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 popular Roomba vacuum cleaner.
The acquisition appears to be beneficial for both companies. Amazon, which is trying to break into domestic robots, surrounds itself with the talent and experience of one of the few companies to have managed to survive the very harsh conditions of the consumer robotics market. And iRobot will have access to Amazon’s financial and technical resources.
What are the wider implications for the mobile robotics industry? As the industry matures, robotics companies will seek shortcuts for growth and market share. This will lead to consolidation, where small but successful robotics companies will gravitate towards and merge with large, high-liquidity technology companies.
Amazon’s Robotic Dreams
Amazon has been into mobile robots for years. In 2012 he acquired Kiva Systems for $775 million and has been using robots in its fulfillment centers for years. These efforts intensified during the pandemic, when the company faced staffing limitations in 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 versatile robot that’s supposed to perform many tasks around the home, including monitoring appliances, watching out for intruders, moving drinks, and entertaining people.
From a purely scientific and robotic point of view, Astro is a marvel. Amazon engineers managed to solve very difficult challenges to get the robot to map and navigate homes and do a host of tricks. Among those who praised Astro was Rodney Brooks, one of the co-founders of iRobot and a highly regarded robotics scientist.
But nearly a year after its announcement, Astro is still struggling to find product/market fit, where it solves one (or more) problem(s) well enough for people to choose it over alternative solutions. For now, Astro is a cool gadget for rich people who have money to waste on tech gadgets.
Building a business around household robots is very tricky. Anki, Jibo and Kuri are just a few of the household robot names that have had to be shut down in recent years after failing to develop successful business models.
Amazon has a history of entering new markets through major acquisitions. And that’s where the iRobot acquisition can help Amazon.
Here is a quote from Amazon Press release on the acquisition of iRobot: “Over many years, the iRobot team has proven itself ability to reinvent oneself how people clean with incredibly convenient and inventive products, from cleaning when and where customers want while avoiding common obstacles around the home, to automatically emptying the collection bin. Customers love iRobot products— and I am delighted to work with the The iRobot team invent to make customers’ lives simpler and more pleasant [emphasis mine].”
There are a few key points in this quote from a product management perspective, especially since it comes from Dave Limp, SVP of Amazon Devices.
First, the many references to “the iRobot team” imply that Amazon cares about iRobot’s product team as much as its technology. I don’t expect Roomba’s technology to be superior to Astro or other robots that Amazon develops. But iRobot’s product team has surely proven its ability to perform over the years. That would make it more of an “acquisition,” where a large company acquires a smaller company primarily to hire its talent.
Second, the “ability to reinvent” means that iRobot has always been able to maintain its product/market fit, finding ways to ensure that its products remain valuable to its customers as competitors emerge and attempt to outperform. capture a share of its market.
And finally, “Customers love iRobot products” means that Amazon is also acquiring a brand that has become a household name in the nascent household robot market. All other things being equal, customers would be more likely to buy an iRobot product than a product from another brand.
What’s in it for iRobot?
Here’s another quote from the same press release, this time from Colin Angle, President and CEO of iRobot: “Since we launched iRobot, our team has been on a mission to create innovative and convenient products that make lives of customers, leading to inventions. like the Roomba and iRobot OS. Amazon shares our passion for creating thoughtful innovation that allow people to do more at home, and I can’t think of a better place for our team to continue our mission. I’m extremely excited to be part of Amazon and see what we can build together for our clients in the years to come [emphasis mine].”
Obviously, iRobot knows that the market for robot vacuums is limited and that the company’s growth is tied to building more products.
iRobot either needs to make its Roombas do more or start expanding its product offering. In any case, she will need a large sum of money to start exploring new markets. Since July 2022, iRobot had $63.4 million in cash, but it also had $35 million in debt (an increase of zero year over year), bringing its net cash to $28.4 million. Considering the material costs of developing and testing robots, this is not enough to start a new project. iRobot’s latest project, the robot lawn mower Terra, has received only mixed success and has been put on hold.
Additionally, the company’s latest balance sheet showed iRobot had $332.1 million in debt due within 12 months compared to $87.8 million in debt due in the same periods.
iRobot’s revenue was also down 11% year-over-year and had to dismiss 10% of its workforce, which is not the kind of news that shareholders and analysts want to hear. This would make it difficult for the company to raise enough funds for its future projects.
Long story short, even with its market capitalization of $1.62 billion, iRobot has had serious problems committing to building new products. And in the growing tech industry, linear robot vacuum sales are not a very attractive growth driver.
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 room and access to Amazon’s vast financial resources, giving it ample opportunity to create new products.
Simply put, “Amazon shares our passion for building thoughtful innovation” means “we have room to burn cash and fail while we figure out what the next bestselling home robot will be.”
In a way, iRobot is following in the footsteps of Boston Dynamics, which was acquired by Hyundai in 2020. The acquisition provided the very talented team at Boston Dynamics with the funding and infrastructure to produce some of its technologies , including Spot and Stretch.
The same can be said of artificial intelligence labs such as DeepMind and OpenAI, which have turned to wealthy tech companies to continue funding their hugely expensive research. DeepMind has been a division of Google (later Alphabet) since 2014, and OpenAI receives 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. Small companies will create new markets, but big ones will get away with it.