While much of even the business press coverage has focused on Amazon’s access to home mapping data, the ability for Amazon to acquire the key player iRobot in the increasingly important consumer robotics market, speaks to the pressures facing all but the largest tech players over the short term.
Amazon Set to Acquire iRobot for US$1.7 Billion
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NEWS
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Coverage of Amazon’s deal to acquire consumer robotics and robot vacuum pioneer iRobot has keenly focused on raising alarms regarding the new levels of consumer data collected from iRobot vacuums that will now be available to Amazon. The deal, which is Amazon’s fourth largest acquisition in its history, will certainly jump start its ability to access mapping and other data from iRobot’s connected consumer robotics. That data is an incremental step up from the data the company already has access to and has leveraged throughout its meteoric life. While not insignificant, it is the timing of the deal that speaks to both the rapidly expanding value and potential of connected consumer robotics, but also the current struggles facing consumer robotics players.
Terms and Impetus for the Amazon/iRobot Deal
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IMPACT
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Under the terms of the deal, announced August 5, the two companies have entered into a definitive merger agreement for Amazon’s acquisition of iRobot. Amazon will acquire iRobot for US$61 per share in an all-cash transaction valued at approximately US$1.7 billion, including iRobot’s net debt. Completion of the transaction is subject to customary closing conditions, including approval by iRobot’s shareholders and regulatory approvals. On completion, iRobot co-founder and Chief Executive Officer (CEO) since 1997, Colin Angle, will remain as CEO.
iRobot introduced the first Roomba robot vacuum in 2002 and the company has long promoted not just consumer robotics, but the value of its mapping and other in-home data. As part of a Reuters interview in 2017, Angle set out the value of the company’s mapping data both to iRobot but also that, within the context of the smart home environment, it was data that could be leveraged in partnerships with smart home device and voice control players. More recently, the company announced plans to deliver its own array of smart home products to leverage its position in connected home maintenance products into devices to drive home efficiency and security applications. It also launched a range of connected air purification appliances.
As recently as February 2022, the company’s shares were trading at US$72.91 in February 2022, but had fallen to a year low of US$36.54 just weeks before Amazon announced its plans. The US$1.7 billion that Amazon is set to pay is a significant discount on the US$2.5 billion market value the company had during the past 12 months. For 2021, iRobot reported global revenue of US$1,564 million, up from US$1,430 million the year before, but with a loss for the year of US$1,100 million, reversing a US$1,460 net income 12 months earlier.
In March 2022, the company reported it had sold more than 19 million connected robots and had a connected installed base of 14 million customers. Key to iRobot’s future strategy was pushing into direct-to-consumer sales and drawing greater revenue from connected customers over the lifetime of its products’ use. With Amazon’s extensive smart home product lines and engagement, combined with its global retail channel strength, the alignment between iRobot and its new owner are clear.
The Data Are Incremental, Look to the Economics
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RECOMMENDATIONS
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Coverage of the deal widely focused on privacy implications. Some examples include:
- “Amazon's Roomba Deal Is Really About Mapping Your Home” (Bloomberg)
- “The iRobot Deal Would Give Amazon Maps Inside Millions of Homes” (Wired)
- “Amazon bought iRobot to see inside your home” (The Verge)
Amazon has long been a poster child and a touchstone for a range of issues related to the growing reach of global tech giants. The company is not alone in capturing and leveraging consumer data, but based on its scope and consumer recognition concerns about the company’s plans for consumer data, this is doubtlessly drawing reader attention. There is already speculation around regulators looking into Amazon’s iRobot deal.
The addition of home mapping detail will certainly provide Amazon with additional data and insight regarding its customers, but the data are incremental. But the hand-wringing regarding this deal is perhaps a little overblown, especially considering the company already has access to great swathes of detail about the customers it interacts with and that such data bring market value and power into Amazon has always been evident. Any regulatory issues to prevent the deal going ahead would be a significant break from how regulators have looked at the smart home and even data collection concentration until now.
That the iRobot deal impacts data collection and smart home dynamics is clear, but Amazon’s plan for iRobot is keenly in line with the company’s long public push into smart home and, more recently, consumer robotics. ABI Research has long highlighted the value of smart home data to Amazon, as well as the value in Amazon’s own efforts to bring consumer robotics into its smart home play. Some examples include: “and”
In the last of that list, ABI Research noted “Perhaps the greatest challenge will come from changing awareness about the privacy implications required of a transformational smart home… As products extend into autonomous systems, it is clear that greater scrutiny about how collected data is leveraged and valued will be key.”
Amazon is voracious in collecting and leveraging data, but in a smart home market where single vendor systems remain the domain of a niche and not mass market, to deliver fully functioning autonomous smart home systems data will have to be distributed throughout a home system. How much of that data resides with a single player and how much end-user control there will be on the collection of the data are clearly areas that will require at least industry collaboration (Matter, for example) and/or increasing oversight and regulation.
Instead, the deal heralds a significant step in the ongoing growth and appeal of home consumer robotics. Amazon’s dominant position as a global retailer, combined with its pioneering role in the smart home, has provided the company with in-depth understanding of the demand and value for consumer robotics over the next decade and beyond. Amazon has the market heft and ability to drive adoption with its ability to promote and closely tie iRobot products into its sales channels, as well as its smart home offerings. The acquisition enables iRobot to strengthen its existing strategy and focus on its core competencies in robotics. Given the breadth of Amazon’ s existing smart home offerings, iRobot can focus on extending its robotics capabilities and range—its entry into the home robot lawnmower market has long been delayed, for example. Amazon’s support also helps fend off growing competition from global behemoths like Samsung and LG, which have been able to capture market share.
While the deal represents the potential for consumer robotics, it also reflects the impact of the post-lockdown economy and supply chain woes for many tech companies, as well as the increasingly deep pockets required to remain competitive. According to iRobot, its 2021 revenue was impacted by semiconductor chip constraints, as well as higher supply chain and tariff costs. In March 2022, iRobot again detailed its struggles with inventory, supply chain, and retailer relationships. By May 2022, and citing heightened inflation and reduced consumer confidence in Europe, the Middle East, and Africa (EMEA), the company reduced its full-year revenue growth expectations, from US$1.75 billion to US$1.85 billion, which represents 12% to 18% growth over 2021, from US$1.64 billion to US$1.74 billion, which equates to annual growth of between 5% and 11%.
Despite growing competitive pressure, iRobot holds a majority share in many robot vacuum national and regional markets. It is a market on course for significant growth in the long term, regardless of how short-term economics impact discretionary spending. These devices also promise to be increasingly valuable in delivering more practical, intuitive, efficient, and effective smart homes on the horizon, and their integration into automated systems will be key. Earlier this year, Amazon reported it had US$61 billion in cash, so this deal, significant as it is, will barely make a dent in those reserves. For many innovative and successful players across consumer robotics and the smart home, the iRobot deal could herald not just a new wave of acquisitions, but acquisitions at price points well below expectations set just earlier this year.
