Google’s Offer for Fitbit, Spotify Earnings, AirPods Pro

Google Makes Offer for Fitbit
This is one of those synergy type deals that should have been easy to see. We have long written here at Tech.pinions about the challenges of being a one-trick pony business and how competitive threats remain more difficult to ward off when you have only one main revenue stream for your business.

Fitbit has largely been a one-trick pony as the hardware sales drive most of the companies revenue, and the services business never quite took off. It’s felt for some time that Fitbit was a company in need of being acquired where the expertise, or in this case the data they have acquired, can be used to the benefit of someone wanting to play catch-up in wearables.

Google has always made the most sense to acquire Fitbit and the teams there have expertise not just in making wearable hardware, fitness and health software and services, but also have quite a database of user data and fitness behavior trends. While many commenters panicked thinking Fitbit owners need to delete data because Google can’t be trusted with it, the reality is Google is likely interested in using this data for internal learnings as they continue to evolve Android Wear and their broader wearable strategy.

Google’s broad plan with Android Wear still remains a mystery to me, and have had multiple discussions with Android Wear partners and customers, and it seems they are similarly unsure of the total vision. Buying Fitbit from a hardware standpoint doesn’t solve this necessarily, but having more customer data and behaviors of Fitbit customers should certainly help them refine their strategy further.

It’s no secret Android Wear has not sold anywhere near the numbers of Apple Watch or Fitbit, which means this is one area Google has a data deficit, and they seem intent on looking to solve that. We will see if this deal happens, but it makes sense from many angles.

Spotify Earnings
Spotify is also a one-trick pony with only one business model at their disposal right now. It’s the main reason I’m not optimistic about Spotify and remain convinced they are a future acquisition target for someone like Amazon, or maybe Google as well.

Spotify’s business still relies heavily on freemium, which is why a good portion of their continued investor commentary focuses on its strategy to drive premium conversions. This quarter they made an interesting point that’s worth calling out.

We continue to see exponential growth in podcast hours streamed (up approximately 39% Q/Q) and early indications that podcast engagement is driving a virtuous cycle of increased overall engagement and significantly increased conversion of free to paid users. The correlations in our data sets are clearly apparent. We are working to prove causality. Overall, the business is performing strongly.

A few points to make here. The first is Spotify recognizing a higher value customer, for whom Spotify is a source of more than just background noise (i.e., music). I think this is an important point, should they prove causality, and I think they will because it will show them a behavior for additional content which garners higher-value customers to move from minnows to fish and potentially whales. For example, do they start having audiobooks? Would they get into syndicating video ever? The point here is what can they offer that moves customers beyond free, and I think they realize for many music is not the answer.

I’ve mentioned before I’m very active in my daughter’s High School and spend a lot of time talking with many teenagers. I’m continually fascinated by the division of teens who pay for Apple Music and those who don’t pay for Spotify. I can’t find many teens I talk to who pay for Spotify, and obviously, if you have Apple Music, you are paying for it. I’ve also seen many surveys suggesting similar patterns that your average Spotify customer is not paying, and from several studies, I’ve seen these customers are mostly coming from Pandora, where they also did not pay.

Spotify has to be concerned, as their investors are concerned that they grow their customer base but do not convert those users to premium at significant rates. It seems the point they made about podcasting is designed to show their potential to use higher-value content to drive subscriptions and how their ability to be wise in adding higher-value content could yield returns in premium conversions.

AirPods Pro
I’m looking forward to getting my hands on the new AirPods Pro, as I’m sure many readers area. I’ll write more on my experience once I have some time with them, but I want to make a point that I’ve made before but want to reiterate again.

This picture cements the point.

Where Apple develops a lot of custom silicon for iPad, iPhone, and Mac, what they design for wearables is a system in package. It’s essentially a custom motherboard tied together with a custom solution of chips, sensors, and other components. What we find in Apple’s wearables like Apple Watch and AirPods may very well be the most integrated component solution Apple creates, which is saying something.

The point is this. There is no company that is better at miniaturizing computers than Apple. Not even close. I don’t think many realize the advantage Apple has here with wearable computing. Apple is designing extremely small, yet extremely complex computers and to think anyone will be close to what they will be able to fit in a pair of glasses when they release seems impossible.

This is an area, the future of wearables, where all of Apple’s custom silicon and design efforts may culminate into their full potential.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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