolated events, and neither is the idea of acquiring Fitbit. In the same way that Apple has launched a multipronged approach to enter the health care industry, Google is playing to its strengths in hopes of building a data and device ecosystem to corner its share of the health care market.

My colleagues will be fully delving into Google's health care strategy in a webinar on December 5th at 1pm ET. Register today to make sure you don't miss out.  

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