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Fitbit + Google AI + 5G = ?

Google Buys Fitbit for $2.1 billion

Photo by Mārtiņš Zemlickis on Unsplash
Brussels marathon runners – Photo by @mzemlickis

An article in the Verge published the 1st of November 2019 announced the purchase of FitBit by Google:

Google has just announced that it’s buying wearable company Fitbit for $2.1 billion. In a blog post announcing the news, Google SVP of devices and services Rick Osterloh said that the Fitbit purchase is "an opportunity to invest even more in Wear OS as well as introduce Made by Google wearable devices into the market."

This can be a complex investment, yet I have seen a few different arguments in terms of why this acquisition was made:

  • Google wants to invest in wearables and did not manage to develop solutions viable enough on its own. It is therefore buying FitBit to allow for this offering.
  • Google is buying FitBit for proprietary technology.
  • Google has bought FitBit for its data – not to increase ads, but to assist in its investment in health technology (which makes up large parts of the Alphabet portfolio).

There are likely more reasons, however there appears to be a strong awareness by the scare towards consumer in terms of protecting their health data. The statement directly from FitBit on the 1st of November said the following:

"Consumer trust is paramount to Fitbit. Strong privacy and security guidelines have been part of Fitbit’s DNA since day one, and this will not change. Fitbit will continue to put users in control of their data and will remain transparent about the data it collects and why. The company never sells personal information, and Fitbit health and wellness data will not be used for Google ads."

Rick Osterloh, Senior Vice President, Devices & Services at Google. Said they would be bringing together the talent from FitBit in hardware together with software and artificial intelligence to build better wearables.

This happens simultaneously as Alphabet which owns Google is expanding its investments in Verily and Calico. These are two companies which are repeatedly mentioned in Alphabet Inc’s quarterly statements. Health data is a hot topic.

Although Google may not use FitBit data for ads it could very well use that aggregated data for drug development or insights for health in Verily and Calico. What stops Google/Alphabet from doing so?

I have fetched a description from the third quarterly (Q3) for 2019 page of Alphabet’s investor relations page. The following two sections are excerpts from Q3.

Calico

Calico is a life science company with a mission to harness advanced technologies to increase our understanding of the biology that controls lifespan.

In September 2014, AbbVie Inc. (AbbVie) and Calico entered into a research and development collaboration agreement intended to help both companies discover, develop, and bring to market new therapies for patients with age-related diseases, including neurodegeneration and cancer. In the second quarter of 2018, AbbVie and Calico amended the collaboration agreement resulting in an increase in total commitments. As of September 30, 2019, AbbVie has contributed $750 million to fund the collaboration pursuant to the agreement and is committed to an additional $500 million which will be paid by the fourth quarter of 2019. As of September 30, 2019, Calico has contributed $500 million and has committed up to an additional $750 million.

Calico has used its scientific expertise to establish a world-class research and development facility, with a focus on drug discovery and early drug development; and AbbVie provides scientific and clinical development support and its commercial expertise to bring new discoveries to market. Both companies share costs and profits for projects covered under this agreement equally. AbbVie’s contribution has been recorded as a liability on Calico’s financial statements, which is reduced and reflected as a reduction to research and development expense as eligible research and development costs are incurred by Calico.

As of September 30, 2019, we have contributed $480 million to Calico in exchange for Calico convertible preferred units and are committed to fund up to an additional $750 million on an as-needed basis and subject to certain conditions.

Verily

Verily is a life science company with a mission to make the world’s health data useful so that people enjoy healthier lives. In December 2018, Verily received $900 million in cash from a $1.0 billion investment round. The remaining $100 million was received in the first quarter of 2019. As of September 30, 2019, Verily has received an aggregate amount of $1.8 billion from sales of equity securities to external investors. These transactions were accounted for as equity transactions and no gain or loss was recognized.

What Do you Expect from $2.1 Billion?

When you buy a company for unimaginable sums of money (for most) it is not inconceivable that a return on investment is expected.

Then again according to Quartz: "Alphabet reported $32.6 billion in revenue from Google’s advertising business, a jump of about 16% over the same period last year."

Still despite the large earnings that Alphabet has this is a rather sizeable bet. Fitbit which had seen its stock decline by ~80% since its IPO in 2015.

FitBit seems to have been declining for a few years prior to the purchase in terms of sales and revenue.

Google is buying its way into the wearables market and could increase drastically the expansion of FitBit as well as the possibilities of the platform.

Retrieved from IDC on the 2nd of November
Retrieved from IDC on the 2nd of November

FitBit + 5G

Will this bet pay off? Does it matter? This gives more power to understanding humans, which certainly has been part of Google’s success.

Amazon Alexa might speak to you, but with the developments in 5g getting a device on your body that can do so while consistently streaming the results may be possible to a higher degree.

Earlier this year it was predicted that 5G would boost the stock of FitBit:

"By enabling wearables to do so much more, and making them so much more indispensable, 5G will make wearables much more popular and valuable, boosting these companies’ financials."

The advent of 5G will also enable wearables to more precisely monitor the physical, emotional, and mental well-being of individuals.

This investment by Google in other words is expected to pay off.


This is #500daysofAI and you are reading article 152. I write one new article about or related to Artificial Intelligence every day for 500 days.


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