M2M lessons from opposite ends of the energy sector

For a recent Gigaom Research report, I looked at how big data and machine to machine (M2M) communication was impacting the energy industry (“Internet of things: the influcence of M2M data on the energy industry.”) For the report I chose two seemingly very different ends of the energy market—the oil and gas industry and the smart grid.

Nonetheless there are common themes emerging in the internet of things, that can be gleaned from looking at multiple industries and which offer lessons about how to approach thinking about the value of the M2M communication.

 

1) Operational efficiency is king. At the end of the day the primary return on investment for any M2M implementation is cost savings. Revenue generation is possible but it tends to have more potential for direct revenue creation in industries like retail where data can be used to target the consumer–the source of revenue.

In oil and gas the challenges are clear. Assets are in remote places and being able to get reliable data on performance, safety and functioning of those assets reduces operational costs like the number of maintenance employees that must be hired to service a given number of wells. In terms of the smart grid, smart meters have put an end to the age old manual meter readings that were required for the 20th century, replaced by digital meter reads as often as every 15 minutes. Fewer trucks also roll during events like outages because the ability to have real time data on consumption means utilities can easily locate exact failure points.

2) It’s the service, stupid. In the rush to make everything connected, from a blender to a smart meter, the lesson all startups and manufacturers are learning is that there’s no intrinsic value in connecting a data source to the internet. Rather, it’s always about what one can do with that data, particularly in the enterprise setting where analytics are applied to repetitive operational processes to produce smarter decision making.

In the consumer context, there does remain the possibility of consumer experience improvements. Some are suggesting consumers will want to be able to monitor everything from the charge on their EV to the temperature setting on their thermostat from wherever they are. We all want greater information but it always will be linked to being able to optimize some outcome, whether it’s our health as a result of a Fitbit or our energy bill as a result of a connected thermostat.

3) Dealing with regulators. We see issues relating to regulation and safety quite often in cleantech and the energy sector because the product from many cleantech sectors—namely energy—is core to a safe, secure and functioning society.

The oil and gas sector, in particular, is looking to M2M communication to help it deal with environmental safety concerns, particularly in a post Deepwater Horizon world. In many jurisdictions, there are strict liability laws for events like pipeline leaks that assign immediate liability. Having sensors placed along pipeline infrastructure that measure flow rate and pressure mitigates risk for distribution companies by helping them head off leaks and potential spills. There’s also the potential for some revenue drive if distribution players can prove to regulators that running pipelines at higher pressures and flow rates is safe. Having a plethora of empirical sensor data helps these companies show regulators exactly how safe a system is.

Similarly utilities are under pressure from regulators to meet certain efficiency targets as well as renewable energy mandates. Analytics platforms that create energy savings or manage the intermittency of solar or wind power will be cost effective alternatives for utilities that must meet state imposed targets.

 

While the internet of things and M2M communications continue to evolve, the core lesson for me remains the requirement to look from all angles at how the connectivity can solve a problem or reduce costs for a company. That could be cheaper demand response tools or more effective pipeline monitoring. But the trick for any startup looking at this space is to find or create their core value for a company.

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Adam Lesser

Analyst Gigaom Research

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