The smart connected home and implications for the energy retailer of 2020

By Alan Dion, Director

Whilst the recent focus for most in the industry has been on the CMA referral and its provisional findings, a further significant and potentially disruptive change to competition in the UK energy retail sector is coming through the impact of the Internet of Things (IOT).  The IOT gathered pace with Google’s announcement last month of a new operating system and common language for smart devices.  We believe the impact of the IOT will force energy retailers to ask fundamental questions about the nature of the business they want to be in.

The internet of things (IOT) is the next wave of technology and comprises pervasive, low cost, smart connected devices.  A key focus for the IOT is the smart connected home. Research estimates that the global smart home market will be worth $51,77 billion by 2020, growing at an estimated CAGR of 17.74% from 2013 to 2020.  The scale of this market globally is attracting huge interest from the big technology companies.  For example:

• In January last year, Google paid $3.2 billion to buy smart thermostat maker Nest, making it one of the company’s largest-ever acquisitions. Then in June this year, Google announced two pieces of software for the smart home and the broader collection of connected devices around us.  Those two pieces are Brillo, an operating system, and Weave, a common language for devices to talk to one another. PwC has a business relationship with Google, a collaboration which will help clients thrive in the future environment. See http://google.pwc.com/ for more details.
• In June 2014 Apple introduced HomeKit, a developer package that will help third-party developers integrate home automation devices so that they can be controlled via iPhone or iPad apps and can be triggered using Siri.
• Samsung launched its Smart Home service in Korea and the US in April last year.  The service promises to connect home devices which users control through an application and includes plans for an app on its smart watch. See the link for more details - http://www.samsunginvestorsforum2014.com/

It’s not just technology and telecommunications companies that will be the new competitors. Other sectors are starting to offer ‘smart home’ solutions. Security provider ADT now offers the ADT Pulse system, which lets users control climate and lighting systems and home appliances along with remote security and video.

Competition is set to be fierce and looks likely to play out between big global companies, all with a global service offering. This poses fundamental and highly challenging questions for today’s UK energy retailers as they position themselves for the future:

• How will the connected home impact the role of the energy retailer? There is a risk that technology companies serving the smart home will disintermediate the role of the retailers.  To counter this, will the retailers of tomorrow be developers of smart apps, which they provide through the android or Apple apps stores?
• What is the right strategic response to the emergence of the connected home? Are new partnerships required, what does it mean for the operating model and pace of change?
• How best to balance the need to adapt to a changing regulatory and policy environment, while moving quickly enough to compete with an accelerated pace of product and service innovation.

 It also poses fundamental questions for policy makers and regulators, including:

• The approach to tariff setting - reinforcing the CMA’s findings that current energy market policies do not support tariff innovation, including the introduction of time of use tariffs.
• Regulatory debate around the position of energy retail as part of smart home services and how existing supply obligations will be delivered in this new world.

We believe that the future for energy retailers in 2020 may look radically different from today’s environment. Although we can’t predict the exact roadmap to get there, we suspect that this transformation may come much more quickly than expected.

 

Alan Dion | Director