Analyst Report: Where Not to Make Money: Energy Management Software

Analysis

If you pay attention to the energy sector, then you’ve witnessed the recent parade of home energy management software launched by startups, huge IT firms and veteran electrical meter companies. With firms like Microsoft, Google and, most recently, GE entering the home energy management software space, you’d think there was a ton of money to be made by selling this stuff. Not so much: the barrier to building this software is low and giants are already offering the basic tools for free; the window for building a business on, or making substantial money from, these products is quickly shutting.

The downward trend — heading toward commoditization of energy management software — started back in February, when Google announced it would be offering its PowerMeter software, which will connect smart meter data to utilities’ back offices, for free. There’s nothing that’ll kill a market faster than a major player giving away the product for free. Particularly if competitors take the cue and follow suit; and a few months after the news of PowerMeter emerged, Microsoft launched its energy software tool Hohm, which — surprise, surprise — is also free (at least initially).

The barrier to building an energy management software product and web platform isn’t that high — software development has matured to the point that its relatively low cost and easily available. Google built PowerMeter through its philanthropic arm, Google.org, in just one year. GE, a company not commonly considered strong in software development, moved away from its high-profile partnership with Google (at one point the two were even discussing productizing PowerMeter and GE smart meters) and has been building its own software to act as the nervous system between GE home devices. eMeter, a startup that spent years focusing on the backend of meter billing and data management, hired a team of consumer software makers and launched a home energy tool recently, too.

One of the problems with the barrier to entry being be so low and having two massive firms launch free tools, is it makes the landscape for a startup that just sells home energy management software very difficult. When PowerMeter emerged, several execs in the space told me that a business model that licenses or sells a subscription to just software (like, say, Greenbox) was ultimately unsustainable. Google isn’t even trying to find one: There is no business model for PowerMeter, Google’s Tom Sly said in a phone call last month.

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