Before Google Bought Fitbit, the Cloud United Them

Google (GOOGL) plans to purchase wearable device maker Fitbit (FIT) for $2.1 billion. Google will pay for Fitbit with cash and the transaction is expected to close next year. Facebook (FB) also showed interest in buying it, but Google defeated its bid. Fitbit is one of the $2-billion-plus acquisition deals the tech giant has announced this year. The other is Looker, an enterprise cloud solutions provider that Google agreed to purchase for $2.6 billion.

Google parent Alphabet finished the third quarter with over $120 billion in cash reserve. This is significantly more than Google needs to pay for the Fitbit and Looker deals.

Google’s relationship with Fitbit began with making it a cloud customer

The Google-Fitbit relationship transformed greatly in a matter of months. In April, the wearable device maker and Google announced a broad partnership. That pact involved Fitbit and the search behemoth working jointly to develop digital health solutions for consumers and the enterprise market. Also, it involved Fitbit purchasing cloud computing services from Google, which is one of the world’s top cloud providers.

But six months down the road, the Google-Fitbit relationship took a different turn. In November, Google said it would buy it and make it part of its own business. Fitbit generated revenue of $347.2 million in the third quarter. The company sold 3.5 million devices in that period.

Fitbit makes fitness trackers and smartwatches, whose collective market will be worth over $90 billion in annual sales shortly. Therefore, the Fitbit deal would give the search giant exposure to a new lucrative devices market. Presently, Google relies on the advertising market. That market contributed 84% of its parent Alphabet’s revenue in the third quarter.

The Fitbit deal also allows Google to jumpstart its entry into the smartwatch business to catch up with Apple.

Google deals draw regulatory scrutiny

Google buying both Fitbit and Looker attracted regulatory scrutiny. In the case of Fitbit, the US Justice Department wants to review the deal, following privacy and antitrust concerns. UK’s Labour Party also urged the country’s antitrust regulator to look into the Google-Fitbit deal. In the case of Looker, the deal is currently the subject of antitrust review in the UK, which could delay its closing.

Google stock has gained 30% in 2019 while Fitbit stock has gained 33%. Facebook (FB) and Apple (AAPL) stocks are up 50% and 78% in 2019, respectively.