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Even at $70,000, iRobot Corporation's New Robots Aren't Too Expensive

By Steve Symington - Mar 21, 2014 at 2:10PM

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iRobot's Ava 500 comes with a steep price tag, but it might be worth every penny.

iRobot's Ava 500 is ready for delivery. Source: iRobot.

If you thought iRobot Corporation's ( IRBT -2.89% ) top-of-the-line Roomba 880 looked expensive at $700, the sticker price of its Ava 500 probably seems absolutely shocking.

At least, that's the general reaction I've seen from many iRobot investors since Monday, when the company announced that the Ava 500 is finally ready for delivery.

iRobot co-developed the Ava 500 with Cisco, and didn't provide pricing in its initial press release. But it didn't take long for the market to figure out prospective customers can either buy the new telepresence robot outright for around $70,000, or choose from a number of three-year lease options ranging from $2,000 to $2,500 per month.

Nonetheless, iRobot stock has still risen nearly 5%, bringing its year-to-date gain to 21%. This appears to indicate investors' excitement stems not from Ava 500's near-term contributions, but rather the long-term promise for iRobot's broader Ava telepresence platform.

But we still have to ask: Though iRobot's Ava 500 may fill a gap in the marketplace, can it possibly succeed at such a high price? 

In a word: Yep.

Look to the RP-VITA
First, consider the fact that last quarter iRobot told us its RP-VITA health care robots -- which are also built on the Ava platform -- already contributed around $1 million in revenue since it announced the first seven hospitals to adopt the system last May.

iRobot's RP-VITA robot. Source:  iRobot.

And remember, the RP-VITA was reportedly available through its own leasing model for between $4,000 and $6,000 per month. Some back-of-the-napkin math, then, shows that either a couple dozen hospitals are now on board with a lease or that several simply purchased their RP-VITAs outright.

Either way, that's encouraging news for a seemingly expensive health care robot.

The perfect price?
Second, I'll go so far as to say the Ava 500 is ideally priced given its target market. 

Remember, the Ava 500 isn't meant for everyday consumers, and it certainly isn't just a bulky replacement for FaceTime on your iPad, though users do utilize an iPad interface to remotely control the robot.

Rather, iRobot is targeting Fortune 2000 firms with employees who need to travel often to remote sites, especially when regular video teleconferencing just won't do. These people need to do things like participate in breakout sessions, have conversations outside rooms, hold face-to-face meetings in any office, and view open areas such as manufacturing floors and laboratories.

And I can attest to the need firsthand: I traveled regularly when I worked for Fortune 500 member Textron, and several of my colleagues were required to fly to our remote offices at least once per month. By the time we accounted for airfare, hotel, and other various expenses -- not to mention the time and productivity we lost while en route -- each trip could easily run upward of several thousand dollars.

They're already selling
In many cases, it's clear that choosing the Ava 500's lease option could quickly pay for itself several times over. That's why I wasn't the least bit surprised when I heard Paolo Pirjanian, iRobot's chief technology officer, confirm in a CNBC interview Tuesday that they "already have a few orders on the books."

But don't get me wrong: While the Ava 500 does offer a solid value proposition for enterprise consumers, this doesn't mean it will contribute meaningfully to iRobot's top or bottom lines in the near future.

Instead, think of it as yet another step toward iRobot's end goal of making our lives easier through robotics. Or, in CEO Colin Angle's words, "We need to pick applications that have real concrete value to customers, deliver or exceed their expectations, and move on."

Over the long term, just as it's done with its existing consumer robots, iRobot will continue to gradually improve and expand its telepresence offerings to make these kinds of products not just accessible but desirable to a much broader market.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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