ConnectR Delay Highlights iRobot's Growing Pains

Feb.22.08 | About: iRobot Corporation (IRBT)

iRobot (NASDAQ:IRBT) initiated sign-up for ConnectR Pilot Program following the September 2007 press release at DigitalLife. The pilot program pricing for the product is expensive at $199, and only time will tell how keen consumers will be to actually purchase it. The starting price when the product is released is expected to be $500, a premium that will indeed make it tough for iRobot to penetrate the home market.

The press release had indicated that ConnectR would be made available to customers in the pilot program towards EOY 2007. By December, iRobot announced deferring the program to early 2008 largely due to the inspiring response from prospective customers. An excerpt from the email that went out last week is given below:

Your response to our upcoming ConnectR Pilot Program has been overwhelming and we couldn’t be more excited. All of us on the ConnectR team are hard at work with the goal of putting ConnectR Virtual Visiting Robots in the first consumers’ homes as soon as we can in 2008. We will be selecting people over the next few months and will let you know as soon as possible whether you have been chosen to participate. So again, thank you for your interest and support.

From the above statements, it is only logical to conclude that iRobot was premature in announcing the product in September 2007 and this report indicates a scramble to get the product out. As indicated in our previous article on iRobot, on time delivery is a business skill that management needs to cultivate. Here is another excerpt from the same email:

Eventually in our homes, we will have teams of single-purpose robots working together to accomplish a variety of jobs. For example, a Roomba could be vacuuming your living and dining rooms, a window washing robot could be hard at work in the family room, and a dog-walking robot could be out walking Fido. And ConnectR could be working with you to call the shots. "I think there will be one robot that talks to humans and directs the little bots," says Angle. ConnectR could conceivably evolve into this robot-in-chief role since it is specifically designed to interact with humans.

The statements further validate the concern that the company has struggled to define the value proposition for the ConnectR product. For an investor, this spells a situation where the product is much ahead of itself, as the company is still not done defining it.

Investing in the right areas to realize growth is another sore spot for iRobot. Though Roomba is a great product that could potentially complement or replace home vacuums, penetration has been low. Concentrating on a variety of low volume products instead of focusing on making the Roomba their flagship product is a mistake management is making as we speak.

To summarize, investors will have to take it slow, while management learns to set expectations that are achievable and grow profits in its home robots business. However, the defense side of their business should provide some stability and consistent growth.

Disclosure: Long IRBT