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Amazon acquires iRobot: why is the tech giant taking control of your Roomba?

12:54, 12 August 2022

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Amazon (AMZN) will acquire iRobot (IRBT) for an all-cash deal worth $1.7bn (£1.2bn). Although best known for their Roombas, the AI that iRobot has engineered is more valuable than most might think.

iRobot (IRBT) has been a pioneer in the robotic vacuum market and has been a top seller on Amazon marketplace. Its innovative history has allowed it to reach advanced AI capabilities which has its uses beyond the Roomba.

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Amazon (AMZN), among other tech giants like Apple (AAPL) and Google (GOOGL) are looking towards expanding the market for home automation. There are huge opportunities for Amazon to expand iRobot’s products through its Prime and Alexa services, while advancing its own AI potential.

While regulators are yet to approve this acquisition, reviewing data privacy concerns, this strategic buy is likely to give Amazon an edge over its peers over the long term.

 

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iRobot was a cheap buy

iRobot (IRBT) has been successful in dominating the market for robotic household products. Beyond its flagship vacuum Roomba, it also has successfully marketed other household robotic cleaners, and now hold almost 60% of the market share per insight by Robo Global.

However, in recent months the company has been facing challenges. Recent import tariffs introduced by the Chinese government has impacted its margins considerably, as much of its production takes place in China. iRobot (IRBT) has also faced challenges in expanding beyond the current household devices leaving its sales numbers stagnant. This allowed Amazon to purchase the company for a minimal premium.

Meanwhile, Amazon's Prime subscribers are projected to grow from 163 million to 176 million in the coming year alone. And about a third of US customers have an Amazon household device such as Echo speakers and Amazon fire TV.

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Access to such a large customer base will allow iRobot (IRBT) to achieve the expansion it has been seeking. The investors of iRobot appear to have welcomed the news, its share price had moved 57% higher in the past month.

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What does this mean for Amazon?

The $1.7 billion that Amazon (AMZN) has agreed to pay for iRobot (IRBT) is small change for a tech giant that earns more than $450 billion annually, but this is still the fourth largest deal Amazon has made.

Amazon has a long list of strategic acquisitions, and it always has its eye on the long term expansion into various sectors when making these moves. It has stepped into the retail food sector by acquiring Whole Food, its biggest deal to date. It has expanded into the world of listening entertainment through deals with Audible, and podcast producer Wondry.

Now as tech companies look to grow the market of household devices, this acquisition will likely give Amazon a dominance in the sector against competitors like Apple (AAPL) and Google (GOOGL).

Lisa Chai, partner at Robo Global comments “Longer term, we believe iRobot will play a critical role in Amazon’s portfolio of smart home automation products, from lighting to video to cleaning and lawn care. It’s very possible that Amazon will try to create a central hub to unite all their own devices (and services) that can help with any household tasks”

 

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