Is technology for connected homes a lifeline or a threat to energy companies?

5 insights for executives

  • Share

The CEO of a major utilities company is keen to stay on top of innovation in the consumer energy market. Her company was one of the first to install smart meters to meet the Government’s mandate that they be in every UK home by 2020. And now she sees the opportunity for her business strategy to include a more technology based service. She wants to expand beyond energy supply to fully networked connected-home solutions. She believes this will take the market from niche to mainstream.

But how can her company or industry compete against the likes of Alphabet, the parent company of Google and Samsung? Both appear to have first-mover advantage by already offering global platform solutions with their support of a wide range of consumer devices and apps for the connected-home market. What does this CEO need to do?

1 Connected homes could be energy companies’ next growth area

Established energy companies are under volume and margin pressure: they are experiencing a decline in market share to more agile and digitally focused competitors; they face market reforms that could increase churn of their most valuable customers; and their costs are increasing with Smart and other large capex programmes.

They are searching for new growth sources to maintain or increase shareholder returns, but opportunities are limited. Looking forward, decarbonisation and distributed generation will change the established energy business model, and technology innovation and digitisation are reducing barriers to entry and helping innovative start-ups.

With up to 30% of households forecast to have some kind of connected home system by 2020, this presents utilities with a growth opportunity.

Household appliances are becoming increasingly connected to the internet and other products. Samsung alone expects all its products to be internet-compliant by 2020. This enables customers to easily control and monitor heating, lighting, appliances, security and safety devices through smartphone or tablet apps or voice-controlled devices. Connected devices combined with the data from smart meters could help customers save money and provide more convenience and peace of mind about their home and family’s security and safety.

Technology and telecoms companies are looking to disrupt existing energy customer relationships with solutions that could well become the future consumer interface for home and energy management. Utilities need to act fast.

2 Move fast and make the most of the smart meter opportunity

Nearly two-thirds of customers are interested in smart systems for managing energy, and nearly 40% would currently trust a utility to provide this. With more than 300,000 smart thermostats sold in the UK and more than 1 million in Europe, energy companies are currently market leaders in the European smart thermostat market.

With energy providers aiming to install smart meters in every UK home by 2020, energy companies have a unique opportunity to engage customers in transforming energy into a more digitally managed service.

This could be a stepping stone for customers to digitise home control, and utilities are well-placed to support a broader set of consumer needs by expanding beyond energy devices into other categories, and moving connected homes solutions from niche to mainstream.

The enabling technology is evolving rapidly, moving from single device or category producers to global platform solutions that support a wide range of devices and help control through a single app or voice control. For example, last year, Alphabet’s subsidiary Nest launched its “Works with Nest” platform, evolving from a thermostat producer to a connected home platform provider with a network of more than 10,000 developers.

Without a strong foothold in the market, energy companies may be left without the capabilities necessary to compete. Competition is heating up, with significant investments being made to acquire critical capabilities. In the last two years, Alphabet acquired Nest for £2.5b, Samsung acquired SmartThings for $200m, Amazon launched Echo (its voice-controlled smart home interface), Centrica expanded its range of solutions from heating to smart plugs and lighting, and O2 entered the market.

Investors are reacting positively to the potential future value this opportunity creates.

3 New technology and new propositions can strengthen the core energy business

Connected homes technology represents an opportunity for energy businesses to expand their role in the home, open new value streams and avoid the risk of being increasingly commoditised by other market players.

Energy companies can drive increased customer loyalty by creating innovative propositions and shifting the dialogue away from energy unit prices to the value they can deliver through intelligent connected home and energy solutions.

By combining smart devices, smart energy data, their home services business and strategic partners in security or other categories, energy companies could provide managed services for the home.

Energy and device data analytics, For example, might indicate a problem with a heater that needs repairing, or security or safety monitors might show that a home alarm needs resetting or adjustment. And customers could offset the up-front cost of devices and installation through energy savings or lower home insurance premiums.

With the energy supply relationship and energy data at the core of these propositions, energy companies could differentiate themselves from consumer technology competitors.

4 Think like a start-up, not an incumbent

To win in the connected homes market energy companies need a new mindset and a set of capabilities:

Believe in the new energy future. Energy companies need to define their long-term vision in connected homes, focus on a few key differentiators so they are credible, and then invest proportionately in these areas.

Build the right capabilities and partnerships. Competing in a technology–driven, fast-paced market will require a new set of capabilities. Look for partners who can provide agility, offer market-leading digital capabilities, challenge the status quo and provide differentiation.

Commit to a longer-term business case. In an uncertain market, it is key to look for longer-term value and level set expectations on short-term gains with key stakeholders.

Choose the right technologies. Companies need to design for “the day after tomorrow” to future proof their technical solutions so they stay compatible with new devices and platforms and do not become obsolete.

Protect an agile operating model from internal politics. The ability to incubate innovation and be agile, yet still integrate with the core business to leverage key assets, will be critical for energy companies’ success in this new market. There will of course be failures, but the key is to fail fast and still feel the support of the greater business behind you.

Start and test early to gain first-mover advantage. Like all technology related opportunities, it is hard to predict what will succeed. When you get it right, though, the rewards can be significant. Sitting out the opportunity only leaves followers watching the market move more quickly each passing year. Testing and learning early can provide crucial insights and help capture growth areas before competitors.

Adopt an opportunistic, flexible business model. Connected home offerings need to continuously evolve as technology advances. New solutions are rapidly emerging, and the industry is learning what solutions work technically for customers’ changing needs.

5 Don’t get left behind

Connected homes technology is becoming a priority for energy companies.

The laggards will be left with a more commoditised, smaller and lower-margin energy business. First movers, on the other hand, will use connected homes as a strategic growth platform to further integrate new energy technologies like solar PV and batteries as they become more affordable.

Act fast to capture the opportunity, build capability and innovative propositions, and stem threats to customer relationships from consumer technology competitors.