Navigant Research Blog

Multi-Family Market: An Opportunity for Smart Home Devices?

— May 12, 2017

Smart home devices are catching on in homes around the world. Nest has claimed installations of its Learning Thermostat in 190 countries, Google announced the availability of its Home in the United Kingdom, Amazon expanded Echo’s US sales to the United Kingdom and Germany, LIFX connected bulbs are selling in more than 80 countries, and Smappee is selling in 85 countries. However, most sales are occurring among consumers in single-family homes. The multi-family market is largely untapped, leaving opportunities for vendors to gain traction and market share.

Possibilities Abound

There are a number of reasons for this untapped market. First, ownership of devices in multi-family dwellings can get complicated. Should landlords or consumers install and own the hardware? Landlords and building managers have little incentive to purchase such devices because they do not enjoy the benefits of energy savings or remote access, though they do have the option of charging higher rent for the added luxury. For occupants, it may not make sense to own these devices if the property is a rental, especially since renters in the United Kingdom are moving 8 times more than homeowners and since surveys show that 56% of US tenants plan to move within the next year. When devices are installed in multi-family units, some are not used to their full potential. For example, smart thermostats often cannot participate in demand response programs due to the complexities of directly controlling load in multi-family dwellings, where each unit often does not have its own central HVAC system. In fact, many pilot programs that utilize smart thermostats are unavailable to renters or apartment dwellers. On top of this, it can be far more expensive for utilities to implement demand-side management programs in multi-family dwellings than in commercial or single-family residential buildings.

Despite the complexities associated with this market, renters are interested in smart home devices. According to a recent study conducted by Wink, 36% of renters would pay more in rent to have smart home products or amenities in their homes. Given that 37% of Americans are renters, this means the multi-family dwelling market has a lot of potential.

Some companies are beginning to tap into the opportunities available in this market. IOTAS is a company approaching the market with a business model focused on selling landlords and building managers hardware packages that are installed across from apartment complexes. The solution includes tenant accounts that store personal device preferences and follow tenants between apartments as they relocate. This reduces issues surrounding device ownership and creates an opportunity for landlords to charge more in rent for the devices as well as a monthly fee for ongoing services—like monitoring and controlling. While these types of solutions are just emerging, the trend shows hope for Internet of Things and smart home solutions in the multi-family sector.

 

Not Interested When Telcos Acquire Tech Companies? You Should Be

— April 12, 2017

A recent post on my LinkedIn news feed demonstrates how an emerging trend in the technology industry will affect the pace of utilities’ digital transformation. Crucially, it had little to do with utilities: it was the acquisition of data startup Statiq by Telefonica. Statiq’s specialty is the analysis of geo-locational and other consumer data to assist with online marketing. Telefonica has 300 million customers worldwide and is rapidly building up its advertising business.

On first reading, it seems to have very little impact on the industry: “telco giant buys advertising data business” doesn’t sound like the kind of headline that will grab the attention of many utility CEOs. However, “a network operator—as part of its digitization strategy—has acquired a data and analytics business to help it develop products and services beyond its core supply-based business model” sounds a lot closer to home.

Historically, the growth curve of analytics companies would follow a similar path: each company starts with a great idea to tackle a gap in the market, gains initial funding, grows a significant client base, then gets acquired by a tech giant. IBM, SAP, and Oracle have all made analytics-focused acquisitions over the past decade, and the trend shows little sign of abating. But one tech company buying another tech company should have little impact on end users. The technology remains commercially available and, one would hope, being part of a larger organization means that there will be sufficient development resources to improve the product.

Utilities Are Steadily Becoming Tech Companies

However, there has been a significant shift in the types of companies investing in technology startups. Rather than tech giants swallowing up successful startups, utilities are getting in on the act. As we’ve said many times before, utilities are becoming technology companies. My colleague Alexandre Metz has analyzed different utilities’ digitization strategies, and both equity investments in and outright acquisitions of technology companies by utilities are becoming commonplace.

There will be significant implications for the industry should this trend continue: there are finite resources in terms of the number of successful startups, robust technologies, and excellent staff—particularly in the field of data and analytics. As a result, some technology-focused utilities will emerge with significant competitive strength. They will either sell these technologies to other utilities or, if it is to their advantage, keep the technologies for themselves. Does anyone expect Telefonica to share the market insights its Statiq acquisition will bring with its competitors?

Risks Abound When Utilities’ Digitization Strategies Involve Mergers and Acquisitions

So why refer to a telco-based acquisition at all? Telefonica brings into focus the fact that utilities are not the only companies undergoing a digital transformation. The competition for limited investment opportunities is heating up, and it will not be restricted to the utility industry. Utilities will have to compete against tech vendors and other industries to acquire at least some technology companies.

