Fitbit Inc. (NYSE:FIT) has posted their results for Q4 2019.

Revenue came in at $502 million which missed analysts’ estimates of $531.68 million. EPS was -$0.12, missing analysts’ estimates of $0.03

Of course, does any of this even matter? Ever since Google’s parent company Alphabet decided to acquire Fitbit in a deal valued at $2.1 billion back in November 2019, Fitbit stock now has a defined bottom. But before we talk of the acquisition, let’s rewind a bit.


The Life Of The Party, Until Apple Crashed It

Fitbit used to be cool. Owning a Fitbit meant that you were the type to go on casual evening jogs after work, or went biking once in a while on the weekends. Occasionally, you’d probably even go hiking in the forest while excitedly talking to your friends about your latest 401K investment. And, while people still do all of those things, they’ve switched to the Apple Watch.

Some analysts have valued Apple’s Apple Watch business to be worth over $10 billion alone, about 5 times the current market cap of Fitbit.

When Apple first unveiled the Apple Watch in 2014, many analysts and consumers alike thought it was going to be a flop. Apple proved everyone wrong however, as consumers really liked the idea of having a fitness tracker that looked and functioned more like a traditional watch, as well as being nicely integrated with the iPhone. Apple kept on adding new features like giving it an EKG sensor, and GPS, and even cellular connectivity, essentially erasing the feature gap or even eclipsing what a Fitbit can do.

Although of course, it is worth noting that the Apple Watch is much more expensive than the typical Fitbit device, but consumers seem willing to pay the high premium and the Apple Watch quickly rose to being the world’s most popular wearable device while Fitbit as a whole, fell to third place in market share behind Apple and the Chinese company Xiaomi. Some analysts have valued Apple’s Apple Watch business to be worth over $10 billion alone, about 5 times the current market cap of Fitbit.


Ecosystems, But With Technology

So where did it all go wrong for Fitbit? With the Apple vs. Fitbit saga we see a textbook example of the power of vertical integration. Apple Watch’s success is largely due to the fact that it works well with the iPhone, which many people already have. Further, the Apple Watch will only work with the iPhone, so having one would highly motivate someone to get the other.

Fitbit on the other hand, is designed to pair with any phone and work in a variety of scenarios. While this may sound good in theory, in contrast to Apple it lacks a proper “ecosystem”, which is the network of devices and services that ties a user down and increases the hassle of switching to something else.

Google’s acquisition of Fitbit would then make a lot more sense if we think about it from the “ecosystems” perspective. Google has its own ecosystem with a highly established network of Google services that pretty much everyone (except for China) is reliant on. With this acquisition, Google is also inheriting the legacy of Pebble, one of the first successful smartwatch brands that was acquired by Fitbit back in 2016.

It remains to be seen if Google can integrate Fitbit’s technology and build a proper ecosystem that competes with the Apple Watch on a meaningful level.


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