How Much Is An Active User Worth? Lessons from the Sale of Fitbit

November 8, 2019

Google just bought Fitbit for $2.1 billion, and the press seems to hate the deal. Judging from what I’ve read, here are the main reasons:

  • Culture. Google is historically not very good at successfully integrating new acquisitions.
  • Competition. Fitbit was already struggling against Apple and Samsung in the health wearables market, which is reflected in the relatively low purchase price (around 1.5x current revenues).
  • Privacy. Google is still very much an advertising company, which makes lots of current Fitbit users nervous (Google has promised not to sell its data to advertisers).
  • Churn. Fitbit has sold over 100 million devices, but only has around 28 million active users.

The list goes on, but I think all the objections are beside the point. They don’t address the real value in the deal. Google isn’t really buying a new technology platform (it already has plenty of those), it’s buying 28 million active users who obviously care a lot about their health. And it’s getting a really good price for them!

How much is an active user worth these days? Google just paid $2.1 billion dollars for 28 million Fitbit users, so in the context of that deal, a fitness user is worth around $75 dollars to Google. Last year, Netflix was buying new viewers is for around $100 a pop. Shortly after its IPO, Blue Apron was paying over $400 for a new user (!). Active users are getting more expensive, but for a very good reason.

I have a friend who is a Fitbit user, and she checks her app ten times a day. That kind of usage is incredibly valuable in a healthcare technology market with so many opportunities, including partnerships with insurers, hospital chains, and corporate wellness programs (not to mention clinical drug trials and behavioral research).

Want to know another wearables company that has a high engagement? Garmin. That’s right — the GPS company. Over the past several years, they’ve built a thriving wearables business by making dozens of different smartwatches for dozens of different niche users: swimmers, runners, hikers. Garmin has rolled out 80 to 100 new products every year for the past six years (!), and its stock is on 12-year high. Customization drives usership, which creates value.

And of course, there’s one thing that would have made Fitbit’s 28 million users way more valuable: subscriptions. (They launched a program in August, but I doubt it made much progress before the acquisition.) Someone who checks their wearable ten times a day is probably someone who is willing to pay 5 bucks a month for additional features.

The whole idea that people won’t pay for stuff (particularly digital services) is bogus. Fitbit did their own study showing that roughly 14 million U.S. adults currently subscribe to a digital health and wellness service, and pay an average of $174 annually for a variety of different apps. If you make a differentiated service that offers people something they can’t find anywhere else, then those people will be willing to pay for it.

Value isn’t measured in individual device sales anymore. Value is measured in usership.

And by that dimension, Google got a steal.


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