My colleague Katie Fehrenbacher chimes in with a well timed piece this week of DistribuTECH, the major smart grid conference. She looks at the slow pace of innovation in the smart grid sector, which has many angles but largely has to do with the reality that you have a very difficult customer—utilities.
Utilities have a host of issues that make the market difficult. There are a limited number of them, for starters. They innovate slowly, partially because their profits are often regulated so every new purchase has to be justified by new revenue growth. The ability to organically grow profits is limited. When utilities do trial new products, it’s typically a rather long trial, somewhat analogous to how long it takes with drug trials to get final approval.
And perhaps most important right now is that utilities are not IT companies and most of the enhanced smart grid offerings are software offerings. So you’re trying to sell a product to a company that has no experience using that class of products (it still boggles my mind to think that up until the recent deployment of smart meters, meter readers manually checked every house in every city in order to bill customers.)
So what to do? Well, time is finally on startups’ side because now that smart meter deployment is more widespread utilities are getting familiar with handling data so the internal culture is slowly changing. Second, we may get some help with further utility deregulation in the U.S., following on some of the successes out of Texas deregulation. Deregulation allows real competition in the market which would make utilities want to buy services from startups to improve their offerings. Also, as renewable energy comes online, utilities will have to invest in smarter systems of integrating that energy.
None of this will make smart grid as hot as mobile or social media for VCs, but it will point to some opportunities that could slowly open up the market for startups with a product that can solve a problem for large utilities.