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Google Fitbit Deal May Disrupt Heritage of Hardware Damage

Sundar Pichai, CEO of Google, spoke during the next 2017 Cloud event in San Francisco.

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Google's hardware acquisition news presents traumatic images of product graveyards and remarketing nightmares. So skeptics are right to wonder why the multibillion-dollar deal to buy a smartwatch company will be different.

On Friday, Google announced it would acquire Fitbit for $ 2.1

billion. It comes as competitor Apple dominates the smartwatch market, and Google … well, no.

It's tried. But Google's superpower provides better, tailored search results and ads to generate revenue. Hardware has never been a big part of it. In fact, Google's reputation for hardware has long been synonymous with confusing investments and cumbersome computing prototypes ranging from the acquisition of a smartphone giant Motorola to the already defunct Google Glass.

So why will the acquisition of Fitbit be different? Because, despite the long line of unsuccessful acquisitions of hardware, Fitbit is not simply any acquisition. This is Google's $ 3.5 trillion door to the healthcare industry.

Google's Hardware Stories

Google's hardware struggles go back to their earliest days, with hardware giants like Apple and Samsung lagging behind.

In 2007, at the height of the mobile age, Google unleashed every dream of smartphone manufacturing and said it would leave it to the huge ecosystem of Android device manufacturers. But in 2011, it changed its sound by making a late entry and acquiring Motorola for $ 12.5 billion. However, the company failed to build a large-scale business selling mobile devices and in 2014 sold Motorola to Lenovo for $ 2.9 billion.

Not everything was bad. The company retained Motorola's patents, which helped Google compete against Apple years later. He also pulled out Rick Osterloch, who now runs Google's hardware division.

Google's acquisition of home technology was also confusing. The company acquired Nest Labs, known at the time as an intelligent thermostat company, in 2013 for $ 3.2 billion.

The Nest team faces a struggling product line that includes product conversion efforts and team cuts. Then Nest became the center of Google's smart home product line, which launched in 2016. Since then, it has gained a share in the home speaker market, but has struggled to figure out how to market Nest and its home products by changing the branding almost every year

Around the time of Nest's purchase, Google also began selling a prototype of its first major wearable, Google Glass, but it has drawn widespread criticism for the design and inclusion of camcorders and has never grown into a sweat ebitelski product for the mass market.

In 2018, Google closed a $ 1.1 billion deal to acquire most of HTC's smartphone design. But Google's Pixel smartphone is also struggling to capture every market share.

In January, the company announced its plan to purchase $ 40 million worth of smartwatch intellectual property from Fossil Group. This signals the company's very late entry into smartwatches, which is mostly Apple territory.

Google has been wanting to get into carrier technology for years, said Sony Wu, founder of the Alabaster investment company that previously served as president and CTO of Fossil before being acquired by Google. "They say hardware is difficult, but hardware is not difficult," he told CNBC. "Competition against Apple is tough."

Google launched its most extensive hardware line last week, promising an "around the clock" strategy, meaning the company wants to be anywhere, all the time, facing own challenges. .

Sean Dempsey, co-founder and managing director of Merus Capital, led corporate development and helped build the Google M&A team from 2005 to 2007. He said that Google's acquisition strategy was somewhat opportunistic and generally unplanned acquisitions more than six months in advance. Dempsey, who said he has made more than 60 deals, including YouTube and Android, said that competition from Apple and other companies could definitely lead to acquisitions.

"Google wants to be everywhere at home and in life," Dempsey said. "It's a hot topic for many companies, so it certainly makes sense that they want to be on your wrist and your body. Plus, Fitbit didn't trade very well, so it could be considered a relatively inexpensive way to enter the market. "

Why Fitbit Can Be Different

But Dempsey and others say Fitbit would fill more than the hardware gap. This is a $ 3 trillion window to the healthcare sector.

Fitbit is struggling to expand its healthcare solutions, but Google is "providing top-level expansion and competition resources," according to a Friday note by Wedbush analysts. [19659002] Even if Fitbit continues to fall behind the Apple Watch, it has sold 100 million devices, and 28 million of them all of these devices are collecting data and that's potential flax gold mine for the healthcare industry, including medical researchers and health insurers.Google, which specializes in creating and profiting data tools, can use the Fitbit brand and customers to help them get a piece of it pie.

"Google doesn't have a lot of hardware experience, but it has done a really good job of services," Wedbush analyst Alicia Reese told CNBC. "Transferring data from a working device to healthcare professionals and analyzing data and using it in university studies – this may be enough to make this acquisition worthwhile."

Recently, Alphabet expanded its healthcare research and life science years and brought in senior executives, including former hospital CEO David Feinberg, to help develop the strategy. Projects include Verily, whose work focuses on clinical trials, artificial intelligence research beyond Google Brain, and efforts to improve the quality of Google health search results. This month, the company brought in two former Obama health officials, Karen Desalvo and Robert M. Calif.

"The company has been working with Fitbit for some time now and they know what they can do and they know what they can approve. , "Add Reese." It would certainly be helpful to get around the form factor, but most importantly, they have years of data capture, so it's a good starting point. "

But" nice "may not be good enough in the long run. The Fitbit deal comes at a time when Google acquisitions are under greater scrutiny than ever.

Hours after announcing the potential of the deal, congressmen began to pull in.

"Google's proposed acquisition Fitbit will also give the company an in-depth look at Most Sensitive Yin formation of Americans – such as their health and location data – threatens to further strengthen its market power online, "said US Congressman David Tsitsilin.

Because of such scrutiny, Sony Wu said he believed the acquisition would fit in well until Google touched on the Fitbit branding.

"The real question is what is Google's next move with the Fitbit brand?" Wu said. "What I've learned is that people are not so interested in technology. It's a very personal object and they want a style and name for the product they know and trust."

WATCH NOW: What three experts think about the Google Fitbit deal

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