Samsung powerbot r7070 bed bath and beyond

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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

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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

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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

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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

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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.

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iRobot Corporation’s Consolidated Balance Sheets, Fiscal Year 2016 – Fiscal Year 2017 (in thousands of $)

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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,”

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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.

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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).