Is solar a commodity?

Actually, the reality is worse than that.

Photovoltaic panels are complex semiconductors that require advanced manufacturing processes and a continual stream of innovations in efficiency, packaging, encapsulants, electronics and mounting. In many ways, it's as unlike a commodity as you can get.

Yet, because of a wide array of manufacturers and a proliferation of solar know-how, solar panels are subject to commodity-type pricing. Put another way, solar manufacturers have to behave like chip makers and medical device manufacturers when developing their products and then fight over every penny like makers of copper tubing, corn syrup or gravel when it comes time to sell them. It's tough work for an often meager reward.

PC makers have had to survive in a similar environment, but even they have enjoyed advantages that elude solar manufacturers. PCs wear out after four to five years. With products that last 20 to 30 years, solar manufacturers have virtually no replacement market to chase. PCs are also visible: Apple makes money by selling status symbols to people who pretend to disdain them. It takes some creativity to ostentatiously display the brand of something bolted onto your roof.

The closest analogy to the solar industry, in my mind, is computer memory, which is terrible news. Computer memory really isn't a business -- it's more like a bad gambling habit. Manufacturers regularly lose millions and yet have to steadily double down by putting billions into new fabs and R&D so they don't lose even more money as the state of the technology zips by. In the late 90s, memory makers enjoyed a brief surge of accelerating profitability. Then it turned out that the good times were the result of price fixing schemes. One flash memory company -- Spansion -- did not report a profitable quarter between the period before its IPO in the early part of the decade and its 2009 Chapter 11 bankruptcy.

Micron Technology, one of the biggest memory makers in the world, is now exploring solar. These guys are experts at living through prolonged periods of losses. Be forewarned.

If solar follows this path, it could be bad for the entire alternative energy industry. Solar conferences would gradually transform from being exciting, well-attended events sought after by big cities to becoming generic gatherings -- Zig Ziglar to Headline Tile and Grout World and SolarCon 2014 -- in the back ballrooms at the Doubletree. The wave of talent in universities gravitating toward energy could swing back toward computer science and the Internet. Layoffs could become chronic. Solar wouldn't be the next hot thing -- it would be  one step above painting your body silver, standing on a bucket and pretending to be a statue for a living.

But there is a path to avoid this fate. And here are some of the things the industry can do for a better life:

1. Marketing. I can't emphasize this one enough. Most solar manufacturers act like they are selling hot water heaters. Or industrial carpet. "It's a utilitarian product, but you need it and it will save you money in fifteen years," seems to be the overriding marketing message.

What are the main differences between a BP panel and one from Sharp or Kyocera? Few people in the industry, let alone consumers, could give you a quick answer. Most solar execs probably couldn't even identify panels from these companies in a lineup.

It's not an impossible task. Dyson has made its vacuum cleaners status symbols through touting its innovations. Bosch made brand names important in dishwashers twenty years after that product line went somewhat generic. Can consumers be swayed by important-sounding features or an exotic heritage? If you come over to my house, I will show you the kitchen sink that came from Switzerland.

SunPower has created awareness among consumers through its advertising campaign; a different-looking panel has helped, too. Manufacturers need to highlight their products' capabilities -- consumers and installers won't do it for them.

2. Diversification. Not every roof is the same. Soliant makes a concentrating PV system for flat roofs in the U.S. Southwest and similar climates. It's a sub-segment of the market, but if Soliant can provide the best solution for these sorts of customers, it might survive. Similarly, Suntech Power Holdings has begun to optimize different panels for different markets: the ones sold to utilities are different than the ones sold to houses. Suntech even sells panels to modular home builders in Japan that integrate the panels into the original construction. Others are moving in this direction, but Suntech has also been more successful in touting it.

3. Aesthetics and Modularity. Akeena Solar's Andalay panel sells for more than the average panel, but continues to get customers. Why? Consumers are willing to pay for the convenience of having easier-to-install modular racks, says CEO Barry Cinnamon. Armageddon Energy touts hexagonal solar cells. They are easy to install and nearly everyone comments on the shape. For another example, check out Zep Solar's modular rack: it saves money, but one of the selling points will be the novelty.

4. Added functionality and integration. The IT market has mastered this art. PCs have graduated from functional devices to full-fledged entertainment centers by creating applications -- search, online video, etc. -- to exploit the growing bedrock of transistors. The sun gives off heat and light. PV panels only exploit light. A few companies make all-in-one devices that combine PV with solar thermal collectors for hot water heaters and most of them are quite small. However, if the technological kinks can be worked out, the big guys should try it. Solar lighting could also be added as a function.

Integrating new functions can't stop relentless price cutting, but it can certainly help slow it down.

The smart grid/building management industry might provide help here, as well. There is no reason smart thermostats can't include better data drawn from the power produced by solar panels. These thermostats can also include a brand badge, similar to the badges on notebooks, identifying the manufacturer. (See recommendation #1.)

5. Hugging consumers. Dell did not become a multinational corporation by building the best computers in the world. Instead, it made sure that customers felt they got better service online and on the phone than they could get at stores. Michael Dell himself would often don a headset and work the support desk in the early days to highlight the importance of attentiveness and responsiveness to customer needs.

The company's decline began when a new crop of executives from Bain & Co. and McKinsey came in that disdained the sort of relentless sucking up that today's modern consumer demands.

Solar installers Sungevity and Solar City seem both to have a handle on making the person ready to shell out several thousand dollars feel like a prince. When Best Buy makes its foray into solar and energy management, expect a huge push on hand-holding.

6. Relentless Hucksterism. Sungevity also recently came out with a leasing program that guarantees consumers that they will save money with solar or they will get their money back. Those are magic words in this country. As time goes on, expect more solar companies to move away from the sanctimonious aspect of solar -- you're helping the earth, you're reducing your power bills, etc. -- toward putting cartoon Aztec sun gods all over their websites.

7. Go big and make friends. Like the PC industry, consolidation will become inevitable in solar. The top ten will likely become the Big Four in a few years. Thus, these companies should start finding a partner now. Forging tighter links with home builders and retrofitters will help, too.

8. Impulse buying. Right now, the biggest problem in solar is paperwork and planning. Because of the way state and federal rebate programs work, many of these headaches are unavoidable. The SolarTech Consortium is working on a standardized contract, according to executive director Doug Payne. Once it's out, installers and panel makers will then have to figure out ways -- group buying at corporations, online specials, etc. -- to capitalize on it.

9. Accept Death. In high tech, companies with great ideas regularly die. Packard Bell helped create the home PC market before it died. Tablets have been tried several times in the past to little fanfare. But the executives live on. So give it a shot -- the worst than can happen is that you will get a new job.

Tags: akeena, apple, armageddon, chromasun, compaq, cost per watt, dell, home solar, hp, installtion, marketing, solar, solar installation, soliant, suntech