Two recent news items caught my eye and they set me to weighing whether they are true harbingers of things to come or just run-of-the-mill business news. And, if they are harbingers for the power industry, who needs to pay attention?
I’m referring to Google's purchase of Nest Labs, Inc., and its "Learning Thermostat," announced in January, closed in February, for $3.2 billion; and the news that Comcast is likely to enter the retail power sales market in Pennsylvania also announced in January. While these are two very different sorts of business deals they have common threads in that they are disruptive forces in the electric power industry.
First, Google. The company is so large, so pervasive and so deeply instituted into global life that everything it does is significant. The power industry took notice and utilities were not uniformly ecstatic when it offered Google PowerMeter software for home energy management in 2009. Utility cooperation was lacking, data privacy issues arose and perhaps it required too much attention by consumers. Google dropped the effort in 2011 and Katie Fehrenbacher wrote a good piece for GigaOm on why it didn’t fly.
Now comes Nest - as you know, Nest combines a smart thermostat with smoke and CO2 alarms so it offers the double value proposition of energy management and savings, and now also safety. Next offers Google a gadget-based relationship with a growing number of households and utilities do not need to be involved. Wired ran a good piece on what the deal does for Google – essentially, it bought in hardware design talent (Apple’s former iPod designer, Tony Fadell, leads Nest) and it brought a jump-start on the rapidly advancing business of the connected home where technology invisibly does the work of energy management.
What if consumer engagement and energy management are as simple as selling each household a thermostat that's smart and gets smarter with use? What if consumer education and participation in utility programs can be finessed by an app and cool-looking disc on your wall? What if the heavy lifting utilities are doing to win their customers' hearts and minds can be upended by these devices or, in time, a product line iteration that becomes as versatile as an iPhone within a year or two?
That's a lot of "what ifs," but not unimaginable. What are the implications for utilities? Without being critical of the power industry, and acknowledging that utilities have made great strides in consumer engagement in a very short time, I'd simply observe that no utility has the brand, heft, reach, savvy, technical know-how and ability to grab your attention that Google clearly wields. And really, few other corporations of any type have the brand recognition and reach of Google.
Thus the news only underscores the notion that utility strategy must look forward on an increasingly compressed timetable. Digital technologies are developing so rapidly that it would be difficult to overstate their likely impacts on power companies. This also underscores that utilities might need to be open to strategic partnerships with software and hardware companies and swiftly define what those partnerships should look like. In fact, it's possible to conceive that the success of an in-home smart energy management device could propel the success of utilities’ energy efficiency and demand response programs.
The other news item that caught my eye was that Comcast, the nation's largest Internet and cable provider, is exploring adding electricity sales to its TV, Internet and phone bundle, initially in Pennsylvania markets. Katherine Tweed wrote a piece in GreenTechGrid that provides background and, not incidentally, mentions the Google/Nest deal. The GreenTechGrid article carries a chart by the firm DEFG that reflects the states with retail electricity markets in the U.S. I count roughly a dozen. Pennsylvania has had a retail market for some time but the state’s public utilities commission is determined to accelerate it.
Again, faced with an aggressive, nationwide company like Comcast with nearly ubiquitous brand power, utilities must think swiftly about what their business model should look like in the next decade. With two deals like these coming in just the first months of 2014 it is probably safe to wonder what other equally eye-opening news is around the corner. It's an exciting time.