Case study

jiROBOT: ROBOTS FOR THE HOME

Robots have been around for a long time. Detroit has used robots for four decades to build cars, and manu- facturers of all kinds of goods use some form of robot- ics to achieve efficiencies and productivity. But until iRobot brought its battery-powered vacuum cleaner to the market, no one had successfully used robots in the home as an appliance. The issue was not whether it Jas possible to use robots in the home, but could they be produced at a price customers would pay. Until the introduction of Roomba, iRobot's intelligent vacuum cleaner, robots for the home cost tens of thousands of dollars. At Roomba's price point of $199, it was now possible for the average consumer to afford to have a robot clean the house. That in itself is an interesting story, but even more interesting is the entrepreneurial journey of Colin Angle and his company, iRobot.

Background Colin Angle grew up in Schenectady, New York, ,here he was raised by his mother and stepfather. He and his three stepbrothers all became engineers, but Angle was the inventorjbuilder of the group. Begin- ning in his earliest years, he built pinball machines and constructed complex pulley systems in the trees of his back yard. While attending MIT in the 1980s, he was drawn to the innovative work of Rodney Brooks, di- rector of the university's artificial intelligence lab. Brooks was a controversial figure in the robotics field, but he served as the inspiration for what would be- cpme some of Angle's most practical inventions. As a student, Angle was part of the group that succeeded in building insect-like robots that could perform sim- ple tasks on reflex. In fact, Angle's creation, Genghis,

appeared on the cover of Popular Science. It w by then that his future lay in inventions.

The Opportunity

I clear

In 1990, Brooks and Angle, who by then ha corne dose working partners with their MI col- league Helen Greiner, borrowed from their I redit cards and used bank debt to found iRobot in tiny apartment in Somerville, Massachusetts. The g al of the company was to build robots that would I feet how people lived their lives. At that time, none could conceive of a way to bring robots into dl mes- tic life in an affordable way, and iRobot was still years away from discovering the one application that' ould launch it into the consumer market. To stay ali I ,the company sought government and corporate con- tracts for new product development. Over th next decade, iRobot designed and built a vast I ay of products, from nuclear waste detectors to toy r bots. Angle and his team believed that diversifYin~ their product development skills would insulate I them from the risk of any one customer killing a p ject, something that happened frequently in their i dus- try. Angle also had no idea which of the many I rod- ucts they developed would be the one that ould propel the company into rapid growth, so he d not want to focus the company too narrowly too s:

Diversification in those first years enable company to stockpile a range of patents that become the basis for the product for whic they became most famous. Angle reasoned that he had to make certain that customers did not end up 0 . g technology that his company might need in I ture

463

464 CaseStudies ., Ii !! product development. For example, in 1992, he sold

the rights to the underlying technology on a robot called Grendel to separate it from technology that would be used to take the company in new directions. Prior to this, iRobot did not control the patents for products it developed for large customers, as is typical with smaller businesses. However, after selling the Grendel rights, Angle decided that henceforth the company would retain all rights to the technologies it developed. As it turned out, a cleaning technology that iRobot had developed for Johnson Wax Profes- sional and tiny processors developed for Hasbro, the toy company, were critical components ofRoomba.

Shall We Dance? iRobot had secured two parts of the three components of its growth strategy. It had become a flexible com- pany that could develop products in a broad area, and it had built a strong base of intellectual capital. Now, the only thing missing was a way to bring robots to the domestic market economically, and that was no easy task. Angle had already experienced the agony of de- feat on a proposal for Hasbro. In 1996, iRobot had developed a storytelling machine with characters that moved and gestured while they talked. It seemed like this could be the next big toy until they showed Hasbro management what it looked like inside. It was a mas- terpiece of engineering, but the microprocessors cost $60 each, the flash card cost $400, and the parts all to- taled ran about $3,000. Hardly a likely candidate for the next Christmas season! But Angle had learned a lot about the consumer products industry from this e:Al'e- rience and what it would take to develop successful products for the toy industry. It was all about cost- saving pennies so that the toy company could meet its competitive price point in the market. iRobot became an exclusive partner to Hasbro, and over the next two years, it proposed dozens of new toy projects, most of which were turned down because they were too expen- sive to make. Finally, in 2000, iRobot saw one if its creations, My Real Baby, hit the store shelves.

It was, in fact, this new understanding of the con- sumer products business that inspired the idea for Roomba. Originally, they had considered partnering with a large vacuum cleaner company like Hoover, but one of the reasons a smaller company partners

with a large established company is to take advantage of their access to suppliers. The iRobot team had become experts in sourcing product components efficiently, so they chose to do it on their own.

