Strategic Management Assignment – Due Saturday October 3, 2020 @9am ET
Read the Case and answer these questions – See PDF attachment for the Case
The answers for each question should be well detailed and well written. A total of 5 pages concise and well written pages is recommended.
Case # 2 iRobot in 2018: Can the Company Keep the Magic?
1. Identify the driving forces in the robotic vacuum industry. Which of these forces appear to be the strongest? Where does the industry appear to be headed as result of those forces?
2. What is iRobot’s competitive and resource strengths and what opportunities do you identify? What notable weaknesses and threats are facing the company? Assess the combined impact of these forces on iRobot’s future profitability.
3. Describe iRobot’s business strategy. Does it appear well-suited for the company in 2018?
4. Which of iRobot’s competitors presents the greatest competitive threat? Why? Support your answer.
5. iRobot has the largest market share in a growing market, but does the company have a competitive advantage? A sustainable advantage? What additional strategies could the company adopt to secure or sustain competitive advantage?
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CASE 11
iRobot in 2018: Can the
Company Keep the Magic?
David L. Turnipseed
University of South Alabama
John E. Gamble
Texas A&M University-Corpus Christi
aving the largest market share in a rapidly growing industry,
controlling over 75 percent of global revenue, and experiencing
record growth and sales in the latest fiscal year, was a situation that
most companies would find calming. In its first year as a consumer-focused
company, iRobot reported a 33.8 percent increase in revenue and a 21.5
percent increase in net profit over the prior year and announced expectations
for about 20 percent revenue growth in 2018, which would push revenue over
$1 billion. The company’s stock reached $68.00 on March 23, 2018, which
was a 151 percent increase over the same date in 2017. A summary of the
company’s financial performance between fiscal 2013 and fiscal 2017 is
presented in Exhibit 1.
However, for the management team at iRobot, those metrics only served
to help fine-tune and develop strategy to improve the company’s performance
and defend against several looming competitive threats. The company’s focus
was the design and manufacture of robots that empowered people to do more
both inside and outside of the home. The iRobot consumer robots helped
people find smarter ways to clean and accomplish more in their daily lives.
iRobot’s portfolio of robotic solutions featured proprietary technologies for
the connected home and advanced concepts in cleaning, mapping and
navigation, human-robot interaction, and physical solutions that moved the
company beyond simple robotic vacuums. The company had announced a
relationship with Amazon Web Services (AWS) that was believed to enable
iRobot to address significant opportunities within the consumer business and
the connected home. The AWS Cloud would allow devices to interact easily
and securely and enable iRobot to scale the number of connected robots it
supported globally and allow for increased capabilities in the smart home.
Although iRobot’s recent past had been magical, the company faced
significant headwinds. Global penetration of robotic vacuums was about 10
percent, and iRobot had about 60 percent market share, but several serious
competitors had emerged, and in many cases, offered similar products at
much lower prices. iRobot had divested its military and industrial robots and
had become a consumer company with one-product—robotic cleaners. Also,
customer privacy issues and the threat of data leaks from the company’s
robots’ cameras and mapping feature had caused negative publicity. The
company’s CEO had ignited a furor when he announced that iRobot “could”
reach an agreement to share data with Apple, Amazon, or Alphabet. The
iRobot management team had an incredible track record on which to build—
the task moving into the second half of 2018 was to avoid or overcome the
external competitive threats and leverage prior achievements into future
successes that would keep iRobot number one in its industry.
COMPANY HISTORY
iRobot, the leading global consumer robot company, was founded in 1990, by
MIT roboticists Colin Angle, Helen Greiner, and Rodney Brooks, who shared
EXHIBIT 1
page C-108
the vision of making practical robots a reality. The company’s first robot was
the Genghis, designed for space exploration. Five years later, the Ariel was
developed to detect mines, and two years later in 1998, iRobot won a
DARPA (Defense Advanced Research Projects Agency) contract to build
tactical robots. The company’s PackBot robot was used in the United States
to search the World Trade Center after the 9/11 attacks and deployed with
U.S. troops in Afghanistan and Iraq.
Copyright ©2018 by David L. Turnipseed and John E. Gamble. All rights reserved.
Financial Summary for iRobot,
Fiscal Year 2013 – Fiscal Year 2017
Source: iRobot Corporation 2017 10-K.
