What is Amazon’s Long-Term Strategy With Its Acquisition of iRobot?
Earlier today, Amazon announced that it was acquiring iRobot for $61 a share in an all-cash transaction, which would value the Roomba manufacturer at $1.7B. On the surface, this acquisition will strengthen Amazon’s presence in the consumer robotics space. Watchers of the company will recall that Amazon made a significant bet in the robotics category when it took the wrappers off Astro, it’s home robot. Priced at nearly $1,500, Astro includes Amazon’s digital assistant functionality and can follow consumers throughout their homes. For the last few years, Amazon has also offered a wide variety of smart home devices, such as connected doorbells (via its Ring acquisition in 2018), as well as a variety of voice-activated microwaves and thermometers.
This purchase is not a trivial acquisition for Amazon. From a dollar standpoint, it’s the company’s fourth-largest deal ($13.7 billion) after its 2017 acquisition of Whole Foods and $8.4 billion securing MGM’s film studio in 2021. Last month, Amazon purchased primary-care provider One Medical for $3.9 billion, which augments Amazon’s long-term interest in the prescription drug and health care space.
Certainly, the iRobot acquisition does add a sizeable chunk of revenue to its revenue portfolio. But Amazon’s interest goes beyond the simple marketing of robot vacuums. While iRobot has been the worldwide market share leader for years, the company’s share has declined from 63% in 2014 to 46% in 2020 as new entrants have jumped into the space. From an iRobot perspective, it is more troubling that most of the robot vacuum space volume is at the $300 price point or below, with challenging margins. Amazon’s vision must be broader and longer-term than simply acquiring a home robot vacuum company, albeit the leader in its category.
So, what is Amazon’s long-term play?
Amazon’s interest in iRobot can be summed in a single word: maps. For years, Amazon has articulated a vision of the smart home where ambient intelligence can help the company sell more products via an in-depth understanding of user behaviors, activities, actions, and desires, far beyond what the company can derive from simply analyzing historical purchases.
iRobot knows that its maps are the crown jewels essential to fulfilling ambient intelligence’s potential. The company’s iRobot OS, an operating system for its robotic maps and vacuums, already provides household bots with a profound understanding of a consumer’s home and habits. As Amazon sees it, these maps can generate detailed knowledge of homeowners’ floor maps, but most importantly, how they evolve. For example, if you turn that spare bedroom into a nursery, the Amazon marketing opportunity for baby-related items goes into beast mode. It’s the type of marketing opportunity that Mad Men’s Don Draper would salivate over.
Said differently, maps are the digital currency that is tantalizing to a company whose single mission is to sell the consumer more stuff.
The downside of Amazon’s ambitions with the iRobot acquisition
While it’s hard to argue that there are no useful benefits and convenience aspects of ambient intelligence, Amazon may be stepping into a privacy minefield with the iRobot acquisition. Amazon’s Ring solutions already have a history of sharing data with police departments (something that many consumers don’t realize). Amazon’s Echo speakers are in a perpetual “always listening” mode. When detailed maps of a home’s floor plans become part of Amazon’s data arsenal, there will be little left about what the company doesn’t know about you.
In addition, being mobile and able to roam through your home, more robot vacuums are getting equipped with cameras and other sensors that provide security and surveillance functionality. It remains to be seen if consumers will push back on this capability in robot vacuums, regardless of the security advantages, due to privacy concerns over in-home capture of video or still images. iRobot has publically disclosed that its latest model, the j7, front-facing AI-equipped camera, has detected more than 40 million objects in consumers’ homes or apartments. That data point doesn’t exactly inspire consumer confidence and should give people pause as this capability becomes more prevalent inside the house.
The bottom line
For iRobot, its absorption into the Amazon empire could not come at a better time. The company recently reported a 30% revenue decline due to increasing competition from companies like Roborock and Ecovacs. Amazon will be able to fund product development of the iRobot roadmap more robustly than it could be by operating as a standalone company with stiffening financials. iRobot will also find relief from a marketing and distribution standpoint. Amazon can offer Roomba products as part of lucrative bundles with other Amazon smart home gear, including its Eero family of routers.
But don’t be fooled: Amazon’s interest is all about iRobot’s maps. The ability to thoroughly understand a homeowner’s floor plans in a scalable manner must have Amazon’s marketeers rubbing their hands in anticipation. Ultimately, this is Amazon’s next substantial move in the smart home.
Mark Vena is the CEO and Principal Analyst at SmartTech Research based in Silicon Valley. As a technology industry veteran for over 25 years, Mark covers many consumer tech topics, including PCs, smartphones, smart home, connected health, security, PC and console gaming, and streaming entertainment solutions. Mark has held senior marketing and business leadership positions at Compaq, Dell, Alienware, Synaptics, Sling Media and Neato Robotics. Mark has appeared on CNBC, NBC News, ABC News, Business Today, The Discovery Channel and other media outlets. Mark’s analysis and commentary have appeared on Forbes.com and other well-known business news and research sites. His comments about the consumer tech space have repeatedly appeared in The Wall Street Journal, The New York Times, USA Today, TechNewsWorld and other news publications.
SmartTech Research, like all research and tech industry analyst firms, provides or has provided paid services to technology companies. These services include research, analysis, advising, consulting, benchmarking, acquisition or speaking sponsorships. Companies mentioned in this article may have utilized these services.
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