Google’s purchase of Fitbit raises anti-competitive concerns

On 18 June 2020, the Australian Competition and Consumer Commission (ACCC) released its Statement of Issues detailing its preliminary concerns with Google’s proposed acquisition of Fitbit. The ACCC has raised concerns with the proposed acquisition on the basis that it may provide Google with access to large volumes of consumer health data (in addition to the substantial  amounts of individual user data already held by Google), further entrench Google’s dominant position and adversely affect competition in several digital advertising and health markets.

Whilst this is a rapidly evolving sector and there is inherent uncertainty about how digital markets will develop in the future, the ACCC considers that this does not mean that as a competition regulator, it cannot conclude that there will be no lessening of competition simply because the future in this sector is unclear.

The ACCC is seeking submissions from interested parties in relation to the proposed acquisition which are due by 10 July 2020.

Background

Fitbit is a manufacturer and supplier of a wearable device and other related products and has approximately 29.6 million users. It is active in Australia via its subsidiary, Fitbit (Australia) Pty Ltd. On 1 November 2019, Fitbit, Inc (Fitbit) announced that it had entered into an agreement to be acquired by Google LLC (Google) for US$2.1 billion.

Google is a wholly owned subsidiary of Alphabet Inc, and has an extensive range of interests including online search and advertising technology, mobile hardware and widely used software such as Google Chrome and Google Maps. Google does not currently offer any smartwatches or other wrist-worn wearables. However, Google and Alphabet Inc have a well-established presence in the health market. The wearables sector has enjoyed considerable market growth in 2020. Given Google hasn’t been considered a serious player in this space, it comes as no surprise that it is seeking to capitalise on the strength of the sector including the continuing opportunity for new development and growth.

ACCC’s preliminary views

The legal test that the ACCC is required to apply in considering the proposed acquisition is set out in section 50 of the Competition and Consumer Act 2010 (Cth) (CCA). Section 50 prohibits acquisitions that would have the effect, or be likely to have the effect, of substantially lessening competition in any market.

The ACCC’s preliminary view is that the proposed acquisition may have the effect of, or may be likely to have the effect of, substantially lessening competition on the following basis:

1. 1. Aggregation of data

Google is a significant supplier of consumer and business facing technology. Google’s market position and acquisition strategy has enabled it to increase its touch points with consumers and accumulate large volumes of high quality data.

The ACCC is concerned that the proposed acquisition may substantially lessen competition in both the supply of:

1. 1. data-dependent health services; and/or
   2. certain ad tech services in Australia that rely on the collection and analysis of large amounts of individual data and in particular those services which enable targeting of online advertising to consumers.

The ad tech services the ACCC is concerned about are:

• • Demand side platforms – platforms used by advertisers to help them purchase ad inventory from suppliers effectively and in a cost efficient manner.
  • Supply-side platforms – platforms used by publishers to maximise the price at which ad inventory is sold by setting price floors, determining what data to include and deciding who can bid.
  • Ad exchanges – these exchanges provide a platform for demand-side platforms and supply-side platforms to connect, often via a real-time bidding auction.

The ACCC is of the preliminary view that the acquisition may eliminate potential competition between Fitbit and Google on the basis that Google has a strong focus on new and developing markets and will likely become a strong competitor in the supply of data-dependent health services with or without the acquisition. Google’s access to user data has made it so valuable to advertisers that it faces only very limited competition.

The ACCC is also considering potential competition between Google and ad tech suppliers who may otherwise partner with Fitbit to collect consumer data. The ACCC understands that the health and fitness data collected by Fitbit is likely to be useful in improving certain ad tech services, predominantly by allowing suppliers with existing information on individual online users to better target advertising to relevant consumers. In the absence of the acquisition, it is likely that Fitbit would enter partnerships with alternative suppliers for ad tech services and compete more effectively with Google.

1. 2. Ability and incentive for Google to foreclose competing wearable manufacturers

Google is a significant supplier of and controls some key inputs necessary for the supply of wearables, including Wear OS, Google Maps, the Google Play Store and the Android smartphone operating system. Many third party wearable manufacturers rely on access to one or more of these inputs for the purpose of their product offering. The ACCC is concerned that Google’s  acquisition of Fitbit may provide it with an incentive to inhibit access to some of these products by third parties in order to increase sales of its own wearable devices.

Google has noted in a public statement that it will not use the Fitbit health and wellness data in Google ads. Whilst the ACCC acknowledges this statement, it considers that as this commitment is not binding on Google, the ACCC cannot put significant weight on this statement in its competition assessment.

The ACCC intends to publicly announce its final view by 13 August 2020.

Authored by:

Antoine Pace, Partner
Alana Long, Senior Associate
Lisa Haywood, Associate