The power of disruptive technology to reshape and change the dynamics of competitive markets is not necessarily in the products we use. Often it is in the ideas that make those products attractive to customers. The more attractive the products the more transformational their use can be in competitive markets when customers make choices.
We see it in play all around us.
Mobile phones erased the monopoly of traditional landline communications companies like AT&T, Verizon and their competitors. The iPod put the music industry and every manufacturer of mp3 players at risk of rapid disintermediation even more than the Sony Walkman had done a generation earlier. After resisting Apple’s desire to make music available to its iPod customers, music industry players got religion. That is they could play in Apple’s ecosystem and survive and maybe even thrive, or they could stay outside the fence and be left behind while music listeners created their own file sharing end-runs. Lawsuits against file sharers were not a realistic strategy for music makers and they knew it. Suing your customers is rarely good customer relations. Besides it just drove more music listeners to the Apple ecosystem where Steve looked out for them, served them and made it cool to be in the ecosystem.
The price to play in Steve Job’s ecosystem was 30% of the sales revenue. It was a stiff premium that maintained the Apple philosophy of high quality products at premium prices reflect the real value the customer perceives the product to be worth. The more magic in the Apple device the more we craved them. Customers lined up around the block to get every new product released by Apple. What the iPod did to music, and the iPhone did to communications, the iPad is now doing to personal computers and every Window’s based device in use.
The power of disruptive technology well done is Steve Jobs legacy and why Apple is the most valuable technology company on the planet.
The power of disruptive technology well done is also a lesson every utility should consider as we move toward a smart grid enabled clean energy future. No, I’m not saying every utility CEO can be like Steve Jobs. But every utility CEO can learn from Apple that customers want high quality, reliable products and services and are willing to pay premium prices to get them. They are willing to buy them from a closed ecosystem like the one Apple created in competitive markets.
Customer engagement is about more than price it is about empowering your customers to make informed choices, to help them live their lives without changing their lifestyle. It is about good design, high quality products and services and a sense of good value from the total experience of the ecosystem including its products, services and people that offers lessons for the competitive, distributed clean energy future.
Many utilities still think of customers as load. They still categorize them into one of three segments: Industrial, Commercial and Residential. They have one price derived from nearly 100 years of socialized average cost pricing. The utility traditionally got paid a rate of return on capital invested and its revenue depended upon the sale of commodity kWh of electricity or therms of natural gas. Fast forward to the last twenty years and much has changed in the energy industry including wholesale competition in the power generation segment, the rise of independent system operators of the transmission segment, and smart meters and renewable energy policies in the retail distribution segment. But the utility industry is still driven by the traditional central station generation utility business model with a few exceptions.
Decoupled Rates. In 1983 California (where all things wild and wacky begin) adopted a new concept for authorizing utility earnings by setting performance metrics for the utility and “decoupling” rates so that utilities could recover all of their authorized revenues even if consumption fell. That encouraged the utility to help customers focus on energy efficiency, demand response and renewable energy alternatives because shareholder earnings were no longer driven by commodity energy sales growth. A few other states followed suit including Maryland, Massachusetts, Idaho and New York. Maine tried it but chickened out.
Rate Design is a tricky business and few have got it right. Even in decoupled rate states there is a terrible temptation to insert political correctness in rate design. Here in California, for example, we have a tiered rate structure so that the more units of energy you use the higher the price for each unit. This rate design is intended to encourage energy efficiency—instead it just pisses us off!
Rates in California are designed by or advocated by people who live in foggy, cool San Francisco and think they know better than everyone else what politically correct rate designs live into California’s clean energy values. Until it hits the fan like it did in Bakersfield in summer when the temperatures are routines near 100 degrees and politicians are looking for votes. The “Bakersfield Effect” is the name for the political gotcha effect that happened when PG&E tried for good press headlines from the installation of its smart meters in Bakersfield and invited politicians to give speeches at a media event. Instead average customers showed up waving their PG&E bills and raising hell because hotter than average summer temperatures caused their A/C use to push them into tier 4 or tier 5 of the PG&E rate schedule and resulted in bills of staggering proportions when the tier 5 rates kicked in.
So what does all of this have to do with anything, you ask? Am I just ranting?
How can you delight customers? So Apple is about to launch iPhone 5 and rumor has it the phone will be sold unlocked. That is Apple will enable its customers to buy an iPhone5 from Apple and get service from any phone company it chooses. No more bad AT&T service. Get ticked off at Verizon? Dump them! See what I mean about disruptive technology is MORE than just equipment. iPhone5 shifts the power of choice of communications provider from AT&T, Verizon, Sprint et all to customers. It destroys their pricing power. It forces them to offer customers better deals to get them to sign up and removes the hated 2 year contract demand they insisted upon to get an iPhone.
Every service provider will have to be like Metro PCS only cool! No long term contracts. No cancellation fees. No gotcha data rates. Customers are liberated. Life is good. Apple is great!
Do you see my point?
Now imagine you are PG&E. Instead of just plain vanilla electric and gas service you could offer me Chunky Chocolate Rocky Road (cheapest energy supply available. Yea it has coal but it includes a carbon offset) or KiwiMango Sorbet (pure green solar energy with a utility installed solar rooftop system net metered) or Avocado Ice (PG&E home energy audit, retrofit for audit recommendations, demand response for HVAC) flavors of energy service.
Would you like it supersized? What’s that? PG&E has a deal with Sears to replace your old appliances with new Energy Star Kenmore Appliances and bundle the cost into your rate so you can pay for it with your net metering Avocado Ice plan.
PG&E even has a Pimp my Home Office service option. PG&E partners with Comcast who installs a home energy network and sensors on all your appliances and heavy energy use devices. PG&E streams smart meter and sensor data from the customer side of the meter to Comcast’s home energy channel. You can use your Comcast ‘clicker” or your iPhone app to adjust settings on your appliances (turn on dishwasher at 11pm) (turn on coffee maker at 6:15am). Turn the A/C back to 78 after that kid of yours cranked it down to 42! Turn power off to kid’s room for 30 minutes—like I said life is good, payback is sweet.
See what I mean?
How can I not love my energy utility! They help me live my life the way I want.
How much does it cost? Silly, remember I am a net metering customers so after my home energy audit and retrofit I actually make money leasing my rooftop to PG&E for its Million Solar Roofs Power Plant project. I pay a flat monthly customer service charge that takes care of all the paperwork and manages the system for me. Fast! Easy! Affordable! Predicable! Now that is disruptive technology I like!
Then the alarm goes off and I wake up!
- RIP PowerMeter and Holm (insightadvisor.wordpress.com)
- THE SET-UP: Net Metering and our Customer Aggregation Future (insightadvisor.wordpress.com)
- How to Win in Smart Energy: Study Maslow’s Hierarchy (ecoleader.wordpress.com)
- PG&E wants customers to pay for pipeline upgrade (sfgate.com)
- The Future of Energy Efficiency and Demand Response is Embedded Technology (insightadvisor.wordpress.com)
- Casa Verde: Energy Saving Programs (casasugar.com)
- Apple, Exxon battle for top spot (sfgate.com)