Also in 2002, the Company developed a robot that was used to search the
Great Pyramid of Egypt (and it found a “secret room”). Perhaps the most
notable event in 2002 was the development of the first iRobot Robotic
Vacuum Cleaner (RVC) named Roomba. Two years later in 2004, iRobot
won a U.S. Army contract to build the 312 SUGV (Small Unmanned Ground
Vehicle) that was used by soldiers and combat engineers for ordinance
disposal. Also in 2004, the company entered into an agreement with the
Japanese distribution company Sales On Demand Corporation (SODC) to
promote and distribute iRobot products in Japan, the largest consumer
robotics market outside of North America.
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In November 2005, iRobot became the first robot manufacturer to have a
successful public stock offering. The company sold 4.3 million shares of
stock at $24.00 and raised $103 million. Also in 2005, the Scooba—a floor
washing robot—was launched, followed in 2007 by the Looj gutter cleaning
robot, the Verro pool cleaning robot, and the Create—a programmable
mobile robot. The company continued its internationalization, and partnered
with Robopolis, a French distribution company, to sell its products in
Germany, Spain, Portugal, the Netherlands, Austria, France, and Belgium.
iRobot continued a prolific trend of products and in 2008, introduced the
Roomba pet series, and a professional series of RVCs. The company also
expanded into maritime robots and won a contract from DARPA to build a
LANdroid communication robot, which served as a mobile signal repeater.
In 2010, iRobot’s Seaglider maritime robot helped monitor the oil leakage
following the BP Deepwater Horizon oil spill in the Gulf of Mexico. The
next year, 2011, the company introduced an improved Scooba floor washing
robot, a new series of Roomba dry vacuum robots, and the 110 FirstLook,
which was a small lightweight robot that could be thrown. The FirstLook was
designed for use by infantry forces to locate and identify hazards while
keeping personnel safe. In 2012, the company purchased a rival firm,
Evolution Robotics, Inc., for $74 million. Evolution Robotics produced a
hard floor cleaner that used Swiffer pads to clean wooden floors, which was
different than iRobot’s products. iRobot’s home robot sales exceeded 10
million units in 2013.
A new floor scrubbing robot and a vacuuming robot that included
intelligent visual mapping and cloud connected app control were launched in
2015. In 2016, the Braava jet mopping robot was introduced, and the
company opened an office in Shanghai, China, which significantly expanded
its global footprint. iRobot made the decision to focus exclusively on
consumer robots, divesting its defense and security robot business in mid-
2016. There was increased investment in advancing mapping and navigation,
and user interaction including cloud and app development.
iRobot continued its globalization strategy in 2017, and in April of that
year, the company acquired SODC, its distribution partner in Japan, and
Robopolis, its French distribution partner that served Western Europe. Wi-Fi
connectivity was included on two new Roomba vacuum models (690 and
890), which extended Wi-Fi connectivity to the full line of Roombas. The
company introduced two new connected products to its product portfolio to
bring the advantages of cloud connectivity to its consumers. The iRobot
HOME App transmitted the robots’ maps directly to customers through
“post-mission” cleaning maps. iRobot believed that the data sourced from the
robots’ maps, would accelerate new product development as well as digital
partnerships for the smart home.
The iRobot Product Line in 2018
900 Series Roomba Vacuums iRobot’s newest Roomba in 2018 was the
960, a lower cost alternative to the 980. The 960 won second place and
Editor’s Choice in PC Magazine’s “Best Robot Vacuums of 2018.” The 960
helped keep floors cleaner throughout an entire house via intelligent visual
navigation, the iRobot HOME App control with Wi-Fi connectivity. The
Roomba 960 had five times the suction power of the previous generation of
Roomba RVCs, and extended mapping, visual navigation, and cloud
connectivity to a wider range of customers. The Roomba 960 sold for
$699.99, compared to $899.00 for the 980. The Roomba 980 received PC
Magazine’s seventh place for best RVC. The greatest difference between the
two models was longer battery life and deeper carpet cleaning for the 980.
800 Series Roomba Vacuums The Roomba 800 series robots had an
EROForce technology, which included brushless, counter-rotating extractors
that increase suction for better performance than bristle brushes, while
requiring less maintenance than previous Roomba models. The Roomba 890,
which sold for $499.99 in February 2018, was selected “Runner-Up” Best
Robotoc Vacuum by Consumer Reports.
