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It's Official: Fitbit, Inc. Buys Pebble's Leftovers

By Evan Niu, CFA – Dec 7, 2016 at 1:40PM

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Fitbit could use Pebble's intellectual property to create a platform on top of a platform.

Goodbye, Pebble hardware. Image source: Pebble.

Following a week or two of speculation, Fitbit (FIT) has officially announced that it will be acquiring Pebble's leftovers. Only "specific assets of Pebble" are being purchased, comprised predominantly of talent and intellectual property related to Pebble's software and firmware. The fitness tracker maker specifically notes that the deal excludes Pebble's hardware products. Fitbit says the acquisition will accelerate its development of customized offerings and third-party apps for its Fitbit Group Health division, which includes its corporate wellness business.

That suggests that Pebble's forthcoming Time 2 and Core products will never see the light of day. That's bad news for the nearly 67,000 people that backed the project on Kickstarter, combined pitching in $12.8 million. The good news is that backers of the project will get refunds for unfulfilled rewards. Beyond that, Pebble is completely shuttering all operations. No financial terms were disclosed, and the deal was closed yesterday. Bloomberg pegged the deal's price tag at "less than $40 million," which is in line with what TechCrunch heard prior to the official announcement. Pebble owes more than that in debt and other liabilities.

As far as employees go, Fitbit is most interested in the software engineers, according to Bloomberg. Only a small number of interface designers were offered jobs at Fitbit, and none of Pebble's hardware teams received job offers.

In a press release, Fitbit CEO James Park added, "With this acquisition, we're well positioned to accelerate the expansion of our platform and ecosystem to make Fitbit a vital part of daily life for a wider set of consumers, as well as build the tools healthcare providers, insurers and employers need to more meaningfully integrate wearable technology into preventative and chronic care."

Platform on top of a platform?

What's less clear is what the acquisition means for Fitbit's strategic plans, but there are a few clues. Fitbit notes that a unique differentiator for Pebble was its cross-platform support, supporting Android, iOS, and Windows Phone. That allowed Pebble products to address the vast majority of the modern smartphone market, even if the start-up subsequently fell on hard times. Pebble had created an app store within its mobile apps that would allow users to download third-party apps and watch faces, effectively creating a platform on top of the underlying platform.

This is really the only viable way for Fitbit to meaningfully create some sort of platform, as it's not realistic for Fitbit to build and operate a primary platform of its own, especially given the categorical reliance of smartwatches on smartphones. If Fitbit were to similarly recreate a smartwatch platform with third-party apps on top of Android and iOS, it will have much better odds of success since third-party apps will be where the majority of innovation occurs and where the most compelling use cases will come from (just like in smartphones).

Fitbit is keenly aware of the threat that smartwatches represent to basic wearables in the long-term, and the good news for Fitbit is that the smartwatch market is already fumbling, so it has plenty of time to craft the right strategy. But rest assured, smart wearables will inevitably cannibalize basic wearables over time as feature sets expand and prices come down, so this is absolutely a train that Fitbit will want to jump on even if its own smartwatch efforts thus far are relatively lackluster.

Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Fitbit. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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