OMG Opportunity?

Deck: 

Electrifying the Android generation.

Fortnightly Magazine - February 2010

My pre-teen son has been lobbying for a wireless phone. But as steadfast as my wife and I have been in refusing, he’s been tenacious in trying every possible argument. Recently we had a conversation that went something like this:

“Dad, when did you get your first computer?”

“Um, I think it was 1981. I was a freshman in high school.”

“Did a lot of kids have computers?”

“Almost nobody did. Why?”

“Just curious. When did you get your first cell phone?”

“Sometime in the mid-1990s.”

“Did a lot of people have cell phones at that time?”

“Nope. Mostly it was just business people who had to travel.”

“OK. You know, Dad, almost everybody in my grade has a cell phone. All my friends do.”

I had to admire my son’s creativity. He knew that if he began by saying, “All my friends have cell phones,” I would’ve said, “They’re not my kids.” So instead he cleverly pointed out that all my life I’ve been near the front of the technology curve, which has proved to be important for my career. He left me to reach the logical conclusion: if I want him to have a comparable chance at success, then I should allow him to be at the front of the curve too, or at least not woefully behind.

Of course, his argument didn’t hold water, because I never used my cell phone for socializing. It was strictly for business. And for that matter my first computer wasn’t a gaming machine; I used it to learn BASIC programming code (admittedly for creating games). But my son’s point is nevertheless instructive—and not just for parents, but also for leaders in the utility industry. Namely, technology is a powerful catalyst for change. Those who don’t embrace new technologies will get left behind when the world changes around them. This is true across generations and across industries.

At the same time, however, the telecom revolution offers a cautionary lesson about what motivates consumers and how it translates into business opportunities.

Fun and Profit

Young people today live in a different world than the one we knew when we were kids. Even so, fundamental motivations haven’t changed for at least 50 years—i.e., young people are most interested in having fun with their friends, and in figuring out how to succeed in the world.

This is an important point for utilities and regulators to consider as they develop their technology strategies.

Industry leaders seem to be counting on the next generation of utility customers to embrace fundamental changes in utility service. The argument goes like this: Today’s kids love technology. They think nothing of downloading apps to their smart phones and spending hours exchanging text messages with their friends. Surely, then, the next generation of utility customers will use fancy home energy-management applications to make behavioral decisions that maximize the potential of smart metering and dynamic pricing, even if the old generation won’t.

Such assumptions, however, ignore a basic point. While tomorrow’s ratepayers likely will expect more from utility customer service operations, they won’t embrace features or technologies that don’t serve their basic motivations. Smart meters and energy management systems can’t help people in their personal relationships and aspirations, so customers never will get excited about such technologies the way they get excited about iPhones and Androids.

This doesn’t mean the smart-metering trend is doomed. Rather, it means the industry and its regulators need to base their technology investment decisions on market realities rather than on wishful thinking (see “Engaging Customers).

Learning from Ma Bell

Looking at today’s telecom market, it’s difficult to believe all this innovation started in the market for long-distance minutes.

After Ma Bell broke up, very little changed for customers. The first new product offerings did exactly the same thing that the old products did—just for different prices and under different names. Rivalry among long-distance carriers started the era of telecom competition, but initially the new market seemed to be going nowhere. Many consumers viewed shopping for long-distance carriers to be nothing but a burden, and they did it only when market prices got so low that the default carrier’s rate became exorbitant by comparison.

Ultimately, this led the Baby Bells to abandon the long-distance game in the early 1990s, because selling the long-distance commodity didn’t offer much value or growth potential. Phone companies went looking for better growth opportunities, and they found them in wireless phones. Advances in electronics technology meant mobile phones were becoming small enough and cheap enough to carry around in a purse or briefcase, and Moore’s Law suggested they’d soon become powerful enough to allow substantial computing capabilities—just in time for the Internet boom that was already underway.

Not every investment was a grand success in the short term, but in the long term phone companies’ wireless investments have paid off handsomely for shareholders and customers alike. America’s largest wireless carrier, Verizon Wireless, brings in revenues amounting to more than 50 percent of the total for its parent company, Verizon Communications (née Bell Atlantic, GTE and NYNEX, plus long-distance upstart MCI WorldCom).

Whether the electric power industry faces similar growth prospects, however, remains questionable at best.

Going Mobile

Smart-grid technology heralds major changes in utility operations, and advanced metering might transform the way utilities interact with customers. When combined end-use tools like dynamic rates, smart appliances and household energy management systems, the smart grid promises substantial conservation and peak-shifting benefits.

Unfortunately, however, no teenager I know today gives a whit about peak shifting. Many people, including kids, profess generalized interest in environmental concerns. But helping the environment by opting into a demand-response program is about as fun as picking a long-distance carrier—that is, no fun at all. All the Web 2.0 and social networking applications in the world won’t change the fact that electricity is a utility service, like water, sewer or trash collection. No kid will ever say, “You know, Dad, all my friends have an energy management system; please can we get one?”

There is, however, one emerging utility-related technology that promises tangible and exciting benefits for consumers: the electric vehicle (EV).

At some point in the future of battery technology, automakers will start selling electric cars that are fun, functional and affordable. Those EVs will operate on a smart-charging system that allows convenient refueling across utility service territories, and our investments in the smart grid and everything that comes with it—including dynamic pricing and personalized energy management capabilities—will begin paying off in a way similar to telecom companies’ investments in wireless networks.

Until then, however, utilities will be making smart-grid investments primarily for less exciting purposes—e.g., to meet regulatory mandates and to deliver incremental value to shareholders. And when teenagers begin telling their parents, “All my friends are driving electric cars,” we’ll be ready for the opportunity.