600 Series Roomba Vacuums 600 series robots had a three-stage cleaning
system that vacuumed every section of a floor multiple times as well as
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AeroVac technology and improved brush design, which enabled the robot to
better handle fibers like hair, pet fur, lint, and carpet fuzz. The Roomba 690
sold for $374.99 and was Wi-Fi connected. The 690 received PC Magazine’s
third place choice for Best Robotic Vacuum of 2018. The bottom line
Roomba 614, which sold for $299.99 in February 2018, was not Wi-Fi
capable.
Braava Automatic Floor Mopping Robots The Braava robots were
designed for hard surface floors and used a different cleaning approach than
did Roomba models. The Braava 380t robot, priced at $299 in February 2018,
automatically dusted and damp mopped hard surface floors using popular
cleaning cloths or iRobot designed reusable microfiber cloths. The Braava
robot included a special reservoir to dispense liquid throughout the cleaning
cycle to keep the cloth damp. The 380t could use iAdapt navigation to map
where it had cleaned and where it needed to go.
The Braava 240 was designed for smaller spaces than the 380t, and could
wet mop, damp sweep, or dry sweep hard floors. The iRobot HOME App
was compatible with the Braava jet 240 and helped users get the most out of
their robot by enabling them to choose the desired cleaning options for their
unique home. The Braava 240 sold for $199.99 in February 2018.
Mirra Pool Cleaning Robot iRobot’s Mirra 530 pool cleaning robot was
designed to clean any type of inground residential pools. It could remove
debris as small as two microns from pool floors, walls, and stairs. The robot
had a scrubbing brush to clean leaves, hair, dirt, algae, and bacteria off pool
walls and floor, and a pump and filter that cleaned 70 gallons of water per
minute. The Mirra sold for $999.99 in February 2018.
Looj Gutter Cleaning Robot The Looj robot was designed to simplify
gutter cleaning. The Looj cleaned total lengths of gutter, which reduced the
number of times a ladder needed to be repositioned. The iRobot Looj 330
Gutter Cleaning Robot removed leaves, dirt, and clogs, and with a set of
revolving brushes totally cleaned the gutter. The Looj had a high-velocity,
four-stage auger and “CLEAN” mode, and Looj traveled down the gutter on
its own, sensing and adjusting to leaves and debris to provide the most
effective cleaning. The Looj 330 sold for $299.99 in February 2018.
Three iRobot products—the Roomba 960, Roomba 690, and Roomba 980
—were listed among the 10 Best Robot Vacuums by PC Magazine in 2018;
however, the Eufy RoboVac 11, selling for $219, was chosen number one,
ahead of iRobot’s Roomba 960, selling for $699, over three times the price of
the Eufy RoboVac 11.
THE ROBOTIC VACUUM INDUSTRY
According to a market report by Persistence Market Research, the residential
robotic vacuum cleaner (RVC) market was estimated at $1.3 billion at year-
end 2015 and was expected to increase at an annual rate of 12 percent to
reach $2.5 billion by 2021. Production of residential RVCs was about 1.9
million units at the end of 2015 and was forecasted to increase at an annual
rate of 16.5 percent to reach 4.8 million units by 2021. The market
penetration was quite low for robotic vacuums, and in 2018 was
approximately 10 percent of the total households in the United States. iRobot
believed that the immediately addressable market in the United States was
double the current base of about 13 million households, with a long-term
potential of 86 million households.
Improved functionality and superior performance were among the key
factors driving adoption of robotic vacuum cleaners in households. Product
innovation was paramount for key companies in the RVC industry. A
majority of leading companies were increasingly concentrating on research
and development (R&D) of unconventional products in order to gain a
competitive edge.
There was a trend of bagless vacuum cleaners that could accelerate
market growth. New product launches of RVCs included advanced features
such as vacuum cleaners with UV sterilization, spinning brushes, security
cameras, Internet connectivity, voice response, app features, and mapping
EXHIBIT 2
page C-111
features. Such advancements were expected to drive the market further.
Innovation of a novel technology stair-climbing robotic vacuum cleaner was
expected to present lucrative opportunities in the near future.
