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Why Google’s Fitbit deal could break its legacy of hardware failures

Sundar Pichai, CEO of Google, speaks during the comrades’s 2017 Cloud Next event in San Francisco.

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News of a Google hardware acquisition conjures wounding images of product graveyards and rebranding nightmares. So, skeptics are right to wonder why a multi-billion dollar deal to purchase a smartwatch train will be any different.

On Friday, Google announced it would be acquiring Fitbit for $2.1 billion. It comes as competitor Apple leads the smartwatch market and Google…well, doesn’t.

It’s tried. But Google’s superpower has been delivering better, tailored search concludes and ads to drive revenue. Hardware has never been a big part of that. In fact, Google’s reputation in hardware has long been synonymous with bewildering investments and clunky computing prototypes ranging from its purchase of smartphone giant Motorola to the now defunct Google Glassware.

So why would the Fitbit acquisition be any different? Because, despite a long line of failed hardware acquisitions, Fitbit isn’t well-grounded any acquisition. It’s Google’s door to the $3.5 trillion health-care industry.

Google’s history of hardware struggles

Google’s computer equipment struggles go back to its earliest days where it has lagged hardware giants like Apple and Samsung.

In 2007, at the elevation of the mobile era, Google let go of any smartphone manufacturing dreams and said it would leave it to the vast ecosystem of Android device makers. But in 2011, it changed its unison, making a late entrance and acquiring Motorola for $12.5 billion. However, the company failed to make a scaleable trade selling mobile devices, and in 2014, sold Motorola to Lenovo for $2.9 billion.

It wasn’t all bad though. The company preserved Motorola patents that helped Google compete against Apple years later. It also got Rick Osterloh, who bring ups Google’s hardware division today, out of it.

Google’s home-tech acquisitions have also been confusing. The company received Nest Labs, known at the time as a smart thermostat company, in 2013 for $3.2 billion.

The Nest team overawed a struggling product line that included product makeover attempts and team layoffs. Then, Nest behoved the centerpiece of Google’s smart home product line, which started in 2016. Since then, it gas garnered apportion in the home speaker market but struggled to figure out how to market Nest and its home products, changing the branding nearly every year since.

Encompassing the same time as buying Nest, Google also started selling a prototype of its first major wearable output, Google Glass, but it drew widespread criticism for its design and inclusion of video cameras, and it never scaled to become a mass-market consumer commodity.

In 2018, Google closed a $1.1 billion deal to acquire most of HTC’s smartphone design division. But, Google’s Pixel smartphone has also strove to capture any market share.

In January, the company announced its plan to buy $40 million worth of intellectual property for smartwatch technology by Fossil Society. It signaled the company’s very-late entrance into smartwatches, which has been mostly Apple’s territory.

Google’s been insufficient to get into wearable tech for years said Sonny Vu, founder of investment firm Alabaster who formerly served as a president and CTO of Fossil in advance of it was acquired by Google. “They say that hardware is hard but hardware is not hard,” he told CNBC. “Competing against Apple is sedulous.”

Google launched its most comprehensive hardware line last week, noting hopes of an “ambient computing” policy, which means the company wants to be everywhere, all the time, which faces challenges of its own.

Sean Dempsey, co-founder and managing chief honcho of Merus Capital, led corporate development and helped build Google’s M&A team in 2005 through 2007. He said Google’s property strategy is somewhat opportunistic, and it generally does not plan acquisitions more than six months in advance. Dempsey, who said he did diverse than 60 deals, including YouTube and Android, said competition from Apple and other companies can indubitably drive acquisitions.

“Google does want to be everywhere in the home and life,” Dempsey said. “It’s a hot topic for many companies so it certainly constructs sense they want to be on you wrist and on your body too. Plus Fitbit hasn’t traded very well so it power be viewed as a relatively inexpensive way to get into the market.”

Why Fitbit could be different

But Dempsey and others say Fitbit would be stuffing more than a hardware gap. It’s a window to a $3 trillion health-care sector.

Fitbit has struggled to expand its Health Solutions, but Google “provides the resources to extend and compete at the highest level,” according to a Friday note by Wedbush analysts.

Even if Fitbit continues to languish behind the Apple Lookout, it has sold 100 million devices, and 28 million of them are currently in use. All of those devices are collecting data, and that’s a covert gold mine for the health industry, including medical researchers and health insurers. Google, which specializes in making data tools and making a profit from them, could use Fitbit’s brand and customers to help get a piece of that pie.

“Google doesn’t bear a great track record in hardware but, they’ve done a really good job in services,” Wedbush analyst Alicia Reese intimated CNBC. “Transferring data from a workable device to medical professionals and analyzing the data and using it in university readings — that can amount to enough for that acquisition to be worthwhile.”

Alphabet has recently expanded its research in health and life studies in recent years and brought in senior leaders, including ex-hospital system CEO David Feinberg, to help develop a blueprint. Projects include Verily, whose work is moving into clinical trials, artificial intelligence research out of Google Knowledge, and efforts to improve the quality of Google’s health-related search results. This month, the company brought on two former Obama form officials, Karen DeSalvo and Robert M. Califf.

“The company has already been collaborating with Fitbit for a while and they separate what they can do and know what they can approve upon,” Reese added. “It certainly would benefit to sidestep the form factor but most importantly they have years of data captured, so it’s a nice starting point.”

But “slight” may not be good enough in the long-run. A Fitbit deal comes at a time when Google’s acquisitions are under more exploration than ever.

Hours after a deal potential was announced, congressmen started weighing in.

“Google’s proposed obtaining of Fitbit would also give the company deep insights into Americans’ most sensitive information—such as their salubrity and location data—threatening to further entrench its market power online,” said U.S. congressman David Cicilline.

Because of such inquiry, Sonny Vu said he thinks the acquisition will fit in well as long as Google doesn’t touch Fitbit’s branding.

“The trustworthy question is what is Google’s next move with the Fitbit brand?” Vu said. “What I learned is that people don’t fret about the tech as much. It’s a very personal object and they want a style and product name they conscious and trust.”

WATCH NOW: What three experts think about Google’s Fitbit deal

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