Do you think Google should buy the iRobot company? Why or why not?

Clarification

• What is  irobot - Devices which automatically clean the home. Smart / Wifi controlled. 

Approach for this

• Why may Google want to acquire iRobot
  • Acquire new customers
  • Access IP / Tech - No unique IP pirblau. 
  • Enter a new market  
  • Cross-sell / up-sell existing products
  • Forestall competition 

Look at the above, I dont think iRobot has any unique customers that Google already doesn’t have access to. Further their technology / IP isn’t super difficult to make. There are several companies making similar products. Entering a new market - home devices as well as cross selling / up selling Nest products could be one possible benefit. Also, expanding the portfolio of home products is something Google could offer to customers as Amazon is rapidly growing its in-home product portfolio. So it might be a competitive move. 

Lets evaluate how such a deal may look like on a handful of dimensions

• Market for these devices 
  • Competitive market. Several manufactures exist. No unique IP or large player. At the end of the day vacuum can be broken into luxury, mid-tier, basic. There are companies at each stage.
  • Customers - iRobot doesn’t have unique customers that Google doesn’t already have or can’t be able to get. Most of their customers are affluent / tech-savvy folks, the same kind that would be google products’ adopters
  • Entrants and customer, seller power  - There is no dominant customer segment or manufacturer segment in this space
• Company - iRobot strengths and weaknesses
  • Brand name - Does have a brand but not that famous or isn’t a household brand globally.
  • customer loyalty - Probably has loyal customers who like iRobot products but size of this segment is small
  • distribution channels - Currently has distribution channels which could ben beneficial to Google
• Synergies between the two companies
  • There are no major synergies apart from getting access to iRobot’s distribution network to sell other Google home hardware. Google doesn’t have this and that could be one benefit. Beyond that the tech in iRobot isn't super valuable nor does it give access to new markets or customers.
• Financial implications
  • Lets look at this deal from the financial perspective. Assuming iRobot sells for a 2-3x revenue multiple with some premium for taking them private. Without getting into estimating the actual purchase price, my guess is it would be in the low single digit billions. At this price, seeing immediate ROI on that amount is challenging from purely selling devices. Perhaps data collected from iRobot devices could help with other services in the future but the other google home products could also provide that data pipe.
• Recommendation
  • Do Not Acquire iRobot: There is no tech that is unique, no upside of tapping into a new customer segment / gain new users and it is a nascent market with limited growth for now. Further what the company builds is being offered by several other companies so there isn’t any major difference between iRobot and the generic makers of similar device. 
  • If Google wants to play in this space they could do so by providing an interface to control such devices and becoming the hub for managing home automation through Google home / Assistant. That would give Google access to data that it needs and also ensure that they are compatible with several offerings thereby gaining more customers.

Clarify: iRobot -- robot vacuums, floor cleaners. And it does for homes only, right? Assuming thats all iRobot does for now.

What is the motive here? Is Google planning to enter this market? 

Lets first evaluate if this is a good market to target. 

Market -- home cleaning, maintenance. 

Market is HUGE. It maybe growing fast. It automates a chore. Very valuable need. You can sell one to every household. 

Market growth potential is there → assuming low penentation of robot vacuum cleaners and people are moving to automation. Basically replace existing manual vacuum cleaners.

Competition -- there is competition, but its not like its zero sum game for robot vaccum cleaners. Market is growing.  

How big can this be? 100M households in US. 5 year lifetime of vacuum cleaners. $300 pop. $50 yearly maintenance. yearly spend $550/5 = $110. TAM: $11B per year. Not a small market. If you can do 2 devices - then its $22B. But its not big in terms of Google’s oother markets - search, GCP, drievrless cars etc. $22B is really chump change for Google.

Does this market provide foothold for google to bigger market?

Bigger market is smar homes and connected homes. Google already does Nest, Google WiFi, Voice assistants. Not sure getting into appliances is key to win here. Instead of getting into smart appliances, partner with OEMs (smart lights, microwave, fridge, washing machine, ADT) to enbale google smart home features. Get into actaul appliances only if its a big market. For e.g, Nest is not just a camera, it actaully addresses  a crtiicl need - security. With thermostat - its not teh heating system. Its your assistant to control heating. Similary become the assistant for other appliance to make them smart. 

So No. They should NOT even  enter the market. 

If for whatever reason, the decision is made to ENTER the market - then its build vs buy. Again depends on why? 

Building a robust product takes time - product, distribution, service, supplies ecosystem is effort. Is there technology which Google can use for otehr purposes? dont think so.

If the price is right, then google should buy.

A strategy for answering this Google product strategy question.

Normally there are a few purposes for an acquisition.

• For access to a market
• For the product
• For the technology and talents
• For taking out a threat

• Product: 
  • Offers AI-powered home cleaning robots for home owners
  • A few product series, focusing on home usages
• Competition
  • Multiple competitors
• Market Share
  • Early stage in the market penetration, overall <10% in the US
• Biz Model
  • Consumer facing
  • 1-time purchase
  • Priced at O(100) to O(1000) range
• User
  • Tech-savvy user (early adopters)

• Strength:
  • Ads monetization, huge income
  • AI technology
  • Nest and Home products focusing on home use cases
  • Multiple other popular products such as Youtube, Map, Chrome, etc.
• Weakness:
  • 90% income coming from Ads and struggling to diversify its income
  • Manufacturing, customer service, supply chain
• Threat:
  • Home products face competition from Alexa

• Pros
  • Opportunity to deep integrate with Home products and differentiate the home experience from Alexa
  • Opportunity to distrupt this market by offering a subscription based biz model and 
    • 10X the market penetration.
    • Access the market for commercial buildings and businesses.
    • Make Google's subscription biz model more appealing to consumers, diversify income
  • Opportunity to provide a landing spot for Google's AI expertise with iRobot products and devise more innovative use cases
  • Opportunity to use iRobot product to gain access to new data, such as commercial building layout, home size, etc, to jump start other use cases.
  • Opportunity to further grow ads business with the newly gained user knowledge.
• Cons
  • Increase in the # of products to maintain for Google
  • Burden on manufacturing, supply chain, customer service, support
  • Competitor can easily replicate, by purchasing a similar company.