I think they're trying to kill the fitbit line and replace it with the pixel watch and WearOS
My reasoning:
Enshittification of the non-watch devices
Pixel Watch 2 actually being an improvement on 1, they don't always do that
PW2 just being their highest end fitbit + watch
Many people I know who had fitbits decided to move over to a smartwatch for convenience of other features at not that much increased cost. It could be that offering devices below a watch has become less worth it in their eyes and to be something left to other niche manufacturers.
WearOS in general has seen massive improvements over AndroidWear and I think they're hoping that the license fees they'll get from third party cheaper watchmakers that end up using WearOS. Kinda like what they do with Android, offer an expensive top of the line flagship device, maybe a middle ground option, and leave it to the niche companies willing to do the work to find out what exact features people want on the cheap end while bringing in their licensing and app store fees.
It worked for phones, I can see it working for this kind of device, but it means dropping the old "lesser" line of devices