Fitbit: The Latest Pro-Consumer Start-Up Acquisition
Start-up acquisitions play an increasingly important role for innovators and consumers alike. In fact, more than half of US startups strive towards acquisition as their long-term goal. Fitbit is no exception. The company was looking to be acquired after struggling to maintain its foothold in the highly competitive wearables market currently dominated by Apple. Google’s acquisition will increase competition, spur innovation, and ultimately benefit consumers with more choices, better devices, at lower prices. As more companies engage in pro-consumer M&A, it is important to keep in mind that:
— The Fitbit-Google deal benefits consumers.
— A successful acquisition is part of the business strategy for many companies, making the markets more innovative and efficient.
— The hyper-competitive wearables market is a clear example of a space in which consumers stand to gain from M&A activity.
The Fitbit-Google deal benefits consumers.
The Fitbit-Google deal stands to benefit consumers by creating a more innovative, integrated fitness product, as noted in Business Insider. “If Google does help Fitbit solve some of the areas in which the fitness company’s products have lagged behind Apple’s — most notably when it comes to software and apps — it could have a real shot at catching up to the Apple Watch.”
Consumers are the “true benefactors” of start-up acquisitions in the tech space, often gaining access to new, innovative products, as noted by Will Rinehart. “The vast majority of acquisitions by large tech companies are made either for the tech or the talent of the target company, not to stifle a future competitor. Both parties benefit from these deals. Startups often have great ideas but lack the technical and marketing resources to bring a product to a wider audience. Large companies, on the other hand, have the resources and consumer base for a new product but often lack innovative ideas. Yet, the true benefactors of these deals are consumers who can now choose an innovative product that may not have existed otherwise.”
Start-up acquisitions are a “good thing” for consumers because they make innovation possible, according to Dr. Mark Jamison, director of the Digital Markets Initiative. “[I]nnovation is more than just an idea: Innovation requires an idea, turning the idea into a real product, developing a viable business plan, and executing the business plan. Sometimes incumbents can do a better job with the last two steps than entrants, making an acquisition a good thing for all affected parties, including consumers.”
The Fitbit-Google deal “makes a lot of sense” for consumers, propelling the innovation cycle in wearables forward, as shown by Chaim Gartenberg in The Verge. “Fitbit’s hardware chops have always been great, giving Google a much stronger foundation to build on for future Android-integrated wearables devices. And the company’s strong focus on fitness tracking could naturally be integrated into Google’s existing Google Fit apps, too, offering Google a solid alternative to the Apple Watch’s deep fitness tracking integration with the iPhone. On the flip side, Google’s software skills and wide developer support could help Fitbit’s smartwatches like the Versa get a little smarter, alongside the deeper software integration with Android that a closer relationship could offer.”
A successful acquisition is part of the business strategy for many companies, making the markets more innovative and efficient.
Acquisition is the “top long-term goal” for 58% of U.S. startups, as found in the Silicon Valley Bank US Startup Outlook 2020 report.
Many tech founders look to acquisition as their ultimate goal, as it can allow their ideas and products to reach users more efficiently, highlights Jim Pethokoukis in AEI. “For founders, future acquisition is often ‘the goal.’ Then the entrepreneur can go on to start another firm or become an investor in other aspirational startups working on risky new ideas. Same goes for the investors in the acquired firm. What’s more, these purchases are often ‘acquisition–by–hire’ situations where the prize is talent rather than the Next Big Thing. And when an upstart firm has a valuable idea, acquisition can be the fastest way for it to get to users.”
Startups look to acquisition as a “more sure bet” on success, as prospects are often more promising than going public, points out Will Rinehart. “For startups, going public isn’t a sure path to success. Companies typically sign away 4 to 7 percent of their gross proceeds to an investment bank to sell shares of the stock. They also tend to incur an additional $4.2 million in costs to go through the process of getting listed. On top of this, a company will have to fork over another $1 to $2 million for federal compliance every year. Most IPOs perform worse than the overall market.”
The hyper-competitive wearables market is a clear example of a space in which consumers stand to gain from M&A activity.
The wearables market is a crowded field, with competitors including Apple, Xiaomi, Polar, Fossil, Amazfit, BBK, Garmin, Huawei, and Fitbit, among others. Apple is by far the market leader, with 33.1% of 3Q20 market share and “nearly half of global smartwatch revenue,” and competition in the sector is strong according to the IDC.
Surging demand for wearables makes this space ripe for competition, via Vasundhara Sawalka on NASDAQ.com. “The demand for wearables, particularly smartwatches and ear-worn devices, is expected to remain strong in 2021. Per Gartner’s projections, global user spending on wearable devices will increase 22% year over year to $62.9 billion in 2021. Notably, per IDC’s latest report, global shipments of wearables grew 35.1% year over year to 125 million in the third quarter of 2020. Apple continues to dominate the wearables market (by shipment volume) with 33.1% share in third-quarter 2020. Xiaomi, Huawei, Samsung and Fitbit FIT trail with 13.6%, 11%, 9% and 2.6% market share, respectively.”