Last year, Misfit Wearables, one of the leading designers of fitness tracking apps received a whopping US$40 million from Xiaomi. Today, Fossil Group, a US$2.5 billion fashion company, has announced that it will acquire Misfit for US$260 million.
In Vietnam, where the majority of Misfit’s engineering team is based, this will be celebrated as a big success.
The ideal brand match
Given the coming onslaught of Apple Watch and other Android watches into the wearable technology space, it may be putting folks like Fitbit and Misfit on the defensive. Surviving alone as a device maker is not enough to win the wearable technology market, which relies heavily on fashion and brand.
This is an advantage Apple has in spades but newer brands like Misfit, Jawbone, and Fitbit must build from scratch. Consider that Apple’s first foray into the watch market lead to over US$1.7 billion in sales within 5 months. In contrast, after over 7 years of being in the wearables market, Fitbit is beginning to hit over US$1.4 billion in sales last year. Fitbit’s revenues are nothing to ignore, but the trend is clear, the wearables business is becoming competitive fast and it’s not easy going up against incumbents or new entrants with a strong brand image. Fitbit gives us a picture of what is potential Misfit in the long run. But it may also signal why Misfit needs immediate acquisition-type help.
This is why the marriage between Fossil Group and Misfit is a match made in heaven. Fossil Group needs to break out into a new product category to diversify its fashion line while Misfit is in need of a fashion brand that it can piggyback on.
Consider that most Fossil watches cost you anywhere from US$200 to US$400, likely healthy margins for a good brand. Misfit, on the other hand, its top device costs US$100 max.
The ecosystem around Misfit and Fossil
Let’s also take a step back and look at the surrounding ecosystem that is the backdrop of this deal. Currently, Silicon Valley is in an existential crisis, where it’s not clear if funding rounds will continue to be as exuberant as before. Is there enough capital that can continue to fund a company beyond the series B and C levels, like what Misfit got in its last round? Is it possible that Fossil saved Misfit from harsher battles in the years to come? Therefore, Fossil isn’t just an ideal branding partner but also a financial one.
For Xiaomi and Misfit’s other investors, maybe this is a lucky exit considering the heightened competition and slowing finance rounds in the Valley.
Why do you think this acquisition makes sense? Will it have a big impact on other wearables competing in the market like Pebble, the Android wear enclave, and others?
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