How Utility Companies Can Cash In on Big Tech’s Smart-Home Revolution

Amazon and Google want to change the way consumers use energy.

At the center of their strategies are smart thermostats that monitor a home’s energy usage. In 2014, Google bought Nest Labs, a marker of smart thermostats and home security devices, for $3.2 billion. In 2016, Amazon joined a $61 million funding round into Ecobee, a smart thermostat manufacturer.

The investments by both tech giants are best understood as the latest data grab in a heated competition to own the emerging smart-home industry that includes devices such as smart speakers, digital doorbells, connected security systems, and the aforementioned thermostats (the early superstar of the smart-device bundle).

Smart thermostats monitor a home’s energy consumption and compile that data with other homes’ energy consumption to paint a picture of grid-wide energy usage. The thermostats then make suggestions to homeowners on when they should run energy-heavy appliances such as washing machines and thereby avoid surge energy pricing during peak times.

The risk is that if utilities lose control of customer data, they eventually lose control of the market.

“In 10 or 20 years, the dominant retail electric provider in the United States is going to be Amazon or Google,” David Crane, the former chief executive of NRG Energy Inc., recently told the Wall Street Journal. “They can provide lower cost and better service.”

Despite this threat, some utility companies have embraced Google and Amazon’s entry into the energy market, because they see the thermostats as an effective way to smooth consumption and avoid heavy energy usage peaks that over tax power grids. For example, Google has struck partnerships with utilities and power providers in the U.K. and the Netherlands, as well as in Illinois, California and Texas. These utility companies are handing over their energy use data to Google, data which they already own and could monetize themselves (more on that below).

Amazon has also struck a partnership with Lennar, the largest home construction company in the U.S. to build into all new homes Alexa-connected smart locks, doorbells, thermostats and lights. Meanwhile Amazon Home Services provides home installation to help consumers set up and manage their smart-homes.

The end goal for Amazon, which has today become the “everything store” Jeff Bezos once envisioned, is to be the everything portal to your home. Amazon wants to help you manage your home, from lowering your utility bill to helping with repairs or daily chores. For utility companies, this future would relegate them to mere commodity providers without a strong relationship to consumers.

Smart home services marketplace puts the power back in utility companies

While the big platform companies have a strong lead today in the smart home, utility companies already have two big advantages. First, they are already in the home and have a relationship with millions of consumers. Second, they’re also agnostic to the types of devices consumers use and who makes them.

Instead, they have the opportunity to facilitate an open marketplace for consumers to install smart energy products into their home. In particular, as the market for solar products takes off in the next five years, utility companies are in a prime position to become the main conduit for consumers to equip and control their smart homes. And if they don’t companies like Amazon certainly will.

Additionally, utility companies have a data advantage when it comes to understanding how consumers use their homes today. This gives utility companies the opportunity to create or buy their own home services marketplace.

There are already home services marketplaces like Home Advisor that connect property owners to home services companies that do everything from plumbing to heating and cooling projects to landscaping and beyond. Marketplaces like Handy focus on more commoditized services like house cleaning, small repairs, and painting. And Amazon is steadily growing its own Amazon Home Services marketplace.

The biggest challenge for most of these services marketplaces is creating an ongoing relationship with consumers. For companies like Handy, their solution was to create a subscription service for regular services like home cleaning. Handy also offers moving services for the same reason – it helps get them in the door (literally) at a time when consumers are likely to need regular help.

Once they’re embedded in the home, they can then up-sell other service offerings like repairs, and installation. Amazon’s growing play in home services will take a similar path, though it will use the smart home as its launching pad.

For utility companies, they already have the data to understand how consumers use their home and when they need help. But today, this data is mostly dormant. Instead, utility companies have the opportunity to use this data to create a home services marketplace that offers repair and maintenance services to homeowners and renters. Utilities already have a solution to the biggest challenge these marketplaces face – customer retention. They key is to embrace new platform business models that help entrench them into the home of the future.

If they don’t, then NRG’s David Crane’s prediction for the future of the smart home may not be far off.

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