The main challenge for utilities is that they are not used to rapid change, and acquisitions have largely been restricted to other utility companies. There are significant risks involved in technology company acquisitions, to which most utilities have no previous exposure. Thus, technology acquisition will not be for every utility. However, those utilities that want to acquire technology companies must recognize the risks involved, understand how the target acquisition supports their corporate strategy, and ensure they have the requisite skills to succeed. Utilities must choose trusted advisors who understand their overall corporate strategy; have deep knowledge of target markets, companies, and technologies; can help identify important targets; have experience in technology-specific due diligence; and can support the successful integration of the acquisitions within their corporate structure.

 

ComEd Takes Next Step toward Becoming a Utility of the Future

— December 9, 2016

Computer and TabletUtilities have a reputation for being stodgy and slow to change, but not all of them fall into this trap. ComEd in Illinois is among those adopting new technologies and is striving to be a trailblazer in how it conducts its business. Currently, ComEd is roughly halfway finished with a systemwide smart meter deployment, having installed some 2.4 million meters in its territory since September 2013. Beyond smart meters, the utility has taken another step in its aim to be what it calls a utility of the future, having just launched an online website to sell energy management tools so its customers can buy products to help lower their bills and save energy.

Changing Business

Dubbed ComEd Marketplace, the site enables customers to educate themselves about energy management tools and buy related products such as LED light bulbs, smart thermostats, water conservation devices, and connected home products like advanced smoke alarms, smart door locks, and security cameras. The site is powered by Simple Energy, a Colorado-based firm that specializes in customer engagement.

ComEd officials envision their new online marketplace evolving as “a cornerstone of our utility where our customers can transact with us and other parties for a wide range of energy-related products and services,” according to Anne Pramaggiore, president and CEO of ComEd.

The idea for the marketplace sprang from one of the utility’s employee hubs that was designed to foster innovation, and officials envision this platform will enable added products and services in the future. The launch of the marketplace is the latest example of how the utility strives to deliver innovative and convenient customer solutions. Earlier in 2016, ComEd introduced a new method by which customers can report service outages via Twitter, which the utility claims is a first in the industry.

Other Innovators

ComEd is not alone in the effort by utilities to embrace new technologies that offer customers the kind of digital experience they have come to expect in the connected world. For example, Pacific Gas & Electric in California has a pilot program in place with BMW that involves a small sample of EV owners to better understand their habits and needs; the BMW i ChargeForward program also aims to reduce the overall cost of EV ownership. In Vermont, Green Mountain Power has taken a flexible and holistic approach in offering its eHome energy management program, which integrates a variety of new technologies, including smart thermostats, plugs, solar PV, EV charging, and Tesla’s Powerwall. DTE Energy in Michigan is another utility at the technology forefront, having launched its Insight mobile app that can help customers conveniently manage their energy use from a smartphone and lower their energy bills.

These offerings demonstrate that some utilities are willing to embrace and deploy new technologies for the benefit of their customers. It is a wonder more utilities have not taken similar steps to move beyond stodgy.

 

Utilities Need an Innovation Reset

— November 28, 2016

SmartCityUtilities should take a cue from customers: Go ahead and innovate. That is the clear conclusion from a recent study that says consumers want their utilities to be more innovative and expand offerings into the home.

The study, a SmartEnergy IP survey of 1,500 US customers, finds 32% of respondents expect their utilities to adopt technologies that automate energy savings and 20% expect their utilities to build smarter communities. There is a downside in the data, however; nearly 40% of respondents do not view their utilities as innovative, meaning there is room for improvement.

Not all utilities lack for innovation. At Navigant Research, we have chronicled the efforts of utilities willing to pioneer new technologies for customers. For example, Green Mountain Power in Vermont has led the charge with its eHome program, a holistic approach to home energy management that leverages technologies such as heat pumps, solar PV, storage, and EV charging, as noted in our IoT Enabled Managed Services report. Other utilities like Sacramento Municipal Utility District, Oklahoma Gas & Electric, and Kansas City Power & Light are promoting the adoption of smart thermostats as a way of helping customers reduce their bills and promote overall grid efficiency.

Among utilities innovating within their communities, San Diego Gas & Electric stands out for its efforts to create smarter cities from an energy perspective. The Southern California utility, a subsidiary of Sempra Energy, has been collaborating with local city governments on projects that leverage smart meters, demand management, and energy efficiency to lessen the impact of changing load patterns. By working together, the utility and local cities have forged an integrated approach for smarter energy use. Similarly, Duke Energy and ComEd are two other broad-thinking utilities that are leveraging ties with the cities of Charlotte, North Carolina and Chicago, Illinois to foster the same type of smarter community.

While these examples are encouraging, the SmartEnergy IP survey indicates customers in many locations have not seen much innovation from their utilities. Nearly a third are saying that it’s okay to step beyond the normal bounds and offer new products and services that help customers save money and use energy more wisely. There is a message here for regulators as well: customers are ready for innovation, and new rules that enable utilities to expand their product and service offerings would be welcome. It’s time for an innovation reset for utilities.

 

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