Why Amazon’s Acquisition of Roomba Robot Vacuums Is Weird
Once again, Amazon is getting its hands on the wallet to expand its empire. On Aug. 5, the tech giant paid $1.7 billion to buy iRobot, the maker of autonomous Roomba vacuums. He’ll be paying $61 per share, up 22% from the share price the day before the announcement, but also two times less than the February 2021 peak. Beyond the financial transaction, the acquisition raises questions about Amazon’s strategy.
Bots that don’t make money
The small disc-shaped robots from iRobot have the ability to map up to ten rooms in the house, vacuuming dust autonomously without colliding with furniture. As a pioneer in its market, iRobot was still the overwhelming leader in 2020, but it’s being nibbled by new entrants driving prices down, like Roborock, LG, Samsung, or Shark.
At the same time, demand for its products is collapsing under the weight of inflation: In the second quarter, iRobot’s revenue fell 30% year over year to $255.4 million. Worse, for the first six months of the year, the company posted a net loss of $73.8 million, compared to a net income of $4.7 million for the first half of 2022. In short, with demand falling and strengthening Competition Drives Down Margins have not yet maintained Roomba’s profitability. And it’s not the connected mop or iRobot handheld vacuum that will be enough to pull the group’s numbers up.
Amazon is investing in a market far from its core business
In addition to the company’s choice, the operation challenges Amazon’s strategy. The tech giant is rebooting into a market, that of connected objects, that it hasn’t invested in since buying Ring doorbells and security cameras in 2018. Today, the group makes its revenue from three markets: e-commerce, cloud (where it makes most of its profits), and online advertising. The product range, embodied by the Echo range and the Ring products, weighs nothing in comparison to these three pillars.
At the end of the 2010s, the group invested heavily in the connected assistant Alexa, so that it could become the speech center of the networked home (light, television, loudspeakers, electric shutters, etc.). The goal: to make the integration easy so that he can order as many objects as possible. In other words, for Amazon, the connected home market is more of a data market — which it can turn into e-commerce and advertising — than a product market. Alexa enables Amazon to collect even more information about consumers and direct their purchases into its ecosystem (e-commerce, music, video, etc.). Its rare products like speakers go in that direction.
The specter of privacy threats
To justify the acquisition, analysts are looking for strategic advantages. Some see it as something new Ability to generate Amazon Prime subscriptions (the backbone of the business model) through exclusive discounts on Roomba products available only to subscribers. Others speculate that iRobot’s software expertise could shore up operations for Astro, the pricey ($1,500) all-purpose robot that’s currently doing everything wrong. According to the first reports from the press, he is struggling above all with moving around the house. In testing with a handful of customers since September 2021, it may never be revealed to the public.