Fitbit, Inc. Scoops Up Yet Another Smartwatch Maker

By Evan Niu, CFA Markets Fool.com

Image source: Vector Watch.

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Fresh off the heels of its Pebble acquisition, Fitbit (NYSE: FIT) is now scooping up yet another smartwatch maker: Vector Watch. Founded in 2015, Vector offers a couple different smartwatches that come in about a dozen configurations of different colors and bands. One of the key features of Vector devices is 30-day battery life, addressing what is arguably the biggest weakness in the current crop of smartwatches out there today. The devices achieve this by using low-power, monochrome e-ink displays (just like Pebble). Vector Watches also look quite good, resembling more traditional watches.

Image source: Vector Watch.

Vector says that its team and software platform are joining Fitbit, which is notable as it underscores the importance of software in the deal. Just like Pebble, Vector will no longer add new features or updates to its existing products, although it will continue to support current customers. No financial terms were disclosed.

Are two app stores better than one?

Vector offers its own app store that includes just a handful of apps, and is available on iOS and Android. It's the exact same strategy that Pebble utilized: create a platform on top of a platform. However, it's a challenge to get enough developers onboard with this strategy. Not only are the platforms small to begin with, but they're layered on top of another primary platform. Either way, Fitbit now has the pieces of two discrete smartwatch software platforms that it is now tasked with integrating together to create its own app platform.

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Just last week at CES, Fitbit CEO James Park confirmed that the company is indeed working on launching its own app store as soon as it can. Acknowledging that the company currently doesn't have the necessary software infrastructure to enable developers to make apps for Fitbit devices, Fitbit wants to address that strategic weakness posthaste. This will be particularly useful in expanding Fitbit's corporate wellness offerings, according to Park. The company hopes to launch its app store later this year.

Image source: Vector Watch.

There should be little doubt that Fitbit is moving quickly to release a full-blown smartwatch that is capable of running third-party apps. The ability to run third-party apps is a key distinction between "basic" wearables and "smart" wearables. Fitbit has now acquired no less than three start-ups over the past year -- Coin, Pebble, and Vector -- that will each contribute to Fitbit's smartwatch plans in their own ways.

While it sounds as if Fitbit will discontinue Vector's current products, it's worth noting that Vector devices sold for higher prices than most of Fitbit's product portfolio. Its Luna and Meridian watches were priced between 300 euros ($317) and 550 euros ($581). In contrast, Fitbit's average selling price last quarter was about $95. Fitbit has been aggressively moving upmarket over the past couple of years, as its higher-end devices comprise an increasing proportion of unit mix.

The smartwatch market continues to languish, but as the category improves, growth should return eventually -- and Fitbit wants a piece of the action.

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Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Fitbit. The Motley Fool has a disclosure policy.