IROBOT’S STRATEGY
The company’s strategy was to maintain Roomba’s leadership in the robotic
vacuum cleaner segment while positioning the company as a strategic player
in the emerging smart home. The company expected its growth to be driven
by:
Deeper global household penetration of Roomba;
Continued investment in innovation to extend iRobot’s technology and
product leadership;
Increased gross margin due to the acquisitions of its two foreign
distributors: SODC and Robopolis, in 2017;
Adoption and awareness of Braava products through targeted marketing
programs; and research and development of new products.
iRobot’s strategy had provided market-leading positions in the robotic
segment of the global vacuum cleaner industry—see Exhibit 2. In 2017,
iRobot had 88 percent of the North American market, 76 percent of the
European/Middle East/African market, and 34 percent of the Asia/Pacific
market.
Geographic Market Size and
Vendor Shares of the Robotic
Vacuum Cleaner Industry, 2016
Source: Seeking Alpha, 2017.
iRobot’s Technology Focus
iRobot believed that a better robot lives in the world by moving around and
acting more intelligently in its environment, by cooperating with the people it
serves more compellingly, and by physically interacting more effectively
with its surroundings. As the number one global consumer robotics company,
iRobot strived to develop best-in-class technology in mapping and
navigation, human-robot interaction, and physical solutions.
Mapping and Navigation iRobot was focused on mapping and navigation
technology development to make its robots smarter, simpler to use, and to
provide valuable spatial context to the broader ecosystem of connected
devices in the home. Robot-built and maintained home maps were core to the
page C-112
company’s long-term strategy, providing important spatial context by
capturing the physical space of the home. Maps provided the information
needed to enable robots to purposefully navigate throughout their
environment and accomplish meaningful tasks.
User Experience and Digital Features iRobot invested in the
development of interfaces for its robots to provide its customers with rich and
convenient ways to interact with the entire iRobot family of products.
iRobot’s customer interaction and experience with its products was intended
to be enriched as a result of connecting the company’s robots and integrating
them with connected devices in the home, and with other cloud resources and
services.
Physical Solutions iRobot was dedicated to designing and producing robot
solutions with market-leading cleaning mission performance that provided
convincing value to its customers. The company’s robots’ core value from
the customer’s perspective was the ability to effectively and efficiently
perform the physical mission—cleaning. iRobot believed that it produced the
best mission performance solutions on the market, whether it was vacuuming,
mopping, or any other cleaning tasks.
The Smart Home: An ecosystem of robots
working together
iRobot imagined a home that maintained itself and miraculously did just the
right things, anticipating its owners’ needs. The smart home would be built
on an ecosystem of connected and coordinated robots, sensors, and devices
that provided homeowners with a high quality of life by seamlessly
responding to the needs of daily living—from comfort to convenience to
security to efficiency. iRobot was working to build an ecosystem of robots
and the data required to enable the smart home.
Robots and other devices in the smart home need to understand the
environment so they can figure out what they should do. Angle explained,
there was no point to being able to understand the sentence “Go to the
kitchen and get me a beer,” if the robot doesn’t know where the kitchen is.1
You could also have smart thermostats, lights, blinds, door locks, humidity
sensors, TVs, radios, and speakers that sit in this ecosystem. Those would be
the building blocks of the smart home. The unifying intelligence tying
everything together and what enabled the home to be smart could come from
iRobot or a different company.
Guy Hoffman, a robotics professor at Cornell University, said detailed
spatial mapping technology would be a major breakthrough for the smart
home. With regularly updated maps, Hoffman said, sound systems could
match home acoustics, air conditioners could schedule airflow by room, and
smart lighting could adjust according to the position of windows and time of
day. If a customer bought a Roomba, owned a smartphone, and had
connected devices, the Roomba could build a map of the home, place the
connected devices on the map, and share that information with all other
devices. Then the ecosystem or interconnected system could give the owner a
choice of preferences based on the included devices, and have the room start
behaving intelligently. If the homeowner did not like how the home behaved,
he or she could change preferences and the system would learn. The Amazon
Alexa and Google Home devices could also supplement that behavior by
providing a voice interface to the system, extending the smart home’s reach
to things to which they are connected.
iRobot CEO Colin Angle explained the smart home concept to MIT
Technology Review in December 2017:
What we’re seeing today is a collection of devices that are all controlled by their own
apps. The promise of enhanced utility is actually being reduced by the complexity
we’re introducing. A successful smart home should be built on the idea that nobody
programs anything; the basic services in your home would just work. So you would
walk up to your front door, which would unlock if you were authorized to enter. You
would go in and the light would turn on, the temperature would adjust, and if you
started watching TV and moved to another room, the TV show would follow you.
