What Amazon and electric utilities have in common
Ring, ecobee and the future of the smart home
Amazon is famously obsessed with customer experience. As Jeff Bezos has said, “We are committed to becoming the most customer-centric company on Earth.” By all accounts, it has been a successful strategy; Amazon now drives over $100 billion of retail sales to over 300 million customers across a seemingly endless array of products.
Lately, Amazon has been on a smart home binge. Last month, Amazon purchased Ring, a leading provider of video doorbells, video cameras and other home security solutions. And in February, Amazon made its second investment in ecobee, a premier provider of smart thermostats and smart light switches. Given Amazon’s ambitions to become the “everything store”, these moves may come as no surprise.
But there was also another common investor in those two companies: our firm Energy Impact Partners (EIP), a fund backed by fourteen leading electric and gas utilities to invest in the future of energy. EIP invested in Ring prior to the Amazon acquisition and led the most recent ecobee financing, in which Amazon participated. EIP’s strategy is to work with our utility partners to invest in companies that are relevant to the evolving electric industry.
So why would utilities looking to invest in strategically impactful companies want to own a piece of Ring or ecobee?
The rising importance of utility customer engagement
For over a century, the relationship between electric utilities and their customers in North America has been simple. The utility provides safe and affordable electricity in exchange for customers paying a monthly bill. Customers spend little time engaging with their energy provider; Accenture estimates an average of less than ten minutes per year.
Even today, when customers do interact with their utility, they do so primarily to complain — around 85% of customer interactions stem either from outages (“why is my power off?”) or “wihi calls” (short for “why is my bill so high?”). Not only are these interactions infrequent, but they occur through antiquated communication channels: Salesforce research found that 70% of utility-customer communication still takes place over the phone.
Until recently, this limited customer engagement was not ideal, but it was acceptable. Most utilities were the sole provider of electricity in their territory and despite the frustration caused by outages, customers rarely experienced them. So customers didn’t think much about their utilities, and utilities had little drive to transform the relationship.
But times are changing, and customer engagement has risen to the top of the agenda for many utilities. Technology has improved engagement options — the ubiquity of smart phones and continued spread of smart electric meters means that utilities can offer more tailored information to customers while engaging through a familiar, more informal platform. Meanwhile, utilities face competitive threats that never existed before, including electricity retailers seeking to displace the utility-customer relationship and the emergence of new customer-owned generation (solar) and storage (batteries).
This presents a challenge. It is no small task for a large utility whose mandate has always been a safety-first mindset and delivery of reliable energy to begin to truly engage with its customers in a newly connected, digital age.
Enter the smart home
Fortunately for utilities, the smart home represents a once-in-an-era opportunity to do just that. Households throughout North America, and in much of the world, are buying connected devices at an unprecedented rate. In 2010, fewer than 1% of North American households contained internet-enabled smart devices such as thermostats, lighting, security and entertainment. By 2017, that number had jumped to over 10%, and the average connected home already had six such devices. Along the way, smart home solution providers such as Ring, Arlo, ecobee and Nest have grown from nothing to generating hundreds of millions in revenue.
Those products are just the beginning. Sense Labs, another EIP portfolio company, uses data analytics to provide homeowners a real-time, remote feed of activities in their home — from a garage door opening to a hair straightener being left on accidentally — regardless of whether these devices themselves are “smart” or “connected”. Rachio offers smart sprinklers that monitor weather patterns to customize watering schedules to the needs of the lawn. And the pace of innovation is only increasing.
As customers adopt more smart devices, opportunities will arise to layer on additional services. Ring has already shown this by adding a subscription service for access to historical video footage. Existing smart thermostats can provide grid services to lower electricity costs for both utilities and customers, and Sense monitors may one day alert homeowners before a home appliance actually fails.
The role of the power provider
For the first time since utilities began to provide electricity, customers are buying new products that electric utilities have a reason to sell. Remember that core utility mission of power and safety? Devices such as smart thermostats and smart light switches can deliver energy optimization and savings, while security cameras and systems can deliver safety.
And utilities have two characteristics that make them uniquely positioned to sell these smart home products.
First, there is no entity better suited to helping customers maximize the value of connected energy devices. Utilities can bundle smart devices with optimized customer energy plans and sophisticated software that enable these devices to shave peak energy consumption (when power is most expensive to produce), reduce overall utility system costs and help the utility manage an increasingly renewable-powered grid, all while maintaining comfort in the home.
As a consequence, utilities can pass these savings on to the customer in the form of device rebates and incentives, which gives utilities pricing power and drives sales. ecobee has found that instant rebates available at retailers drive a 450% increase in smart thermostat sales. Some utilities are even able to give customers smart thermostats for free.
Second, utilities have a natural touchpoint at the moment of customer relocation. When you move into a new home, your first call is typically to your local utility company — you need the power turned on. Why shouldn’t the utility take that opportunity to offer you a discounted smart thermostat to drive down the very bill they’ll soon be sending you? Or to offer you a home security product that provides safety at a fraction of the cost of a traditional security system?
Now that’s beginning to sound like an Amazonian approach to customer experience.
Lindsay Luger is a Partner and Shayle Kann is Senior Vice President, Research & Strategy at Energy Impact Partners, a strategic investment firm focused on the future of energy.