Developing Roomba The engineers at iRobot were unaccustomed to build- ing mundane products for domestic use, so to avoid wasting the talents ofhis most brilliant engineers, Angle created a new division in the company that would de- sign and launch these domestic products. Technologies developed from contract work now found a home in Roomba. For example, the crop circle algorithm it uses came from a technology used to sweep minefields. The company worked its way through 20 iterations of Roomba, bringing each version home to spouses and relatives to test. One thing was clear: this device had to be easy to use. In general, consumers won't tolerate a steep learning curve, so iRobot's engineers pictured something as simple as a large button labeled "clean." In fact, they ended up with a button that provided a choice of "S," "M," or "L," for small, medium, or large (denoting the room size). The customer puts Roomba on the floor, turns it on, and presses the size button. Then the robot plays a tune and starts sweep- ing the floor in ever-widening circles. When it runs into something, it heads offin a different direction. The cir- cle algorithm alternates with a wall-and-furniture-hug- ging algorithm and straight lines. Sometimes at random it will simply go in one direction until it runs into something. It runs on a nickel-metal-hydride battery that gets recharged on an overnight charger. It also comes with an invisible wall that projects an infrared beam if you need to keep the robot confined to a par- ticular area. It even has three different backup systems to keep it from fulling down stairs.

From its experience with Hasbro, iRobot had learned to be extremely stingy on costs, down to the penny; they knew that a price tag of $199 would keep competitors at bay for awhile.

Market Entry iRobot's shrewd entry strategy saw Roomba hitting the market just in time for the Christmas season through such gift outlets as Sharper Image and

Brookstone. These stores are willing to demonstrate products, something that is critical with a new prod- uct. Although Roomba was the first product from iRobot, sales were $15 million in 2002 and soared to $50 million in 2003. This was accomplished on five rounds of venture funding totaling $27.5 million.

iRobot also hired a Boston public relations firm to conduct a media blitz to create customer aware- ness. Stories appeared in the Wall StreetJournal and Time and on 1V shows like Live with Regis and Kelly. Women's magazines were another popular media venue. But all advertising is not good adver- tising. Angle had to be careful that Roomba would not be perceived as a novelty-a toy-but rather as an everyday appliance. Therefore, the company chose not to refer to Roomba as a robot in any of its advertising or promotional materials. Instead it was described as an "intelligent floorvac system." These high-tech engineers left their techie egos at the door and resorted to consumer terms, but the market dic- tates what companies should do. Once iRobot found out that 60 percent of its customers were naming their Roombas, the company began using the term robot on its packaging. Angle realized that once competition entered the market and was able to achieve a lower price point, it would be important to customers to know that their robot vacuum came from a robot company and not a vacuum cleaner company.

The Future iRobot continues to do contract research. The fed- eral Defense Advanced Research Projects Agency (DARPA) has funded its Robot's Swarm project, where it is working on getting robots to coordinate with each other. Called "PackBots," they are used by bomb squads for unmanned reconnaissance and bomb disposal. By 2006, iRobot had over 900 of these rugged bomb-busters spotting landmines and searching caves in Iraq and Afghanistan. Al- though weighing only 68 pounds, the robot has an arm that can stretch more than six feet, and it can lift 30-pound objects in its "hand." Angle can see a future for this technology in the horne as welL Pic- ture a scenario where robot appliances decide among themselves what should be cleaned first.

Case5 iROBOT: ROBOTS FOR THE HOME 465

But are consumers willing to go that far with do- mestic robots? Are they willing to give them deci- sion power in the home? That remains to be seen. In November 2005, iRobot's PackBot robots opened trading on the NASDAQ exchange, mark- ing the first ever opening by a robot and the first profits (in 2004) for a company in business for 15 years.

iRobot is now facing an emerging challenge from conventional vacuum manufacturers, who have started teaming with robotics researchers to develop competing machines. The company is rapidly turn- ing out new products based on its core technology to stay ahead of what will surely be fierce competi- tion. In 2005, the year the company went public, it released Scooba, a floor-washing robot. In 2006, a workshop robot designed to pick up small objects such as nuts and bolts was released. And in 2007 the company offered iRobot Create, a hobby robot; Verro, a pool-cleaning robot; and a new line of vacuum robots. But is this enough to grow the com- pany to a level where it can withstand the onslaught of intense competition that is just at hand? With consumer robots accounting for at least half the company's revenues, this is a serious concern for the founders. In 2006 with 371 employees, the company saw revenues of about $189 million and net income of $3.56 million. But competitors like Electrolux and Samsung Electronics are weighing in with re- sources that total $16 billion and $79 billion, respec- tively. Is iRobot doing what it needs to do to grow its markets and prevent being comrnoditized by the competition?

Sources: Ulanoff, L. (May 16, 2007). "Robots Embed- ded in Warfareand Our Lives." PC Magazine, http:// www.pcmag.com; Storrs, F. (May 2007). "Heavy Mettle." Boston Magazine, http://www.bostonmagazine .com; Jewell, M. (November 10, 2005). "Investors Buy into Consumer Robotics as iRobot SharesDebut." Associated Press; Buchanan, L. (July 2003). "Death to Cool." Inc. Magazine, http://www.inc.com; "Mechanically Inclined: These Entrepreneurial Robo- philes Take Their BusinessWhere No Man Has Gone Before," Entrepreneur Media) Inc., http://www .findarticles.com; Garfinkel, S. (October 9, 2002), "iRobot Roomba," MIT Technology Review, http:// www.technologyreview.com

466 CaseStudies

Discussion Questions 1. What are the unique challenges facing a new

product development company? 2. What role did patents play in iRobot's strategic

plan?

3. Evaluate iRobot's approach to the consumer market. Was it effective? Would you have done anything differently?

4. How will iRobot maintain its lead in the consumer market?