The forces of market fundamentals, competition and disruptive technology have turned the energy vertical on its head stripping it of many of its established market consultants and commoditizing the sources of data and information used and useful in decision support.
But the need for expertise, analysis and insight has never been greater.
After spending years building a market leading energy analytics business, I watched its new owner methodically strip it of its capabilities to produce the fundamentals-based recurring revenue products used in every major energy market by most of North America’s biggest utilities because the strategic priorities for growth in the larger scaled business were focused elsewhere on the process tasks of operations. It was an entirely rational strategy driven by the need for scale to build market share and high margins from embedded technology for optimization, rationalization and cost control. The result of that strategy was a $1 billion payday as the newly integrated business was sold yet again to a global giant eager to gain market share in the space created.
It mattered little that the “non-strategic” assets that were ‘whacked’ by the ruthless knife of the M&A bean counters were the energy fundamentals products, applications and services essential to structured project finance decision support for more than 90,000Mw of power generation valued at more than $50 billion over that previous eight year recovery, build-up and boom cycle.
The reality of today’s M&A-driven world is the focus on short-term results. It begins with the need to get a better return on invested capital, scale growth to maximize market share, cut costs to increase margins and integrate products into compelling end-to-end solutions that drive out competitors. This Darwinian process of growth is not new but it is accelerating with the benefits of disruptive technologies that break rules, savage market leaders, and open the door for new entrants.
This same phenomenon plays out over and over across the energy vertical in the face of recession, collapse of capital markets, and slower deal flow in energy project finance. Those who survived the energy vertical shake-out experience refocused on financial services, health care, environmental mandates or narrowed their scope to renewable energy chasing state renewable portfolio mandates, Federal stimulus or subsidies.
Emerging OT/IT Giants Masking as Energy Consultants
No firm was immune from this ruthless rationalization of the energy vertical. As traditional energy market consultants scaled back or exited the space the giants of the OT and IT worlds have continually expanded their end-to-end solutions to achieve scale. But these giants are not really interested in helping energy companies and utilities find solutions based upon energy fundamentals and customer needs unless the answer involves an incremental sale or embedding themselves in your business.
Where did the market consultants go?
The result is a vastly different landscape of energy market consulting service providers today:
- Traditional energy market consultants Navigant, Pace Global, PA Consulting bet big on project finance deal flow and when it collapsed they diversified away from energy or narrowed their footprint to mandated renewables. But they are still traditional billable hours consultants who must earn their one-time revenue over and over again each month. They lack a recurring revenue foundation to improve their valuation. In truth for these businesses the valuation and intellectual capital of the firm still goes home every night.
- Energy software providers consolidated rapidly with Global Energy Decisions, New Energy Associates, MS Gerber, ABB’s wholesale software division, eAcumen, KW Int’l and Indus Int’l combined into Ventyx which was itself then sold to ABB. Today the strategic focus is the OT of optimization more than fundamental analysis and the expertise developed over time is now spread widely across the industry.
- Platts energy data products rather than refresh them. The Energy Velocity data product was sold to Ventyx along with the rest of Global Energy Decisions. SNL, always the #3 in that energy data competition has not only survived but seems to have found a solid niche position delivering an online interactive energy advisory and data services as a recurring revenue product. It’s business focus on the financial community rather than the energy vertical positions it well to pick up market share from the others. tired of the competitive beating it took from Energy Velocity scaled back
- Government Services Contractors like ICF bought Jones & Stokes to go after large scale government contracts for environmental, climate change, security and energy policy. SAIC bought RW Beck for its critical information protection (CIP) environmental strategies and security business line. It too pursues large contracts and is diversifying Beck beyond its energy roots to a new focus on infrastructure.
- Industrial Manufacturers like GE and Siemens joined ABB in a buying frenzy acquiring good products and companies as good prices in the trough of the energy business cycle to scale their growth and suction up the market share from smaller niche players. These three giants are in a small league seeking to be end-to-end solution providers with solid engineering, manufacturing and services products across the value chain starting with operations technology and moving into information technology as OT and IT converge.
- IT Services Providers focus on integration of information technology (IT) and operations technology (OT) through business process analysis and enterprise professional services. This group includes IBM, Oracle, SAP, HP and all the consulting spin-offs of the big four accounting firms Accenture, KPMG, Ernst & Young, and Deloitte. They feed off the IT/OT integration pain points of clients to gain wallet share. The problem is most have a tactical business process view of the energy and utility sectors and lack the fundamentals and project finance experience to be good strategic insight providers.
