Smartwatches look to be the next battleground for tech giants Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) and Apple (NASDAQ:AAPL). On Friday, Alphabet announced that it would be acquiring smartwatch maker Fitbit (NYSE:FIT) in a deal worth $2.1 billion.  

Fitbit has been a stock in trouble this year as the smartwatch maker has had a tough time competing against Apple. Outside of the original Versa, many of Fitbit's products simply haven't performed as well as the company would have liked, and with losses continuing to mount, investors have opted for better growth stocks to invest in. Its declining share price has made it a much more attractive buy for an acquiring company, giving Alphabet a much better deal than if it had tried to make a bid for Fitbit earlier in the year before the stock had entered its tailspin.

The move is the company's latest into wearable tech

Earlier this year, Alphabet subsidiary Google had announced that it would be purchasing intellectual property from another smartwatch company, Fossil, for $40 million. By adding a bigger player in the industry like Fitbit into the fold, Google adds to its collection of hardware that can be incorporated into its ecosystem.

Person using their smartwatch

Image Source: Getty Images.

Regardless of whether Google opts to have the smartwatches running its own Wear OS, the Fitbit OS, or some hybrid, what is likely is that it will be able to integrate will existing Google services, and that could be a big win for both users and developers as it could help drive demand for new and better apps for Fitbit devices.

What this deal means for Alphabet

Adding smartwatches to its arsenal of products helps give Alphabet another avenue where it can reach consumers in their day-to-day lives. And with Fitbit having 28 million active users to tap into, it helps Alphabet become a significant player in the smartwatch market. It's certainly a much quicker approach than if the company were to develop its own hardware, which Google reportedly was looking to do before abandoning the idea. By acquiring Fitbit it can already tap into a popular brand with a large userbase which will help accelerate Google's growth in this segment of the market. 

Google's senior VP of devices and services, Rick Osterloh, sees a lot of opportunities coming from the acquisition, noting in a blog post that "by working closely with Fitbit's team of experts, and bringing together the best AI, software and hardware, we can help spur innovation in wearables and build products to benefit even more people around the world." 

Smartwatches can give users a more discreet way to check on appointments and respond to emails quickly, and now there will be more incentive for Google to add even more functionality to Wear OS. And as Google becomes a big player in the space, it could lead to more Android users buying the tech, as well as developers who will make apps for Android. One of the reasons Apple has enjoyed as much success as it has over the years is its ability to integrate many different devices and make the experience very seamless for its users. By adding Fitbit, Google can do the same and enhance the overall experience for its users.

Takeaways for investors

For a company with Alphabet's resources, this is a relatively modest investment to be able to extend its brand and tap into another new area of growth. While Fitbit's revenue may not be a significant piece of Alphabet's top-line, which came in at over $40 billion in its most recent quarter, there could be a lot of potential for it to grow by being able to reach a much larger user base while also benefiting from having a rich parent company.

Overall, it's a good move for Alphabet, and one that should pay off over the long term as it gives the company yet another way to diversify its products and services.

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