When you’re no longer using various services, they could shut down automatically to
save energy, or be set to respond to the weather or the time of day.
That might sound like an idealized vision of a smart home, but it’s completely
reasonable to do if you have a robot in the mix that is actively going out and
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discovering what rooms exist and what the different devices in them are, and you have
a way of figuring out what room people are in. iRobot currently has an app that can
analyze Wi-Fi coverage in homes using its Wi-Fi connected Roombas. It can provide a
map showing where wireless signals are strongest and weakest.
The positioning for iRobot is we’re going to be the spatial-understanding people . . .
We’re trying to make the home sufficiently self-aware to be self-configuring and useful
. . . The emerging AI home dimension is going to play out in a big way over the next
two years.2
iRobot Ventures
As part of iRobot’s Corporate Development team, the iRobot Ventures group
fostered engagement with the entrepreneurs and early-stage companies
driving innovation in consumer robotics and in the connected hardware
ecosystem. iRobot understood how difficult it was to bring a product to
market, and to build a company. The company believed that investors should
provide more than just capital and validation of an idea. iRobot Ventures
delivered value by facilitating access to the company’s engineering and
operations resources, as well as a network of external service providers,
investors, and partners. The iRobot’s Venture:
Sought strategic investments that generated attractive financial returns
Syndicated with top-tier VC firms, strategic and angel investors
Provided access to internal and external resources
Embraced standard terms
Made informed investment decisions rapidly
Did not seek special treatment or control
iRobot Ventures supported teams that were passionate about using
technology to solve hard problems. The company invested in applications
that were consistent with its core business or represented new market
opportunities, and participated in the early stages of the innovation lifecycle,
where iRobot had the most to add, focusing on the following:
Consumer technology
Service-based business models
Recurring revenue streams
Cloud services and infrastructure
Computer vision
Localization and mapping
Machine learning and artificial intelligence
Robotic mobility and manipulation
IROBOT’S FINANCIAL PERFORMANCE
iRobot enjoyed a meteoric assent in its financial performance between fiscal
year 2015 and fiscal year 2017. Revenue had grown from about $617 million
in fiscal 2015 to approximately $884 million in fiscal 2017. The company’s
gross margin had improved by nearly 50 percent between fiscal 2015 and
fiscal 2017, but its operating income and net income had grown at much
more modest rates as growth operating expenses outpaced growth in
revenues. iRobot stock also had an impressive gain, increasing from $20.00
in January 2005 to $107.25 in July 2017. The company’s financial
performance for fiscal year 2015 through fiscal year 2017 is presented in
Exhibit 3. The company’s balance sheets for fiscal year 2016 and fiscal year
2017 are presented in Exhibit 4. The performance of its common shares
between November 2005 and June 2018 is shown in Exhibit 5.
iRobot’s Rivals in the Floor Care Market
The floor care market was crowded with big-name competitors. However, the
iRobot Roomba models placed numbers two, three, six, and seven in the NPD
Retail Tracking Service poll in 2017. The iRobot Roombas were the only
robotic floor cleaners to place in the top 10—see Exhibit 6. Shark’s upright
replaced Dyson at number one in the February 1, 2017 Consumer Report
reviews, and Shark entered the robotic vacuum market in 2017.
Eufy RoboVac Consumer Reports selected the Eufy RoboVac11, which
sold for $299.99 on Amazon in late 2017, as the Best Budget Buy. In January
2018, PC Magazine selected the RoboVac 11 as Editor’s Choice and first
place among eight in “Best Robotic Vacuums of 2018.” In February 2018,
the RoboVac 11 sold for $219.00 on Amazon. The Eufy Robotic mop was
picked #1 in Atopdaily’s 2018 Robotic Mop Review.