Disruptive technology inevitably leads to consolidation and the energy vertical is focus on scale because it is essential to sell the smart grid, renewable energy, emissions reduction, dynamic pricing and customer aggregation solutions for the distributed energy future the giants envision for us.
The so what. . .is the energy business cycle has always been boom and bust, but this time as bust turns into recovery and then build-up on its way back to the next boom the energy market consultants and information providers depended upon will not be there.
This may be good news for smaller regional service specialists. And some of the ‘old gang’ will hang out their shingles and crunch the numbers but it will not be the same. Gone will be the institutional scale platforms that enabled to previous boom period as well as the applied analytics tools, data and expertise except for custom consulting assignments that lack he independence, transparency and consistency across markets that serves us so well.
This loss energy market consultant expertise also creates opportunity for others to fill this vacuum not by morphing into traditional market consultants but using disruptive technology, new methods, and new ideas to deliver energy market analysis and insight to fill the gap.
In the energy vertical like any other industry, speed, nimbleness, imagination and a sticky relationship with customers can be used for competitive advantage. The emerging giants of the energy vertical may be big but they are slow. They have bureaucratic rules and processes that brook no opposition. But the power of disruptive technology is its insurgency. It breaks rules. It moves fast. It falls back and attacks elsewhere when the giants approach.
What does this mean to Energy Information Providers?
Disruptive technology has been attacking the advertising and subscription services business model for years savaging newspapers and magazines in the first wave. Energy decision support services have a long tail and are embedded in hundreds of enterprises so they have not eroded as fast as the subscriber base of newspapers and magazines. But they face the same threats.
The reasons for this disruptive technology erosion is that consumers of information are increasingly mobile, prefer real time streaming headlines and facts through Tweets or Facebook or mobile apps. Information received this way is growing in volume and an entirely new business model is developing around gathering, mining, analyzing and streaming back filtered upstream data to users. Enterprise scale business is the most interested in both the facts and headlines in that upstream data and the business intelligence insight from the patterns of the data to optimize performance.
This has been profoundly corrosive to advertising business models. It diverts eyeballs from traditional print formats of long articles used by newspapers and magazines which are just too slow to produce, to inconvenient to read on a mobile device, and fails to satisfy our instant gratification for real time nuggets of useful information. And we can get headlines off the internet for free so why pay for that daily newspaper left in our driveway or magazine piled up with the junk mail back in our office. Blogs and news feeds have been the transition tools of choice between traditional media models and continually refreshed online information delivery. But blogs often lack standards, consistency and reliability we expect and paid online content from news feeds and blogs has been a tough sell when so much is available for free.
Filling the gap left by the shake-out of market consultants focus on fundamentals, analysis and insight while still responding to the instant gratification of streaming real-time content requires that energy information providers do more than just serve up data and news feeds. It requires delivering analysis and insight and the expertise to interpret data and patterns of data while provide strategic context.
Here’s an example of how it might work that I received recently from Linked-In:
Dear Gary L. Hunt,
Achieving smarter mobility will require long term solutions. But what can we do in the short term?
As someone with a professional interest, you are warmly invited to join the conversation at Shell Dialogues.
If you haven’t heard of it before, Shell Dialogues is the online platform where our global specialists and senior executives answer your questions and debate a range of issues related to Shell’s activities.
The current topic is the improvements we can make through new fuels and lubricants, better designed cars and other initiatives.
You can join the debate right now by posting your views at our online Shell Dialogues Forum. Or you can attend the live webchat on 6th July and ask your question directly. Simply register at the
Next webchat: Getting ahead of tomorrow’s smarter mobility challenges
Wednesday 6 July 2011
0700 GMT and 1500 GMT
Make a date in your diary. Join Selda Gunsel, Shell’s Vice President of Fuels and B2B Products Technology and a panel of specialists, including experts from Gordon Murray Design, creators of the futuristic T.25 city car.”
See what I mean?
Tweets are not going to be enough. They whet our appetite but can’t deliver the meat for a satisfying meal. Energy information products that fill that gap with a multi-media experience that delivers analysis, insight and follow-on applications and expert services can capture growth and create recurring revenue services to displace or supplement their traditional advertising and subscription business model by leveraging their subscriber base and turning it into a very sticky community eager to drink from the fire hose of insight and analysis in a world overwhelmed by tweets and headlines.
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- Alternative Energy Dilemma: $500 Billion at Stake in Smart Grid (SBGSY, TLVT, ABB, ALSMY, SI, GRID) (247wallst.com)
- ABB Targets DC Power Market with Validus Deal (datacenterknowledge.com)