The Role of Category Design in the Marketplace

In this episode, Christopher Lochhead takes listeners on an exercise in developing their eye for category creation and category design. Category Design is a new level of thinking in business. It is a whole different approach to marketing and Christopher stresses its importance in building a legendary business.

See Things Differently

Kevin Mainey wrote in the book Play Bigger, that “category design is a new lens on business. Once you have that lens, you see things in a very unique way.” However, listeners often ask Christopher how can they specifically apply these to their businesses.

In this episode, Christopher uses a recent story in the WSJ as an example of how category design is powerful force, that most people don’t know is there. He breaks down a recent story about Google buying FitBit, with the hopes of assisting listeners on how to develop their eyes and ears on category design lens.

Google Buys Fitbit: A Category Design Example

Headline:
Google to Buy Fitbit, Amping Up Wearables Race
By Rob Copeland and Patrick Thomas
Updated Nov. 1, 2019

Sub-head:
Deal to acquire maker of wearable fitness products for $2.1 billion extends Google’s reach in consumer electronics

Wearables is a niche in the consumer electronics mega category.

Google reached a deal to buy wearable fitness products company Fitbit Inc. FIT 15.53% for roughly $2.1 billion, a move that intensifies the battle among technology giants to capture consumers through devices other than smartphones. 

Category name before company name, its an example of the fact that people need to know what it is, before knowing who it is. The second sentence is framing the category battle.

For Google, the deal marks a further push into health. as it faces regulatory threats to its massive internet-search and advertising business.

Underscoring Google moving into mega category of health tech, then stating Google’s category king positing in search.

It also puts Google in renewed and direct competition with Silicon Valley neighbor Apple Inc., which in the past week said rising sales of wearables and related services were becoming a bigger driver of its business.

Framing the competition in new wearables category and wearables category growth.

Google’s parent Alphabet Inc. will spend just a sliver of its $121 billion cash hoard to branch out with Fitbit’s products. Alphabet’s $2.1 billion bid was for $7.35 a share in cash, a 19% premium to Fitbit’s closing price Thursday and more than 70% above where the stock was trading last week before deal talks were first reported by Reuters.

Speaks to the premium price category queens get in M&A.

Fitbit shares rose more than 15% to $7.14 on Friday, while Alphabet’s shares ticked up slightly.

The deal lands at a moment when Google and other tech giants are under scrutiny on a number of fronts over their competitive practices and dominance of certain businesses,

“certain businesses” means categories. This points to the domination category queens achieve.

including through acquisitions. But the Mountain View, Calif., company continues to expand aggressively.

Translation: moves into new categories through internal efforts and M&A.

Founded in 2007, Fitbit makes so-called wearables, or watches and bracelets that primarily track health information like heart rate. Such products have fascinated Silicon Valley

Speaks to early adopters embracing the category.

where technology executives of all ages proudly wear rings and other devices to track sleep and “hack” their own personal performance.

Wearables (category name) have proved far less popular with the broader public. Google several years ago launched a brand of smart glasses that attracted as much ridicule as buyers, and Snap Inc. likewise got a lukewarm response to its hyped Spectacles line.

Speaks to the trouble the “wearables” category have had breaking past early adopters to hit a main-stream tipping point. This is normal in the early days of a category. Also note, categories will NOT tip until a category queen emerges. Mainstream buyers want a safe option. AND they do NOT want to compare. They want to buy.

Fitbit traded for $45 soon after it went public in 2015, but the stock has cratered in the past few years as the company ceded market share to Apple and its smartwatch.

Speaks to the category battle with Apple

With its fitness offerings, Fitbit collects myriad and personal data on users that it in turn uses to suggest exercises and other lifestyle changes. And its sale is bound to raise issues around consumer privacy. In announcing the acquisition, Google said it wouldn’t use Fitbit data to help power its massive online advertising business.

Speaks to data as a seminal driver of category flywheels

“Similar to our other products, with wearables, we will be transparent about the data we collect and why,” Rick Osterloh, the head of Google’s hardware division, said in a statement. ”We will never sell personal information to anyone. Fitbit health and wellness data will not be used for Google ads. And we will give Fitbit users the choice to review, move, or delete their data.”

Apple in many ways is a model for what Google hopes to accomplish.

While the Apple Watch was initially a disappointment, sales have picked up lately; and the company’s AirPods were an immediate hit. The iPhone maker said on Wednesday that sales in its wearable business (category name) soared 54% in the latest quarter.

Facebook is also in the wearables mix. This fall the social-media giant reached a deal to buy CTRL-Labs Inc., a startup that develops devices that can interface with the brain.

“We’re talking about data that used to be impossible to collect on a mass scale,” Craig Hallum analyst Alex Fuhrman said. “Only since the beginning of the Fitbit era (new category pioneered by FitBit) have consumers been walking around with wearables that monitor their heart nearly 24 hours a day.”

Google’s hardware line (category) for now consists mostly of slow-selling products like the Chromebook laptop and Pixel smartphone.

Google has spent billions on targets like HTC Corp. , a smartphone maker, and Nest, a home hardware company, with little to show for it in sales, analysts say. Google doesn’t break out financial performance for its hardware division.

It hired Mr. Osterloh, a former Motorola president, in 2016 to steer the nascent unit. In an interview with The Wall Street Journal last month, Mr. Osterloh often referred to the hardware division as a “startup” within the conglomerate.

“I think eventually this will be a very large, important business,” he said.

Some observers remain skeptical. “The acquisition is another example of Google tilting at windmills” in hardware, analysts at Wedbush Securities wrote in a report Friday. “Google is uniformly bad at consumer products in our view, and appears to us to be intent on spending whatever it takes to prove our view wrong.”

Fitbit says it has sold more than 100 million devices world-wide since its founding, and currently has more than 28 million active users.

“Google is an ideal partner to advance our mission” said James Park, a Harvard University dropout who co-founded Fitbit.

Category creators tend to self-identify as mission driven

“With Google’s resources and global platform, Fitbit will be able to accelerate innovation in the wearables category, scale faster, and make health even more accessible to everyone,” he said in a statement.

The deal is expected to close next year, the companies said.

Fitbit’s results have been pressured in recent months. In July, it lowered its full-year revenue outlook after weaker-than-expected sales of its new smartwatch model, Versa Lite.

The smartwatches (sub-category name of wearbles category) are aimed at competing with popular offerings from Apple and Samsung Electronics Co.

Still, the company reported narrower losses in the second quarter as sales of its fitness trackers jumped 51% and the health division showed some strength. Fitbit is scheduled to release its third-quarter earnings report Nov. 6.

—Sarah E. Needleman contributed to this article.

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So whats the point?

Here’s an article, that most people in business would read as, one company buying another company. In a marketing perspective, it underscores the fact that Google is buying the leading position in a hot new growth category.

“They’re not just buying FitBit or its products or its customers or its technology. They’re buying a position in a category, just like what they did, for example, when they bought Youtube.” – Christopher Lochhead

Christopher hopes that this exercise helped you understand category lens a little bit better.

“I would urge you in your next business discussion and the next arti8cle you read in the Wall Street Journal, or whatever else you read, start to think about these things from a category perspective. How they’re talking about, often is really a description of a larger set of dynamics happening over all in the marketplace.” – Christopher Lochhead