Neato Robotics The Neato Botvac D5, which sold for $500 on Amazon in
late 2017, was chosen fourth best RVC by Consumer Reports in November
2017. The Dyson Botvac Connected and Botvac Connected D were chosen
fourth and fifth best, respectively, by PC Magazine in January 2018. Neato’s
Botvac Connected was compatible with smart home devices and platforms,
synched with 2.4GHz Wi-Fi networks and had an app for Android and iOS
that enabled owners to interact and control the vacuum from Amazon Alexa,
Google Home, the Neato Chatbot for Facebook, and from a tablet or
smartphone. The app notified the owner about the vacuum status, enabling
the homeowner to easily schedule the vacuum and keep the home clean.
Dyson Dyson Technology, an established British manufacturer of
consumer electronics, lighting, and traditional vacuum cleaners, entered the
RVC market with the Dyson 360Eye, which was the result of 17 years of
RVC development by the company. The new Dyson robot was introduced in
Tokyo. The 360Eye had twice the suction of any other RVC, was controlled
by the Dyson Link app, and would respond to voice commands. It was
equipped with a camera and could map the rooms in which it was used.
Dyson’s 360 EYE, which sold for $999.99 on Amazon in early 2018, was
selected sixth best RVC by PC Magazine in January 2018.
Shark Shark was one of several brands developed by SharkNinja
Operating, LLC, a Massachusettsbased developer of cleaning solutions and
household appliances. The Shark ION ROBOT 750 was Wi-Fi capable and
could be controlled with a mobile app or by voice command. All Home
Robotics, in March 2018, did a comparison of the Shark ION 750 and the
Roomba 890 and concluded that unless the home had deep shag carpet, the
Shark 750 would be the one to buy. In March 2018, the Shark ION 750 sold
for $340.82 on Amazon, compared to $499.99 for the Roomba 890 at Best
EXHIBIT 3
page C-114
Buy, Target, and Bed Bath & Beyond.
iRobot Corporation’s Consolidated
Statements of Income, Fiscal Year
2015 – Fiscal Year 2017 (in
thousands of $)
Source: iRobot Corporation 2017 10-K.
Samsung Samsung, the South Korean multinational electronics and
appliance manufacturer, was a late entrant into the RVC market. The newest
Samsung robot models—POWERbot—are Wi-Fi capable and map the house
in which they are used. The POWERbot can be controlled by a smartphone
app, Amazon’s Alexa, or Google Assistant. The Samsung line of POWERbot
Robotic Vacuum cleaners ranged from the R9000, which sold for $399, to the
R7090, which sold for $699.00.
EXHIBIT 4
page C-115
iRobot Corporation’s Consolidated
Balance Sheets, Fiscal Year 2016 –
Fiscal Year 2017 (in thousands of $)
page C-116
Source: iRobot 2017 10-K.
EXHIBIT 5 Monthly Performance of iRobot
Corporation’s Stock Price,
November 2005–June 2018
The Samsung POWERbot SR20H9051 RVC was voted “Best in Class”
by Consumer Reports in November 2017. The Powerbot R7070, selling for
$598.00 on Amazon, was chosen eighth best by PC Magazine in January
2018.
Ecovacs Ecovacs, founded in 1998, is a global consumer robotics company
based in China, whose focus is helping consumers “Live Smart, Enjoy Life,”
EXHIBIT 6
page C-117
with their line of products to help with daily household chores. The
company’s product line comprises DEEBOT floor cleaner, the WINBOT
window cleaner, ATMBOT air cleaner, and FAMIBOT entertainment and
security robot. Several Ecovacs products include Wi-Fi connectivity. Ecovacs
is one of the top three brands of in-home robots worldwide, and has 65
percent of the market share in China, where it is the #1 brand. Ecovacs
currently has operations in Mainland China, North America, Europe,
Malaysia, and Australia. Ecovacs’ DEEBOT floor cleaner line of robots are
sold in the United States at major big box retailers such as Best Buy, Target,
Macy’s, Home Depot, and Staples.
