- Building Innovations
- Energy Service Companies
When Competitors Help You Succeed
Today’s energy efficient buildings solutions can involve complex interactions between technologies and vendors. As building components become deeply integrated with intelligent building technologies, it is increasingly rare for one vendor to supply the entirety of the technology. Large global vendors may have the resources to acquire or build diverse sets of technologies, but it is difficult for one company to claim market leadership or even significant competence in all technological areas. In some instances, this strategy can even amount to brand dilution or lack of focus.
Models for Success
Business models are playing into this quickly emerging market dynamic. In the past, the prevalent model was for companies to offer a single product or unit for sale. Sales were mostly a one-time transaction with a marketing follow-up when the product became outdated or reached the end of its useful life. Customer retention was difficult with this model, and revenue streams were uneven and influenced by the economy, market trends, and a host of other drivers or hurdles. As a service business models, such as software as a service or platform as a service, alleviated some of the risks and downfalls of single product or license-based sales. For vendors, this meant a more recurrent revenue stream, more consistent interaction with customers, and an opportunity to upsell additional products and services as part of the ongoing relationship. However, these as a service models are still somewhat limited, as they may only solve one aspect of a customer’s problem. In an increasingly integrated world, as a service offerings can be seen as being similar to single product offerings when viewed from the perspective of a customer’s problem set.
Selling solutions or projects has evolved as a business model with market advantages. This model looks at a customer’s priorities and a specific problem or problem set, and combines technologies and services to solve that problem. Notice that competitive advantage was not used to describe it. The reason? Assembling the best solution set may involve working closely with direct market competitors, or coopetition, as the term has been coined.
Energy service companies (ESCOs), for example, are familiar with coopetition. ESCOs utilize a financial structure called an energy savings performance contract (ESPC) where, in simple terms, the efficiency upgrades are financed and paid for out of the energy savings. ESCO projects can be designed to deliver specific equipment upgrades, but typical projects encompass a bundle of improvements across technology types. This approach improves the economics of the entire project by blending the returns of high cost, longer payback pieces of equipment (e.g., HVAC systems) with lower cost, faster payback items (e.g., LED lighting). As described in a recent Navigant Research report, ESCO Market Overview, the necessity of bundling technologies and services to make the ESPC work from a financial perspective has caused ESCOs to embrace coopetition with a solution or a project-oriented business model.
Coopetition allows vendors with complementary strengths to apply those strengths to a project and share in common gains. Additionally, vendors are realizing there is great opportunity in shifting from the single point solution or component manufacturing role to the platform play that will support deeper, ongoing customer engagements. Success in this realm means positioning solutions in terms of broader business impacts, with a desire to engage directly with the c-suite. There is no cookie cutter design for partnerships or coopetition in commercial terms. This is a nascent market where flexibility is a key parameter. In this landscape, creativity and openness will be rewarded, and unprepared vendors may face real market disruption as they realize that they are unprepared for competition from non-traditional sources.