Amazon’s acquisition of iRobot: the consolidation of the robotics industry

Amazon iRobot acquisition

This article is part of our series that explores the business of artificial intelligence

This week’s big announcement in the robotics industry was Amazon’s acquisition of iRobot, the maker of the famous Roomba vacuum cleaner.

The acquisition seems to be beneficial for both companies. Amazon, which is trying to make its entrance into home robots, gets the talent and experience of one of the few companies that have managed to survive the very harsh conditions of the consumer robotics market. And iRobot will get access to Amazon’s financial and technical resources.

What are the broader implications for the mobile robotics industry? As the industry matures, robotics companies are going to look for shortcuts for growth and market share. This will cause a consolidation, where small-but-successful robotics companies will gravitate toward and merge with large and cash-flush tech companies.

Amazon’s robotic dreams

Amazon Astro robot
Amazon Astro robot

Amazon has been dabbling in mobile robots for years. In 2012, it acquired Kiva Systems for $775 million and has been using robots in its fulfillment centers for years. Those efforts intensified during the pandemic, when the company was facing staff limitations at its warehouses.

But more recently, Amazon has become interested in mobile robots for the consumer market. Its first product, the Astro robot, was announced last year. Unlike the Roomba, Astro is a multi-purpose robot that is supposed to perform many tasks in the home, including monitoring home appliances, watching for intruders, moving drinks, and entertaining people.

From a purely scientific and robotics standpoint, Astro is a marvel. Amazon’s engineers have managed to solve some very difficult challenges to get the robot to map and navigate homes and do a host of tricks. Among the people who praised Astro was Rodney Brooks, one of the co-founders of iRobot and a highly esteemed robotics scientist.

But nearly one year after its announcement, Astro is still struggling to find product/market fit, where it solves one (or several) problem(s) well enough that people are likely to choose it over alternative solutions. For the moment, Astro is a cool gimmick for rich people with money to waste on tech gadgets.

Building a business around home robots is very tricky. Anki, Jibo, and Kuri are just some of the names of home robots that had to be shuttered in the past few years after they failed to develop successful business models.

Amazon has a history of entering new markets through major acquisitions. And this is where iRobot’s acquisition can help Amazon.

Here’s a quote from the Amazon press release about the iRobot acquisition: “Over many years, the iRobot team has proven its ability to reinvent how people clean with products that are incredibly practical and inventive—from cleaning when and where customers want while avoiding common obstacles in the home, to automatically emptying the collection bin. Customers love iRobot products—and I’m excited to work with the iRobot team to invent in ways that make customers’ lives easier and more enjoyable [emphasis mine].”

There are a few key points in this quote from a product management perspective, especially since it is coming from Dave Limp, SVP of Amazon Devices.

First, the several references to “the iRobot team” imply that Amazon is as interested in iRobot’s product team as it is in its technology. I don’t expect Roomba’s technology to be superior to Astro or other robots Amazon is developing. But the iRobot product team has surely proven its ability to perform over the years. This would make this more of an “acquihire,” where a large company acquires a smaller company mainly to hire its talent.

Second, “ability to reinvent” means that iRobot has consistently been able to maintain its product/market fit, finding ways to make sure its products remain valuable to its customers as competitors emerge and try to grab a share of its market.

Third, “Customers love iRobot products” means that Amazon is also acquiring a brand that has become a household name in the budding home robot market. All other things equal, customers would be more likely to purchase an iRobot product than a product from another brand.

And finally, the iRobot acquisition will potentially give Amazon access to mapping data from millions of homes where Roomba robots have been roaming.

What’s in it for iRobot?

Irobot headquarters
iRobot headquarters, Bedford, MA (Image source: Wikipedia)

Here’s another quote from the same press release, this time from Colin Angle, chairman and CEO of iRobot: “Since we started iRobot, our team has been on a mission to create innovative, practical products that make customers’ lives easier, leading to inventions like the Roomba and iRobot OS. Amazon shares our passion for building thoughtful innovations that empower people to do more at home, and I cannot think of a better place for our team to continue our mission. I’m hugely excited to be a part of Amazon and to see what we can build together for customers in the years ahead [emphasis mine].”

Obviously, iRobot knows that the market for vacuum robots is limited, and the company’s growth is tied to building more products.

iRobot must either make its Roombas do more or start expanding its product offerings. In any case, it will need a sizeable amount of cash to start exploring new markets. As of July 2022, iRobot had $63.4 million in cash, but it also had $35 million of debt (an increase on none over one year), which put its net cash at $28.4 million. Given the hardware costs of developing and testing robots, this is not nearly enough to get started on any new project. iRobot’s latest project, the lawnmower robot Terra, received only mild success and has been put on hold.

Moreover, the company’s latest balance sheet showed that iRobot had $332.1 million in liabilities due within 12 months against $87.8 million in receivables due within the same periods.

iRobot’s revenue also shrunk by 11 percent year over year and had to lay off 10 percent of its workforce, which is not the kind of news that shareholders and analysts want to hear. This would make it hard for the company to raise enough funding for its future projects.

Long story short, even with its $1.62 billion market cap, iRobot faced serious problems in engaging in building new products. And in the growth-driven tech industry, the linear sales of vacuum cleaning robots is not a very attractive growth vector.

This is where Amazon comes to the rescue. Amazon will acquire iRobot for $61 per share in an all-cash transaction valued at approximately $1.7 billion, including iRobot’s net debt. The acquisition will give iRobot some breathing space and access to Amazon’s vast financial resources, which will provide it with ample opportunity to build new products.

Otherwise said, “Amazon shares our passion for building thoughtful innovations” means “we have room to burn cash and fail while we figure out what the next successful home robot will be.”

Market consolidation

After a fashion, iRobot is following in the footsteps of Boston Dynamics, which was acquired by Hyundai in 2020. The acquisition provided the highly talented team of Boston Dynamics with the funding and infrastructure to productize some of its technology, including Spot and Stretch.

The same can be said of artificial intelligence labs such as DeepMind and OpenAI, which have gravitated toward wealthy tech companies to keep funding their extremely expensive research. DeepMind has been a division of Google (later Alphabet) since 2014, and OpenAI is receiving billions of dollars in funding from Microsoft in exchange for licensing its technology to the tech giant.

As the trends show, with market maturity comes market consolidation. The smaller companies will create new markets, but it is the big ones that will go for the kill.

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