Why Amazon’s acquisition of Roomba robot vacuums is odd

Once again, Amazon is getting its hands on the wallet to expand its empire. On August 5, the tech giant paid $1.7 billion to buy iRobot, the manufacturer of autonomous Roomba vacuum cleaners. He will pay 61 dollars per share, or 22% more than the share price the day before the announcement, but also twice less than its peak, reached in February 2021. Beyond the financial transaction, the acquisition raises questions about Amazon’s strategy.

Secrets to Amazon’s Global Ambitions

Bots that don’t make money

iRobot’s small disc-shaped robots have the ability to map up to ten rooms in the house, to vacuum dust autonomously, without colliding with furniture. A pioneer in its market, iRobot was still the overwhelming leader in 2020, but it is being nibbled away by new entrants who are driving prices down, such as 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 turnover fell by 30% compared to last year, to 255.4 million of dollars. Worse, in the first six months of the year, the company posted a net loss of $73.8 million, compared to $4.7 million in net profit in the first half of 2022. In short: with falling demand and ever-increasing competition that is driving down margins, Roomba have not yet sustained their profitability. And it’s not the connected mop or the iRobot handheld vacuum cleaner that will be enough to pull the group’s figures up.

Amazon invests in a market far from its core business

In addition to the choice of the company, the operation questions Amazon’s strategy. The tech giant is relaunching on a market, that of connected objects, where it has not continued its investments since the purchase of Ring doorbells and surveillance cameras in 2018. Today, the group makes its turnover in three markets: e-commerce, the cloud (where it makes the majority of its profits) and online advertising. Its product branch, embodied by the Echo range and Ring products, weighs nothing compared to these three pillars.

The group invested heavily at the end of the 2010s in the connected assistant Alexa so that it would become the voice control center of the connected home (lights, television, speakers, electric shutters, etc.). The objective: to make integration easy so that he can order as many objects as possible. In other words, for Amazon, the connected home market is a data market – which it can convert into e-commerce and advertising – more than a product market. Alexa allows Amazon to gather even more information about consumers, and to direct their purchases to its ecosystem (e-commerce, music, video, etc.). Its rare products, such as speakers, go in this direction.

The specter of privacy dangers

To justify the acquisition, analysts are trying to find strategic advantages. Some see it as a new way to generate Amazon Prime subscriptions (the backbone of the company’s model) through exclusive discounts on Roomba products, available only to subscribers. Others speculate that iRobot’s software expertise could shore up the operation of Astro, the expensive ($1,500) all-purpose robot, but currently doing everything wrong. According to the first feedback from the press, he is struggling in particular to move around the house. In testing with a handful of customers since September 2021, it may never be introduced to the general public.

Finally, privacy advocates see the acquisition as a way for Amazon to gain access to mapping data of users’ apartments and homes. Data that he would use to further refine his recommendation algorithms, and boost his e-commerce. Robert Weissman, president of the NGO Public Citizen, therefore calls on regulators to prevent the transaction with a good word: the last thing Americans and the world need is for Amazon to suck up even more personal information “. To Business Insider, iRobot indicates that it has not sold the data to third parties, and that it does not exploit them outside the uses to which customers have consented by signing the general conditions of use. But does Amazon really need consumer soil information? And most importantly, would he spend $1.7 billion just to get them?