AGV Deep Dive: How Amazon’s 2012 Acquisition Sparked a $10B Market

Special thanks to Austin Bohlig for his work on this note. 

Amazon’s 2012 acquisition of Kiva Systems was the spark that ignited the Autonomous Guided Vehicles (AGV) industry, which we believe will represent a $10B market by 2025. We’ve taken a deep dive into the AGV market, where we identify the different use cases for AGVs, market leaders and opportunity, as well as highlight specific areas where we see the best investment opportunity.

We believe the aggregate robotics hardware market will grow 17% y/y to $24.5B in 2017, and by 2025 we believe the market will eclipse $73B. When including supporting software and services, we believe the total robotics market will be more than $200B in the next ten years. Many categories within the 5 robotics domains (industrial, commercial, domestic, military and social entertainment) will flourish over this time frame.

We are particularly excited about the impact three categories will have on the world: collaborative robots (co-bots), domestic robots (aka robot vacuums, mops and lawnmowers), and Autonomous Guided Vehicles. While we have recently picked up positive data points in the Co-bot and domestic robot markets, the AGV market is a little bit harder to track due to the limited number of publicly traded companies in the space. However, based on the number of AGVs Amazon is deploying internally, as well as the amount of funding and M&A activity occurring in the space, we are convinced this sub-segment of the commercial robot market is inflecting.

What Is An Autonomous Guided Vehicle (AGV)?

AGVs are mobile robots used in manufacturing and other commercial industries to improve logistics efficiencies by transporting goods and other materials autonomously. The major benefits of AGVs are twofold: 1) these robots do not require human interaction when deployed; 2) AGVs do not require supporting infrastructure (tracks, floor sensors, etc), which are needed to operate legacy material handling equipment. Without the need for supporting infrastructure, these robots are more flexible and have a lower total cost of ownership. Advancements in Simultaneous Location and Mapping (SLAM) software and computer vision technologies allow these robots to understand their surrounding environment in real-time, which allows them to operate in variable surroundings and around people. Pricing on AGVs has come down significantly over the last 5 years, which has been a catalyst for the industry. Today, AGV pricing varies from $35 – 50K (not including supporting software and services). Below we highlight a few examples of AGVs in the market today.

Amazon Sparked the AGV Industry

The AGV market flew under-the-radar throughout the early 2000s, but in 2012, the industry became one of the most talked about sub-markets in the robotics space after Amazon acquired the AGV leader (Kiva Systems) for $775M. Amazon had no plans to sell these robots externally, only using them internally to improve logistics efficiencies within their fulfillment centers, which created a significant supply/demand imbalance and a massive opportunity for other companies to enter the space. Since deploying Kiva robots, Amazon has highlighted publicly the positive impact that robots are having on productivity and efficiencies. According to a 2017 Business Insider article, Amazon has deployed 15K mobile robots annually since 2014, and now has over 45K robots in operation throughout 20 fulfillment centers. These data points show the benefits of AGVs and validate that this market is real.

AGV Applications: Today Warehouses; Tomorrow Hospitals, Hotels, and Beyond

Today, most AGVs are deployed within warehouses and fulfillment centers to automate material handling and package logistics. Robots in these settings autonomously retrieve a shelf or bin and return to a packaging station where a human employee picks specific SKUs out of bin. Or, more commonly, a human will follow the AGV around a warehouse, and the AGV will stop in front of specific spots where a human then places the desired product in a bin. While most AGV products need to be fully purchased, there are a few companies capable of retrofitting legacy equipment with autonomous technologies and transforming them into AGVs. There are also a few companies that are taking automation to the next level by adding a robot arm to pick the desired object, taking humans completely out of the equation. While this is where the industry is heading, object recognition and grasping are two of the toughest challenges to solve in this space. Random pick-and-place is considered the “holy grail” of robotics, and it will take time for humans to be fully eliminated within a warehouse.

While we believe AGV adoption within warehouses and fulfillment centers will be a key industry driver, we believe the opportunity in other verticals will add meaningful tailwinds to this market. For example, AGVs are already being deployed in hospitals to autonomously transport food, prescriptions, or other medical supplies throughout a medical facility. In addition, manufactures in all different industries are adopting these technologies because of the cost advantages and flexibility over other legacy solutions. We also see a large opportunity for AGVs to be deployed in many commercial services settings such as delivering products to rooms in a hotel, as well as eventually companies such as Amazon using AGVs to deliver packages autonomously.

