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Google Mulling 'Strategic Investment' in Device Maker Jawbone

Will the high-profile device maker get a powerful helper?

Jawbone

Google is considering making what several sources close to the situation describe as a “strategic investment” in Jawbone, the high-profile San Francisco maker of a number of wireless and wearable devices such as the Up fitness tracker.

The size of the investment and the implied valuation are not clear. In fact, sources said that the pair are still not in agreement as to either, and talks are preliminary and could result in no investment at all. Also: Google is not, as some have speculated, considering buying Jawbone.

(In addition, Jawbone has also been talking to a number of other strategic investors recently.)

But, in its latest round of funding efforts to complete a $250 million investment round, the longtime startup has been pegging its value at upward of $3 billion.

The attraction for Google to consider investing in Jawbone is obvious, as it seeks to expand into new businesses, especially related to connected devices and sensors, an area that Jawbone has pioneered.

It’s a heady space — for example, one of Google’s major mobile competitors, Apple, is about to introduce its much touted Apple Watch in April. The search giant’s efforts in new devices is headed by well-known entrepreneur Tony Fadell, the former Apple exec who later founded Nest, which Google acquired last year.

And a link with Google — if it happens — could also help Jawbone in a big way, perhaps making it the de facto health app on some Android devices and bring it closer into Google’s burgeoning device ecosystem.

It would certainly fit in. Like Nest, Jawbone has achieved brand recognition in the consumer electronics industry and its products are often reviewed very favorably.

But the company has also encountered its share of setbacks the past few years. After making its first steps into the wearables market in 2011, for example, Jawbone was forced to replace a number of faulty Up wristbands. Jawbone co-founder and CEO Hosain Rahman even issued an apology to users for the problems, which included the device’s inability to hold a charge.

Since then, there has been a plethora of activity-tracking wristbands released — the most notable of which is Fitbit, from a company that is sometimes referred to as the “Kleenex” of the wireless wearable market because of its ubiquity. While actual sales numbers of these devices are murky, data from the NPD Group shows that Fitbit claims the overwhelming majority of the activity-tracking market, separate from smartwatches.

Now, Jawbone’s latest and greatest activity-and-sleep-tracking wristband — the Jawbone Up3, which is also expected to track heart rate — is delayed. It was first announced last November, and at the time, the company said it would ship in a few weeks. Not so: In December, it was pushed to early 2015, and now to late February. But the company website still says the device will be shipping in “10 to 11 weeks.”

Hardware woes aside, Jawbone has focused heavily on its software offerings through the Up app, as well as efforts around data gathering. Unlike some competitors, it works with Apple’s HealthKit, so users of Jawbone’s app can technically use other health and fitness apps in conjunction with it. The company likes to say its Up users open the app an average of 21 times per day, arguing that engagement is a more important metric than total user numbers for these apps.

And it has been hiring up data scientists, most notably Monica Rogati. It often puts out interesting reports around the anonymized user data it has analyzed — for example, which U.S. city stays up the latest on New Year’s Eve.

But those reports don’t pay the bills. Despite hundreds of millions in revenue, the company is not profitable.

Still, it has a strong list of investors, including Andreessen Horowitz, J.P. Morgan’s Digital Growth Fund, Kleiner Perkins, Khosla Ventures and Sequoia Capital. Its board is equally fancy, including VC Ben Horowitz, designer Yves Béhar and Yahoo CEO Marissa Mayer.

Perhaps due to the prolonged fundraising, the company has recently been subject to some amount of tech chatter about its ability to raise new investments and even pay its bills. According to a recent report in Fortune magazine, there have been questions raised about Jawbone’s finances. The post cited a lawsuit that alleged that Jawbone’s “financial condition is perilous and currently insufficient to pay its debts.” Jawbone called it an overstatement in a a now-settled dispute between business partners.

That said, while Jawbone has certainly made a stylish splash over its 16 years in business, it still is facing a much tougher landscape as many hardware giants enter the space. Hence, its increased focus on software, as I wrote last fall:

The move is obviously aimed at proliferating its software beyond its own Up band, trying to turn it into a platform. In addition, Jawbone will allow device makers to make their own products that communicate directly with the Up system via an open protocol, without being required to make a companion app.

Jawbone is clearly hoping that moving to an open system will increase the use of the app — which includes step-tracking and logging of food and sleep, as well as sharing with friends — and spur consumers to buy its own hardware.

Hardware is obviously a much more competitive and margin-crushing business than software, which is why there have been a number of rumors floating around Silicon Valley lately that the company would focus largely on its faster-growing health-related software unit and away from its wireless speaker and headset business. Some had also suggested it would spin off those two units.

Also at issue for the company — although it makes up a small part of its sales — is its continued partnership with Apple. Jawbone’s various devices and software have been featured prominently in Apple’s online and retail stores. But with its new offerings, Apple now becomes a significant competitor of all of its businesses.

Both Google and Jawbone declined to comment on any discussions.

This article originally appeared on Recode.net.