Why Fitbit buying Pebble because, Can't afford buying Other Competitors

Late yesterday it was reported by The Information that Fitbit is close to buying wearable startup Pebble, news that has since been independently confirmed by The Verge. Fitbit and Pebble have been in the final stages of the deal since before the Thanksgiving holiday; the buying price has not yet been confirmed. While it ultimately might not be as good of a deal as Pebble would have hoped for, there are a lot of reasons why a Pebble-Fitbit deal makes sense.

First, the deal comes at a time when the wearables market is facing a day of reckoning. Google delayed its next version of Android Wear software until next year, and three key makers of Android Wear watches — LG, Huawei, and Motorola — held off on launching new hardware this fall. Jawbone is reportedly looking to sell itself. And Fitbit, despite being the clear leader in the wearables industry, just saw its stock fall off a cliff after it forecasted a dismal holiday quarter.

Consolidation comes as no big surprise then — see also Nokia and Withings, or the number of digital health apps that have been snatched up by larger companies. Ever since the notion of the quantified self first became a thing with these digital trackers, their perceived value has been largely dependent on how much data they could gather, and how companies could use that data. If a company is struggling to sell hardware, it could always sell off its platform or its data.

Second, for Fitbit, acquiring Pebble would mean just that: it’s not about the hardware, but about acquiring talent, software, and a homegrown smartwatch platform. While “basic” activity trackers like Fitbits are in a better position than “smartwatches” right now, according to data from research firm IDC, Fitbit mentioned more than once a softening in demand for basic activity trackers on its recent third-quarter earnings call. Owning a smartwatch platform would help diversify Fitbit’s product lineup if it chooses to go further down the smartwatch path.

A buy also lets Fitbit essentially kill off the only competitor it can. Aside from Fitbit and Pebble, the top wearable makers come in at the very high end (Apple), very low end (Xiaomi), or specialized (Garmin). Buying those multi-billion dollar competitors is not an option for Fitbit. Buying Pebble is.

Lastly, the actual products the companies make are aligned in a bunch of ways. Both Fitbit and Pebble take a sparse, utilitarian approach to aesthetics — although Fitbit has made much more of an effort to design for women — and both have designed their wearables to last for five to seven days per battery charge. Both make their own on-device software and are agnostic when it comes to which smartphones they work with. Both share data freely with other third-party apps, although Fitbit has stubbornly refused to allow data-sharing with Apple Health or Google Fit software.

And Pebble in recent months has focused more on health and fitness tracking, after determining that health and fitness are the main draws for people interested in buying a smartwatch. The newest Pebble watches have built-in optical heart rate sensors, and the company made a big deal about the health-tracking algorithms it developed in collaboration with researchers at Stanford University. (Pebble is not alone in this thinking; Apple also doubled down on health and fitness tracking with its new, GPS-equipped, swim-ready Apple Watch Series 2.)

Pebble, which is led by founder and CEO Eric Migicovsky, first rose up in the wearables market in 2012 after running a record-breaking Kickstarter campaign for its original Pebble watch. The watch began shipping in 2014, and found a cult following in the early-adopter, tech-enthusiast crowd. In early 2015, Pebble said it had sold 1 million smartwatches — surpassing Android Wear numbers at the time — and was profitable.

But people familiar with the company’s inner-workings have said Pebble has been struggling for the past year. In March it said it was laying off 25 percent of its staff due to a lack of funds. Pebble has raised at least $15 million in venture capital funding to date, according to Crunchbase; that’s not counting the millions it has raised through its famed Kickstarter projects. In our review of its newes smartwatch, the Pebble 2, we found the heart rate tracking to be inaccurate, and the company’s Pebble Time 2 watch has been delayed, resulting in a series of complaints from early buyers on the Pebble Kickstarter page.

It may not be the desired ending for Pebble, which is said to have had early stage conversations with other potential acquirers before. But it may be the inevitable one.