Prices in February 2018 ranged from $379.99 for the DEEBOT M88 to
$189.00 for the NEO Robot on Amazon. The Ecovacs DEEBOT M88 was
voted third best RVC by Consumer Reports in November 2017, and the
DEEBOT N79 was the best-selling robotic vacuum on Amazon for Black
Friday in 2017. The New York Times’ Wirecutter review in March 2018
selected the DEEBOT N79 as the best choice RVC. The Ecovacs DEEBOT
80 Pro Robotic Vacuum with Mop was picked first place by Offers.com in
April 2018, and #2 by ATOPDAILY’s Best Robot Mop Review’s in 2018.
Top 10 Floor Cleaner Vacuums,
2017
Rank Floor Cleaner Name
1 Dyson V8 Stick Cordless
2 iRobot Roomba 690 Robotic
3 iRobot Roomba 650
4 Shark Rotator Professional Upright
5 Bissell Bare Floor
6 iRobot Roomba 980
7 iRobot Roomba 960
8 Hoover Deep Carpet
9 Dyson V7 Stick
10 Shark Navigator Upright
*Source: NPD Retail Tracking Services, 2017.
COMPETITIVE RISKS
A significant risk for Roomba was that competitors’ cheaper cleaning
products were what consumers really wanted. In May 2016, the New York
Times’ Sweethome blog ousted the $375 Roomba 690 as its most-
recommended robovac in favor of the $220 Eufy RoboVac 11. The
Sweethome blog said that the Roomba’s Internet connectivity and other
advanced features would not justify the greater cost for most users. Short-
seller Axler’s June 2016 report caused concern with the prediction that value-
priced appliance maker SharkNinja Operating LLC could launch a robovac
by the end of 2016. In September 2017, Investor’s Business Daily reported
that iRobot stock fell 16 percent over concerns about Shark entering the
robotic vacuum market, and Spruce Point Capital Management remarked
that, “SharkNinja has entered the robotic vacuum market with a ‘functionality
at a reasonable price’ strategy to compete directly with the Roomba. Given
Shark’s historical success, we assume that their entry into the market will
translate into sales and margin pressure for iRobot beginning with Q4
2017.”3
One potential iRobot defense against these new competitors was iRobot’s
portfolio of 1,000 patents worldwide that covered the very concept of a self-
navigating household robot vacuum as well as basic technologies like object
avoidance. A handful of those patents were being tested in a series of patent
infringement lawsuits iRobot filed in April against Bissell, Stanley, Black &
Decker, Hoover Inc., Chinese outsourced manufacturers, and other robovac
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makers. That litigation was the most significant in iRobot’s history.
PRIVACY CONCERNS
iRobot’s higher-end Roomba robotic vacuums collected data that identified
the walls of rooms and furniture locations as they cleaned. This data enabled
the Roomba to avoid collisions with furniture, but it also created a map of the
home that iRobot could share with Google, Apple, or Amazon. iRobot had
made the Roomba compatible with Amazon’s Alexa voice assistant in March
2017, and according to the Company’s CEO Angle, iRobot could extract
value from that by data sharing agreements and connecting for free with as
many companies as possible to make the device more useful in the home.
However, the idea of iRobot’s data sharing caused investor concern when
Reuters reported in July 2017 that iRobot’s chief executive, Colin Angle,
announced that a deal could come within two years to share its maps for free
with customer consent to one or more of the Big Three. Albert Gidari,
director of privacy at the Stanford Center for Internet and Society, said that if
iRobot did share the data, it would raise a variety of legal questions. Guy
Hoffmann, a robotics professor at Cornell University, said that companies
such as Apple, Amazon, and Google could use the data obtained by the
iRobot devices to recommend home goods for customers to buy. A potential
problem with sharing data about users’ homes is that it raises clear privacy
issues, said Ben Rose, an analyst for Battle Road Research who covers
iRobot.
Homeowners were able to opt out of Roomba’s cloud-sharing functions,
using the iRobot Home app, but technically the iRobot terms of service and
privacy policy indicated that the company had the right to share users’
personal information, according to The Verge in a June 24, 2017 article. The
potential sale of personal information was disclosed in the company’s privacy
policy, but was unlikely to be discovered by most consumers.
