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Summary:

Evidence that the home energy management sector is reaching bubble proportions — as we’ve argued before — ratcheted up a notch today with two new entrants into the space: Microsoft and eMeter. The two companies are symbolic of the landscape of this emerging industry, which aims […]

Evidence that the home energy management sector is reaching bubble proportions — as we’ve argued before — ratcheted up a notch today with two new entrants into the space: Microsoft and eMeter. The two companies are symbolic of the landscape of this emerging industry, which aims to help consumers monitor and reduce the energy they use in their homes. They also provide a glimpse as to how it might unfold. In Microsoft, you have a giant tech company with experience developing consumer products. In San Mateo, Calif.-based eMeter, you have a younger startup with a tight focus on energy-related markets.

While Microsoft is giving away its energy management tool Hohm to consumers (and cutting deals with electric utilities), eMeter initially seems focused on marketing exclusively to electricity providers, which would then offer the product to their customers. Most companies entering the industry have similarly chosen to emphasize one of these distribution routes over the other.

But Gartner analyst Zarco Sumic, who covers the home energy management sector, believes there’s only one clear avenue to success in the industry, and that’s selling directly to consumers. Companies that sell to utilities must tailor their products to each unique service territory, he said. But companies that develop solutions focused on consumers will tap a global market. Sumic told us:

“The vendors that will dominate will be the ones who know how to market, sell and meet the needs of the consumer space. It is a consumer technology play. It is not a utility play.”

For startups looking to get a foothold in the market, however, utilities are an attractive partner. Young companies don’t have established distribution channels so selling to individual consumers can be a slow crawl compared to cutting deals with utilities, which can have millions of customers. It’s an issue of more bang for your marketing buck. eMeter, it should be said, is a bit of a special case. The startup has built a business off of developing back-office meter data management software for utilities, so they are its natural customers.

While utility deals mean immediate gains for startups, Sumic said large technology companies experienced in selling consumer-oriented products will eventually dominate the market. “People want something that is mainstream and has the same look and feel of other consumer technologies that we use in our homes,” he said. “It should be some sort of iPhone for the home, but ultimately it will come down to how well you know how to market to that segment.”

Microsoft’s announcement today means that it joins Google as another giant tech firm to have officially moved into the home energy management sector. Networking giant Cisco has said its smart grid strategy includes energy management systems for homes, but the actual interface and computing intelligence of any offering will likely come from a third-party vendor (perhaps Toronto-based Lixar SRS?). Expect other big companies to follow. Sumic mentioned Apple, Philips, LG and Samsung, among others. These companies will be looking to gobble up startups with innovative technology to help them spring into the market and differentiate themselves from the other giants wading in the pool.

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  1. I agree with Sumic, but I do not buy the idea that “for startups looking to get a foothold in the market, however, utilities are an attractive partner”. They are not, unless the startup is a service company focused on selling a service to utilities. No way is an electric utility an attractive partner for a product company, least of all in the home automation space. Ask the AMI meter suppliers.

    The most interesting thing about the Microsoft announcement IMHO was that MS-Hohm, just like Google, aspires to be the application that aggregates all a consumer’s personal energy information, similar to the role of Intuit Quicken in consumer financial management. This has big implications for utilities as well, which I discuss here:
    http://www.arcweb.com/Domains/SmartGrid/Lists/Posts/Post.aspx?ID=11

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  3. Celeste LeCompte Thursday, June 25, 2009

    Startups should also be careful about assuming what it is consumers want. Over at Earth2Tech’s sister research site GigaOM Pro, we recently published a report from Pike Research (http://pro.gigaom.com/2009/05/home-energy-management-consumer-preferences-and-attitudes/) about what consumers preferences are when it comes to home energy mangement (in terms of both demand response programs and energy information displays). Some of the findings were surprising: 45 percent said they were interested in the most active level of energy management, which is counter to the conventional wisdom.

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  7. I agree with Sumic. I draw parallels to the Telco industry. Many startups have tried in vain to provide services to consumers using the Telcos as a channel. Utilities and Telcos are very similar in the sense that they are both slow, regulated and probably prefer working with big, well established companies. Startups targeting ONLY utilities are probably going to run out of money since the sales cycles will be long.

    Home Energy Management (HEM) startups can take lessons from Apple iphone. They bypassed the Telcos completely and went straight to consumers. HEM applications need to do the same. Here are some advantages to going straight to consumers:
    1. Shorter sales cycles but with more marketing dollars
    2. Agnostic to any particular utility. Consumers will view that as something more trustworthy. Helps get away from the “Big Brother’s Watching” syndrome.
    3. Applications will be more consumer centric and less utility centric. In particular, less DR oriented and more energy management and energy education.

    I am not saying that utilities should be completely ignored. However, I am saying that utilities should not be the ONLY customer / channel.

  8. I absolutely love your work, I’m pleased their is more discussion around this and similar issues. Everyone seems to be complaining about power bills, but not prepared to take action themselves.

  9. One important item that no one has touched on is where the website will obtain the information. Consumption and event (like outage) data is collected by the utilities. It is combined with rate, geospatial, and other types of data.

    So whomever partners with the utilities has the data. That will be the most useful website. Sounds like the startup has the right idea.

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