January 28, 2015      

The carpet wars

Consumer electronics giants Samsung, LG, and Panasonic, as well as vacuum king Dyson have all jumped into the carpet wars and are gunning for the robot vacuum market.

At stake: $2.6 billion in robot vacuum cleaner sales by 2020 in a home cleaning industry forecast to be $9 billion by 2020.

The gambit

Is iRobot’s newly announced venture capital shop a reaction to impending competition from deep-pocketed consumer electronics giants?

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What’s so dangerous for iRobot is that the company, when viewed from a financial perspective, is basically Roomba, according to data from S&P Capital IQ.

Daily Finance adds: “Last year [2013], iRobot’s Home Robots division (of which Roomba is the largest part) accounted for nearly 88 percent of iRobot revenues. The company sold nearly $428 million worth of vacuum cleaners, versus only about $50 million worth of robots for defense and security. So it’s not overstating to say that the company lives and dies by the success of the Roomba.”

Fast, strategic move for iRobot

How does smallish iRobot (founded in 1991) (NASDAQ: IRBT) with a giant portion of the global robot vacuum cleaner market maintain its share — or at least a respectable share — and contend with the competition? Principally, as it always has: being smart, nimble and using its sizable cash reserves wisely.

Cranking up a venture capital investment group may have been just such a nimble move, especially if that VC operation has a bent for consumer electronics that can enhance its robot cleaning line and maybe help to lock iRobot into the onrushing reality of the connected home.

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Source: EuroMonitor

A hint of the kinds of ventures iRobot may be after appeared late last year when iRobot quietly put money into West Coast startup Paracosm, known for its 3D room-mapping software, as in rooms needing a little vaccing up. Score one for iRobot.

Cool capability for a robovac, especially with rivals like the Neato Botvac and Dyson’s 360 Eye, which Sir James says took 16 years and $47 million to build.

See related: Can Dyson’s New Smart Vac Challenge Roomba?

Back in 2012, iRobot also invested $6 million in a health care robotics company called InTouch Health, Santa Barbara, CA.

See related: iRobot And InTouch Health Roll Out New Remote Physician

Fear factor at CES 2015

Samsung’s recently debuted robot vacuum at the Consumer Electronics Show 2015, the POWERbot VR9000 (its first ever), and LG’s new Hom-Bot Square (also taking its first bow at CES 2015), are far from being familiar brand names on par with iRobot’s iconic Roomba franchise.

This week Panasonic pushed its new-look triangular shaped MC-RS1 Rulo into the carpet wars, which will go on sale in Japan in March with the hope of selling 5,000 a month.

Samsung, LG, and Panasonic, each a giant in consumer electronics with mega resources, global sales forces, thousands of sales outlets, and each with huge marketing clout are clearly after all or a very large piece of the 18 percent of the vacuum cleaner market that now regularly goes to robot vacuums.

A recent industry report pegs the vacuum cleaner robot market to grow rapidly from $981 million in 2013 to $2.6 billion by 2020.

Is Roomba’s robust market share in jeopardy?

iRobot has sold some 13 million Roomba models since its introduction in 2002, says CEO Colin Angle, in a category that is growing at a compound annual growth rate of 21.8 percent.

Roomba, he adds, captures 83 percent of the North American market, 62 percent of the European Middle East market and 67 percent of the Asia-Pacific marketplace.

Such a comfort zone is in for a very big challenge. If the big boys mount a successful challenge, iRobot’s Roomba dependence is in for a big shock.

So what’s a robot company to do?

In part, iRobot needs to bolster its consumer street cred with new products and/or to add cool enhancements to the Roomba.

The rationale for iRobot’s VC play is rather simple, said Angle to TechCrunch: “There’s a lot going on in the robotics space and really the best way to understand it is to participate in it.”

True, but just a bit too diplomatic.

Charlie Vaida, iRobot’s manager of corporate communications, added that the primary objective is to “increase the speed of innovation by going outside corporate walls.”

That was more to the point.

Both active participation in innovation and speed are what’s definitely needed, plus a hefty bankroll that iRobot pegs at about $25 million.

iRobot is joining a venture capital scene that’s beginning to send a lot of love toward robotics. Last year saw $340 million in investment in robotics, which was nearly $100 million more than the previous year ($250 million).

Overall investor enthusiasm for robotics is on the upswing, especially if any of it has an angle on appliances or devices for the connected home, which was on grand display in Las Vegas at this year’s Consumer Electronics Show 2015.

Already in 2015, two large VC chunks of financing have landed at Jibo ($25 million) and Rethink Robotics ($26 million). VC money for 2015 has a good chance of besting 2014’s high-water mark.

See related: Jibo Now a Multimillionaire. Bags $25M More

See related: $26.6M More: Investment Money Loves Rethink Robotics

vc bwana

Innovation is the key driver here, not price. The big boys could easily low ball the price of their new robovacs and take a loss, and keep taking losses, until Roomba is swept out of the way.

The iRobot kitty will be in the vicinity of $25 million. Angle told TechCrunch the company will make five to ten investments per year in seed to Series A companies — with investments ranging in size from $100k to $2 million each.

If the investments hit the high side, that would mean an additional $20 million added to the $50-plus already sitting with Jibo and Rethink. Another banner year for VC investments in robotics seems well underway.

Rook to queen’s pawn five…

Now for the hard part: finding talent, innovative consumer-side robotics or enabling technologies for robots, and great IP (intellectual property) that it can take to the bank.

For that part of the search-and-invest safari, iRobot intends to open a Silicon Valley office and hire a West Coast big innovation hunter.

The clock is ticking.