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By Sarah E. Needleman and Rob Copeland 

Behind Google's $2.1 billion deal for wearables maker Fitbit Inc. is the search giant's dream to become a major player in health data after a failed attempt to establish a foothold in it years ago.

Big technology companies have long been tantalized by the promise of devices like smartwatches and wireless earbuds to collect a wealth of real-time user data on heart rates, body temperature and the like. Makers of these wearable products sometimes share that data, though they aren't particularly transparent with whom. Fitbit's privacy policy says it works with unnamed "partners who provide us with analytics and advertising services" as well as third-party apps.

Analysts say it is logical that Fitbit and others would find ways to make money from the data by partnering with health-care companies to monitor chronic conditions among users and developing new health-care services, among other methods.

"It's early in the monetization of this data, but it will help drive better health outcomes," said Scott Searle, an analyst at Roth Capital Partners.

Alphabet Inc.'s Google already has perhaps the world's broadest collection of user data, with its eponymous search engine, free email service, cloud-storage platform, maps and home speakers, among other products. But health services remains an open frontier. The company in 2011 shut down Google Health, a unit that aimed to amalgamate electronic health records, because of limited user interest.

More recently, Google's cloud division has announced tie-ups with hospital chains like the Mayo Clinic to store medical, genetic and financial data that has already been collected by doctors and other medical practitioners. Amazon.com Inc. and Microsoft Corp. are hot on that trail, too.

Fitbit, which last week agreed to be acquired by Google, cuts out the middleman. The San Francisco company has been pushing aggressively into health care, an industry in which around $3 trillion is spent annually in the U.S. to treat chronic conditions such as diabetes, according to the Centers for Disease Control and Prevention.

Fitbit's Health Solutions unit develops software and services for disease diagnosis, management and health coaching. Last month, Fitbit announced a partnership with Bristol-Myers Squibb Co. and Pfizer Inc. to use its technology to help detect and diagnose atrial fibrillation in wearers at risk of stroke.

Google and Fitbit both said that user health and wellness data won't be used for ads sold by Google's colossal digital ad-distribution platform.

Fitbit collects other user metrics, like location data, that go beyond health and wellness.

And advertising, anyway, doesn't preclude Google from tying Fitbit devices closer to other hardware the company makes, or folding user information into Google's vast artificial-intelligence operation.

"I'm disappointed," said Maywood, N.J., resident Justin Malone, 47, who owns a Fitbit fitness tracker and expressed reservations about Google's purchase of the company. "I trust Fitbit not to sell my data for data mining and data analytics, which I'm sure Google is going to do." Google had no additional comment on the remarks.

Fitbit also offers Google the chance to bolster its record in building businesses offline, especially as large tech companies plunge into wearable devices. Google has made deals in the past with smartphone makers Motorola Mobility and HTC, but failed to translate the acquisitions into mass-market consumer hits.

Fitbit was also struggling on its own, posting losses in 11 of the last 12 quarters. In results released Wednesday the company disclosed a $52 million third-quarter loss and declining revenue--driven in part by weaker pricing--from the year-earlier period. "They've been treated as a left-for-dead consumer-electronics company," Mr. Searle said.

A pioneer in smart fitness-tracking bands, the company's early success attracted widespread competition that hurt its sales, including from businesses offering similar devices for lower prices. Fitbit was also slow to broaden its offerings beyond fitness trackers and to include features common in smartwatches from Apple Inc. such as the ability to stream music, send text messages or give directions from the user's location, analysts say.

Apple initially marketed its smartwatch as a fashion accessory but later broadened its promotion to emphasize fitness and health. In 2018, it released a watch equipped with electrodes and sensors that turns it into an electrocardiogram able to measure a heart's electrical activity and detect potentially dangerous disorders. Apple Chief Executive Tim Cook last week reiterated his prediction that Apple's greatest contribution to the world will be helping people's health.

Overall demand for smartwatches and fitness bands is increasing, with shipments in North America rising 38% to 7.7 million units in the second quarter of this year, the most recent figures available from research firm Canalys show. Though Apple led second-quarter sales by capturing nearly 38% of the market, Fitbit came in second with about 24% and Samsung Electronics Co. came in third with roughly 11%, the research firm said. Apple's share is rising fastest of all.

--Tripp Mickle contributed to this article.

Write to Sarah E. Needleman at sarah.needleman@wsj.com and Rob Copeland at rob.copeland@wsj.com

(END) Dow Jones Newswires

November 06, 2019 17:29 ET (22:29 GMT)

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