Smart Energy Emerges as a Layer of Telco’s Smart Home

1Executive Summary

A year ago, I predicted that telcos and cable providers would start dabbling in energy management before the ball dropped into 2010. The idea was that the service providers could use their networks (fiber, cable, cellular) to connect with smart appliances, plugs, meters and thermostats in homes and create a sort of broadband-enabled smart energy efficient home.

I based the prediction on interviews with several startups selling into this market, as well as the broadband players themselves. Well, turns out that I was right — but about a year too early. Now, as we kick off 2011, the broadband-enabled smart energy home has finally made some real progress and could be a crucial tool in helping consumers reduce their energy consumption and lower carbon emissions. In addition, the smart energy home could emerge as a valuable market for service providers, startups and gadget makers alike.

Smart Energy Home Headway

In the last week of 2010, Verizon’s long discussed energy management pilot finally became a reality. While the pilot program was originally supposed to start in 2009 — and then again in 2010 — Verizon said last week that starting in January 2011 it will operate a home monitoring and control pilot program in homes in New Jersey. The program will include an energy-reading device, a smart thermostat, smart appliance control devices and a smart power strip, among other applications.

While the pilot program will include only “two dozen” homes, as the Verizon spokesperson told me, it will be the first of its kind from a U.S. telco. Verizon says it will make the program, which will use its FiOS fiber network, commercially available later in 2011. For the trial, Verizon will be using the smart home product from 4Home, a home automation company that is in the process of being acquired by Motorola, and which Verizon previously invested in and has been working with for years.

The 4Home acquisition was another milestone for the smart energy home. In early December, Motorola said it planned to buy up 4Home via its communications subsidiary Motorola Mobility, and plans to sell the 4Home technology via new partners like cable and telco providers. The acquisition shows the opportunity for startups to find solid exits in this newly emerging space.

Verizon’s arch rival AT&T also made a significant move in the smart energy home in December — and also through an acquisition. AT&T revealed in early December that it had bought a company called Xanboo, a decade-old firm that was one of the original home automation players. It enables home owners to monitor security, energy consumption and digital media across devices.

It’s not just in the U.S. that service providers are eying the smart energy home. Japanese telecom giant NTT DoCoMo said in October that it plans to offer a home energy management product that features “smart tap” power sensing devices and home routers from Sumitomo. Japanese consumers will probably embrace this technology far more quickly than in the U.S., given Japan has some of the most energy efficient homes — and energy-conscientious consumers — in the world.

Investing As R&D

Other broadband providers have turned to investing to make their initial moves in the home energy space. Investing can be a relatively safe way for a service provider to look into the energy management technology. Often times the service provider will invest just a couple million dollars into the startup (tiny for the telco, huge for the startup); if it decides the technology isn’t a good fit, it can cut its losses.

This summer, Consert, a startup with a home energy product that connects via cellular networks, jumped onto my radar with the announcement that it raised $17.7 million from Verizon Ventures, Qualcomm, utility Constellation Energy and GE Energy Financial Services. Consert plans to utilize Verizon’s 3G wireless network as a backbone to offer demand management, smart meter and home area network services.

Six-year-old startup iControl has raised $45 million in funding from cable company Comcast, Intel Capital (VC arm of the chip giant), networking heavyweight Cisco, General Electric and security firm ADT, along with traditional VCs Kleiner Perkins and Charles River Ventures. IControl sells both a utility home energy product and a service provider focused energy tool.

Why Service Providers Want In On the Smart Energy Home

AT&T, Verizon and Comcast, meanwhile, want to offer energy management as a value-added service bundled with their Internet, voice and video products. They have already put out the expense of building out the networks, so for relatively little, they can add on energy tools to help reduce that thing called churn (when one service provider leaves the company for a competitor).

The products could also offer a decent amount of revenues. A Verizon spokesperson told me that Verizon will be charging customers a monthly subscription for the connected home product when it’s commercially available, but at this point the phone company hasn’t decided what to charge. Additional revenues could also come via utilities, which are collectively spending billions building out smart grid networks and need to work with third parties like the telco and cable operators to better connect to consumers homes. AT&T acquisition Xanboo has already been working with utilities.

Another small piece of the service provider’s energy management moves is the macro trend of energy efficiency. Consumers increasingly express interest in wanting to save money on energy bills, and utilities are looking to offer energy efficiency services.

But despite these recent moves from service providers for energy management, it’s still unclear how aggressive these players will be. AT&T wouldn’t comment on if it would keep Xanboo’s smart grid and home energy product intact or how widespread the energy piece would be offered. Motorola, likewise, wouldn’t comment on its home energy plans via 4Home. And remember Verizon’s energy pilot is only for about two dozen homes — that’s ridiculously small. And, of course, it’s entirely possible that the energy layers of all of these deals could languish on the back shelf.

Home Energy As One Piece of Smart Home

It should also be noted that the home energy management market is just one small piece of the bigger dream. Whatever you call it — the digital home, the connected home, the smart home, home automation — gadget makers and service providers are looking to create and sell into the dream of the truly broadband-enabled home.

In contrast, the amount of home energy devices and energy management web sites in use today is negligible. Consumers are simply not expressing the interest needed to build this market on its own, because quite frankly they don’t care about reducing energy consumption, and many of the tools on the market are too time consuming to set up and use. However, Pike Research predicts that by 2015, 28 million homeowners around the world will be using some kind of high-tech tool to manage their energy use. For now, however, home energy management has to be bundled with other high-end home automation services to reach consumers.

What to Expect Next

Before the market gets bigger, expect more acquisitions in the home energy management space. Most of the startups bought in recent years were acquired for relatively little, from Belkin’s acquisition of Zensi to Silver Spring Networks purchase of Greenbox to the GridPoint Lixar SRS deal. While the terms for most of these deals haven’t been released, sources point to low figures across the board.

I’d expect more small acquisitions of more small startups in the future. For example, a company like EcoFactor, which has a software-based energy management and demand response product that works with connected thermostats, could be a good candidate for a smart grid networking company or a power company. Or young startup PowerMap, which offers data mining and analysis of home energy consumption to appliance and electronics makers, could be attractive to a consumer electronics company.

At the same time some of the older startups — iControl, Control4, Tendril — that have raised a significant amount of money might have priced themselves out of the home energy acquisition range. iControl and Control4 have raised close to $50 million each and might be valued higher than what a large player is willing to pay.

There is one big kahuna startup that could see a serious exit in 2011. That’s home energy management company OPower, which has concentrated on helping utilities offer itemized and smarter energy bills via the mail. It could easily become a player in the real-time home energy management space. I could see GE, Silver Spring Networks or even Cisco (gotta be a player with deep pockets) spending a decent amount on the firm.

However the smart energy home unfolds, expect service providers, from cable companies to telecom providers, to play a key role in helping energy management reach the masses.

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