In a written response in Consumer Reports reported by the New York
Times on July 25, 2017, iRobot management stated that it was “committed to
the absolute privacy of our customer-related data.” Consumers can use a
Roomba without connecting it to the Internet, or “opt out of sending map data
to the cloud through a switch in the mobile app.” “No data is sold to third
parties,” the statement added. “No data will be shared with third parties
without the informed consent of our customers.” CEO Angle reinforced
iRobot’s position in an interview, in an April 10, 2018 interview with The
Verge, saying, “iRobot will never sell your data. It’s your data, and if you
would like that data to be used to do something beyond helping your robot
perform its job better [like mapping your home for IoT devices], then you’ll
need to give permission. We’re committed to [EU data privacy legislation]
GDPR and are ensuring that if you want to be forgotten, then we’ll be able to
forget you.” Angle stressed that iRobot did not intend to build its future
around selling data, however; the company wanted to be a “trusted
aggregator of spatial information” that could help with the smart home. Data
collected by iRobot devices would be protected by iRobot.
Smart home lighting, thermostats, and security cameras are already on the
market, but Colin Angle, chief executive of Roomba maker iRobot Corp, said
they are still dumb when it comes to understanding their physical
environment. He thought the mapping technology currently guiding top-end
Roomba models could change that and he was basing the company’s strategy
on it. “There’s an entire ecosystem of things and services that the smart home
can deliver once you have a rich map of the home that the user has allowed to
be shared,” said Angle.4 However, the question of whether the market is
ready for a data gathering robot or will be content with just a floor cleaner
remains to be answered.
IROBOT IN 2018
In February 2018, iRobot’s Chairman and Chief Executive Officer Colin
Angle announced the company’s plans and financial expectations for 2018.
The company expected its revenues to exceed $1 billion, which would be a
year-over-year growth of about 20 percent to 22 percent, with operating
income year-over-year growth ranging from 18 percent to 32 percent.
According to Angle, there was tremendous growth ahead for the company.
page C-119
Global market penetration was very low and the strong global economic
conditions were stimulating positive consumer sentiment and global
economic growth.
Angle also pointed out several growth opportunities for the company. In
regions where iRobot had run product education marketing programs, the
company had gained market share, and recent distributor acquisitions had
helped extend strategic marketing efforts to Europe and Japan. The global
Robotic Vacuum Cleaner (RVC) industry had more than 25 percent growth in
2017, and that growth was expected to continue as iRobot and its competitors
increased product awareness. Retailers were increasingly promoting RVCs
and increasing shelf space and high-visibility displays. The company
expected to capitalize on the investments made in 2017 with the introduction
of new products in the third and fourth quarters, 2018. Angle said that the
company expected double-digit revenue growth in all regions of the overseas
markets and continued strong sales in the United States following the 2017
growth of over 40 percent.
Despite the optimistic projections, some investors were nervous about
iRobot’s future well-being with the recent entry of SharkNinja Operating
LLC into the robotic vacuum market and other external competitive threats.
The U.S. market continued to be strong for iRobot, but the company said in
its third-quarter conference call that net revenue in China declined due to
continued aggressive competitive pressure. That led Canaccord Genuity Inc.
analyst Bobby Burleson to lower his price target to $65 from $95, along with
expectations of higher spending to maintain its market standing. The coming
months and years would make it clear if iRobot held a competitive advantage
in the RVC market and was well-positioned to capture new opportunities in
the Smart Home ecosystem.
ENDNOTES
1 As quoted in Evan Ackerman, “Interview: iRobot CEO Colin Angle on Data Privacy and
Robots in the Home,” IEEE Spectrum, September 7, 2017,
https://spectrum.ieee.org/automaton/robotics/home-robots/interview-irobot-
ceo-colin-angle-on-privacyand-robots-in-the-home.
2 As quoted in Elizabeth Woyke, “Roomba to Rule the Smart Home,” MIT Technology
Review, December 17, 2017,
(https://www.technologyreview.com/s/609764/roomba-to-rule-the-smart-
home/).
3 As quoted in Patrick Seitz, “IRobot Stock Attacked By Home Appliance Vendor
SharkNinja,” Investors Business Daily, September 13, 2017,
https://www.investors.com/news/technology/click/irobot-stock-attacked-
byhome-appliance-vendor-sharkninja/.
4 As quoted in “As your Roomba cleans your floors, it’s gathering maps of your house,”
The Washington Post, July 25, 2017, (accessed at
http://www.latimes.com/business/technology/la-fi-tn-roomba-map-20170725-
story.html).