‘Apple should be flattered’: Research analyst on Google’s Fitbit acquisition
Google’s US$2.1 billion acquisition of Fitbit Inc. means two of the largest technology companies now dominate the U.S. market for fitness tracking devices and data, and the purchase is already coming under fire from U.S. lawmakers.
Google and Fitbit expect the deal to face protracted regulatory review in light of the current political focus on competition and privacy issues in the tech industry, a person familiar with the transaction said.
And two of the company’s major critics in Congress urged regulators to conduct just such a thorough review.
“Why should Google be permitted to acquire even more companies while they’re under DOJ antitrust investigation?” Josh Hawley, a Republican U.S. senator from Missouri, said on Twitter referring to the Justice Department. Representative David Cicilline, who heads the House antitrust investigation into the big tech companies, also criticized the deal.
“Google is signaling that it will continue to flex and expand its power in spite of this immense scrutiny,” said Cicilline, a Democrat from Rhode Island. “Google’s proposed acquisition of Fitbit would also give the company deep insights into Americans’ most sensitive information -- such as their health and location data -- threatening to further entrench its market power online.”
The acquisition is expected to close sometime in 2020, Fitbit said. Both companies have given themselves a year to gain antitrust clearances, although that can be extended through May 3, 2021 -- and Google would owe Fitbit US$250 million if the deal fails due to antitrust issues, according to Jennifer Rie, a senior litigation analyst at Bloomberg Intelligence.
That’s a broader time frame than other Google deals. Two acquisitions that were reviewed by regulators -- the DoubleClick deal in 2007 and the ITA Software purchase in 2010 -- took eight and nine months, respectively, to clear, according to Bloomberg Intelligence data.
In the current political climate, regulators will take a very close look, said Joel Mitnick, a partner in the antitrust division of Cadwalader, Wickersham & Taft LLP and a former Federal Trade Commission lawyer.
“Any proposed transaction is likely to get attention from the antitrust enforcement agencies with a high likelihood of a second request even though the proposed transactions may have no antitrust implications,” Mitnick said.
Still, Google and Fitbit are pressing ahead. Google has never built its own smartwatches and its software for other companies’ wearable devices isn’t very popular, a point the company will likely make to justify why the deal won’t harm competition.
Alphabet Inc.’s Google is a leader in digital data though, and Fitbit would give it a new stream of valuable health and activity data from Fitbit’s more than 28 million users. The purchase will mean Apple Inc. and Google control more than half of the global smartwatch market. Apple had 46 per cent of this growing sector at the end of the second quarter, while Fitbit had 10 per cent, according to research firm Strategy Analytics.
In the U.S., Apple and Google will be even more powerful because Fitbit has a larger share of the domestic market for smartwatches and fitness trackers. In the second quarter, Fitbit got almost six times more market share in North America than in the Asia Pacific region, according Strategy Analytics. And several other smartwatch makers use a Google operating system to run their devices, giving the internet giant an even bigger net to scoop up people’s digital health and fitness data.
“The merger arguably could reduce quality to consumers due to weakened data privacy protections,” Rie, the Bloomberg Intelligence analyst, wrote on Friday. “This is a developing theory of harm in M&A antitrust review and enforcers will likely assess the risk.”
Margrethe Vestager, the European Union’s antitrust chief, recently called for more rules to rein in how companies collect and use information. In August, she called tech giants “robot vacuum cleaners” sucking up valuable data in a way that can undermine competition. “Platforms like Google and Facebook, they collect data from consumers, not just the posts we like on Facebook or the searches we make on Google, but much more unexpected things,” she said.
The Fitbit deal is Google’s second major acquisition this year. It agreed to buy cloud services company Looker in June for US$2.6 billion. The antitrust division of the Justice Department is seeking more information on the deal to determine whether the tie-up harms competition. Google argues the tie-up isn’t anti-competitive because Google is well behind Amazon.com Inc. and Microsoft Corp. in the cloud-computing market.
Doubling down on acquisitions while being investigated for anti-competitive practices will provoke a political backlash, said Matt Stoller, a fellow at the Open Markets Institute, which studies and recommends competition policies.
Google is putting regulators “in an impossible position,” he added. “They want it all and they don’t see any reason not to get it all.”
Rick Osterloh, senior vice president of devices and services at Google, said Fitbit health and wellness data will not be used for Google ads, and that the company will “never sell personal information to anyone.”
This isn’t the first time Google has promised to keep data from a purchased company separate from its own. The company made similar commitments when it bought advertising-technology company DoubleClick. Years later, the two companies’ databases were combined. When it bought smart thermostat maker Nest in 2014, Nest co-founder Matt Rogers said “Nest data will stay with Nest.” Less than a year later, that changed and Google connected some of its apps to Nest’s system. The blog post has been taken down and Rogers is no longer at Google.
That track record will raise skepticism among politicians and consumers, Stoller said.
Regulators could require Google to make a legal commitment not to use Fitbit data for advertisements or other purposes through a consent decree that could carry penalties if Google breaks it, Mitnick said.
“There’s lots of things that can be agreed to in a consent decree,” he said. “If Google wants the deal badly enough and can live with certain restrictions then that can happen.”