AGV Competitive Landscape

Since Amazon acquired Kiva in 2012, many startups and legacy robot manufacturers have entered the AGV space. To get a better idea of the competitive landscape, the exhibit below highlights sone of the leading players in the AGV market. While the competitive landscape has intensified, no company has taken a leading position.

The AGV Market Is Large Enough for Multiple Players to Flourish

The AGV market is seeing strong growth today and we believe that by 2025 it will represent one of the largest commercial robot markets in the world, as well as one of the fastest growing sub-markets within the entire robotics space. We believe the AGV market will grow 43% in 2017 to $1.9B. Excluding Amazon deployments, we believe the industry will ship 49,875, which is up 50% y/y. Today, AGV prices range from $35 – 50K, but our model is assuming ~$37K ASPs in 2017. Due to increased competition, as well as lower robotics components we believe costs for AGVs will continue to steadily decrease and by 2025 ASPs will be ~$28K. That said, we believe the number of units shipped is on the cusp of an inflection, and by 2025 the industry will deploy over 371K units annually, representing a 35% CAGR. From a market standpoint, we believe the AGV market will eclipse $10B by 2025, growing 29% on a CAGR basis from 2015 – 2025. Given the fact that Amazon is deploying 15K per year alone, we believe our estimates could easily end up being conservative.

M&A and Recent Funding

While Amazon’s $775M acquisition of Kiva systems has been the most lucrative exit of all AGV companies to date, there have been several additional companies acquired and even more companies have received multiple rounds of venture capital and private equity funding. For example, in 2015, publicly traded Adept Technologies was acquired for $200M, or 2.5x forward revenues. More recently, privately held Aethon, which is a leading AGV player in the healthcare space, was purchased for $36M (multiple unknown) by ST Engineering. Kiva was rumored to be generating ~$40M in annual revenue before being acquired by Amazon, which would imply a 20x multiple. And we expect the pace of M&A in the space to hold up (or accelerate). We see other larger e-commerce or tradition retail companies, such as Walmart, eBay, and Alibaba, wanting to take the same approach as Amazon.

Where We’d Like to Invest

There are lots of impressive AGV companies already in the market with revolutionary technology. However, there are certain problems yet unsolved that AGVs can solve to further lower costs and improve productivity. As venture capitalists, there are a few key criteria we are looking for:

  • Easy Integration and Scalability – While AGVs are already more flexible than traditional material handling technologies, we believe AGV providers will need to create solutions that integrate easily with established processes and internal ERP systems. If companies are forced to shut down production for too long or robot integration seems painful, it will make it more of a challenge to sell. In addition, we see companies like Amazon deploying tens of thousands of mobile robots, but as demand grows and shrinks around peak demand seasons (e.g.; the holidays), we believe customers will want the luxury of adding and subtracting robots to their operations.
  • Pick and Place Ability – Most AGVs in the market today simply transport materials autonomously; a human is still required to pick-and-place products off the mobile robot base. However, there are a few companies that are going one step further, enabling a robot arm and end-effector (robot hand) to pick products off a shelf. Random pick-and-place is considered the “holy grail” in warehousing logistics. The random pick-and-place opportunity is so significant that Amazon hosts a robot challenge each year for startups to compete to solve it.
  • AI/Data Analytics Component – While robot hardware is an important part of the equation, it is less defensible. Over time, we expect robotics hardware to be commoditized. That said, making a robot is extremely difficult; without a deep background in robotics engineering, startups will struggle to enter the space. However, robots are now equipped with advanced sensors, such as LIDAR, radar, 3D vision, etc., and they are gathering terabytes of valuable data. We believe companies will be able to take that data and use it to find actionable insights to improve processes. Robotics companies adding an artificial intelligence and data analytics component to their offering will be more likely to succeed.
  • Multiple Pricing Models & Identifiable ROI – Over the last 10 years, robots and other automation technologies have become more affordable to businesses of all sizes. However, the price curve on robots is still coming down. Additionally, there are many different pricing models companies are using to make robots an attractive investment opportunity; e..g., leasing or pay-by-the hour models. And, of course, these companies will need to translate their pricing model into an easily identifiable ROI.

Bottom Line

We expect the AGV market to grow faster than most other robotics categories. Given the funding and M&A activity in the space, we believe this market is real and approaching a meaningful inflection. While the AGV market has seen increased competition since 2012, we believe this market is large enough for multiple players to compete. We also believe there are problems AGVs have yet to solve, such as random pick-and-place applications, which represents a massive opportunity for robotics startups.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.