What Google's Fitbit deal means for wearable payments

November 1, 2019 11:31 AM

Google's $2.1 billion deal to buy Fitbit is primarily a hardware play. But it also brings Fitbit Pay under Google's umbrella — potentially repairing part of Google's fragmented mobile and wearable payments ecosystem.

Google's Android ecosystem allows the likes of Samsung and other manufacturers to develop their own apps that compete directly with Google's offerings. In an extreme example, the telcos behind the now-defunct Softcard mobile wallet went so far as to prohibit Google's own wallet app on their networks' devices.

While the competition seems less heated these days, it's clear that Google still has a lot of work to do to catch up to Apple.

A distant third

Tim Cook, chief executive officer of Apple Inc., speaks during an event at the Steve Jobs Theater in Cupertino, California, U.S., on Monday, March 25, 2019. The company is unveiling streaming video and news subscriptions, key parts of Apple's push to transform itself into a leading digital services provider. Photographer: David Paul Morris/Bloomberg

David Paul Morris/Bloomberg

Apple Pay has the most users in the U.S., at 30.3 million, according to data published by eMarketer in late October, and Apple Watch has supported the NFC-enabled tap to pay technology from its start four years ago.

Starbucks is second in mobile payments at 25.2 million, followed by Google at 12.1 million and Samsung Pay at 10.8 million.

The comparison would be kinder if the figures combined Google Pay and Samsung Pay — both of which are exclusive to Android devices, where Apple Pay can't be used. But the message is clear: nearly half of the Android mobile payment experience is operated by a company Google does not control.

Fitbit Pay

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Fitbit Pay is different from most mobile wallets in that it doesn't run on the mobile device itself. Instead, users make payments with a compatible Fitbit wristband or smartwatch.

But it's clear that Fitbit Pay isn't a priority for Fitbit. While it was a differentiator for the high-end Ionic smartwatch, Fitbit Pay is optional in the less expensive Versa smartwatch. Fitbit launched two versions of the Versa watch in 2018: One with an NFC chip, and one without. The one with NFC costs $20 more.

Ultimately, Fitbit may be letting the market decide whether a wearable wallet is worth driving up the cost of a smartwatch.

Apple Watch's pace

A customer views an Apple Watch Series 4 smartwatch during a sales launch at an Apple Inc. store in New York, U.S., on Friday, Sep. 21, 2018. The iPhone XS is up to $200 more expensive than last year's already pricey iPhone X and represents one of the smallest advances in the product line's history. But that means little to the Apple Inc. faithful or those seeking to upgrade their older iPhone. Photographer: Jeenah Moon/Bloomberg

Jeenah Moon/Bloomberg

Consumer adoption of the Apple Watch, introduced in 2015, has gradually accelerated, reaching a user base of about 45 million, analysts estimate. The latest Apple Watch, at $399, was a strong performer in Apple's fourth quarter 2019 sales, while iPhone sales momentum slowed.

Apple doesn't break out data for Apple Watch sales, but reports the device's sales are growing at more than 30% annually, dominating the wearables market. Canalys estimated earlier this year that Apple Watch has 40% share of the smartwatch market, while Fitbit has about 24% share, and Samsung has just over 10%.

Revenue from Apple Watch could overtake both iPad and Mac sales by the end of next year, 9to5Mac forecasts.

Google's best bet: Galaxy

Elina Vives, head of Marketing, Computing, Smartwatch and Audio and VR for Samsung Electronics Co., speaks during the Samsung Electronics Co. Unpacked launch event in San Francisco, California, U.S. on Wednesday, Feb. 20, 2019. Samsung Electronics Co. debuted its most extensive new lineup of smartphones, taking on Apple Inc. amid a slowing market with new low-end and premium models, 3-D cameras, an in-screen fingerprint scanner and faster 5G connectivity. Photographer: David Paul Morris/Bloomberg

David Paul Morris/Bloomberg

Google's smartwatch strategy has typically relied on third parties such as Motorola and Fossil to put Google's software under the dial. But one of the most popular Android smartwatches eschews Google's wearable platform: Samsung's Galaxy Watch.

Samsung's watch comes with Samsung Pay, of course, but it also has features that Google has copied for its Wear OS watches, The Verge notes in its review of Samsung's wearable.

If Google hopes to lead the market with smartwatches and wearable payments, it needs to do more than be a fast follower to Samsung. Fitbit's hardware lineup could addresses this pain point directly.

The Apple Card threat

David Paul Morris/Bloomberg

The Apple Card is a gateway to Apple Pay, and is likely to lock more users into Apple's payments ecosystem.

Google's Fitbit deal comes at a time when its own mobile wallet needs to prove compelling enough to appease Apple customers who are considering the switch to Android.

Apple Pay handled over 3 billion transactions in the fourth quarter, and this could be driven even higher by Apple's newly announced 0% financing option for iPhone purchases made with Apple Card.

Coin flip

The silhouette of James Park, chief executive officer of Fitbit Inc., is seen during an event at the 2016 Consumer Electronics Show (CES) in Las Vegas, Nevada, U.S., on Tuesday, Jan. 5, 2016. CES is expected to bring a range of announcements from major names in tech showcasing new developments in virtual reality, self-driving cars, drones, wearables, and the Internet of Things. Photographer: David Paul Morris/Bloomberg *** Local Caption *** James Park

David Paul Morris/Bloomberg

Fitbit Pay was built from the remnants of Coin, a company that made multi-account payment cards. Fitbit bought Coin's wearable payment assets in 2016, even though there wasn't clear demand for wearable payments.

However, payment brands were starting to encroach on Fitbit's territory, with examples such as the Barclays bPay wristband offering payments as their core (or in many cases, only) feature.

Coin worked with smartwatch makers such as Chronos, Omate, Atlas and Moov — each of which could have become a competitive threat to Fitbit.

Crowded market

An employee demonstrates a Motorola Solutions Inc. Moto 360 watch in the Lenovo Group Ltd. pavilion at the Mobile World Congress in Barcelona, Spain, on Tuesday, March 3, 2015. The event, which generates several hundred million euros in revenue for the city of Barcelona each year, also means the world for a week turns its attention back to Europe for the latest in technology, despite a lagging ecosystem. Photographer: Simon Dawson/Bloomberg

Simon Dawson/Bloomberg

The smartwatch market is expected to more than double over the next five years as use cases expand for fitness, health care, payments and controlling other devices, according to ResearchandMarkets.

The $48 billion smartphone market could reach $130 billion for smartwatches that operate as standalone technology and also interact with other internet of things devices.

Chinese device maker Xiaomi next week will unveil its first full-featured smartwatch called Mi Watch, succeeding an earlier watch called Mi Band 4. The Mi Watch, which observers have likened to Apple Watch in its appearance, includes Wifi, GPS and NFC technology, according to The Verge. Xiaomi’s latest smartwatch will run on Android’s MIUI For Watch OS.

It joins the new Moto 360, a revised version of one of the earliest Google smartwatches made by Motorola. The new version is made by eBuyNow and licenses the Moto 360 name. And yes, it has NFC for mobile payments.