Opower employees -- including some in senior management -- were surprised this morning when they learned of Oracle's plans to acquire the utility software company for $532 million.
Cloud-computing giant Oracle said Monday that it will buy Opower for $10.30 per share, which is less than half of Opower's $23 IPO price in April of 2014. Many in the company learned of the news through a press release and early media reports.
Some suspected a big change within Opower might be coming. Slow sales cycles and unprofitability had pushed the company's stock price steadily downward, forcing it to shed its thermostat business and expand beyond efficiency. Earlier this month, Opower cut 7.5 percent of its workforce in order to scale back R&D spending ($100 million and counting), tighten its sales and marketing teams, and focus on customer care solutions.
The job cuts and spending reductions were described by Opower's Communications VP Matt Maurer as a way to boost profitability: "This is really an effort to bring expenses more in line with growth," he told GTM.
Those cuts now look they were preparation for an Oracle acquisition -- not an attempt at organic profitability. As of this writing, Opower has not responded to requests for comment on the Oracle deal.
Opower CEO Dan Yates sent a letter to utility customers this morning touting the deal.
"We believe the fit between our front-end customer engagement tools and Oracle’s back-end operational systems is a natural one. We are excited to join Oracle Utilities and to bring even more value to you as part of the Oracle Utilities Industry Cloud Platform," wrote Yates.
Opower will run as an independent brand, but staff will get integrated into Oracle's global utility business unit. (Operational changes are always the big question with this kind of integration.) Opower's customer care and energy efficiency products aren't going away either -- they'll still be serviced by Opower employees for now.
Oracle and Opower say they plan on adding "more functionality and capabilities at a quicker pace," likely layered on top of Oracle's Customer Information Systems (CIS).
So what do these two software companies offer one another?
Oracle brings in nearly $40 billion in yearly revenue. As one of the top CIS providers, the company has a deep base of utility customers that Opower can leverage for its own call center, billing management and digital engagement software. It could also help strengthen Opower's sales channels -- a crucial advantage in the power industry where sales cycles are incredibly slow.
The acquisition also helps Opower shake the narrative that it is just an efficiency company. It wants to be known as an enterprise software-as-a-service provider for utilities -- and its relationship with Oracle helps shape that narrative.
With just around $150 million in revenue, Opower represents a tiny slice of Oracle's software business. But Opower's customer care offerings -- particularly its strong customer segmentation tools -- will give Oracle new product advantages.
"Oracle has one of the most widely deployed CIS systems out there. But Opower has a much broader suite of customer experience tools," said Andrew Mulherkar, a grid analyst with GTM Research.
Oracle has also been trying to diversify its offerings beyond core enterprise software systems, but "it wasn't getting a ton of traction," said Mulherkar. Opower could help with that diversification.
Although Opower is small in terms of revenue, it still brings in a lot of top-tier utility customers representing 60 million end users. It also brings a cache of experience in R&D, which could prove valuable for refining future Oracle-Opower products.
“Opower’s platform processes over 40 percent of all residential energy consumption data in the U.S. If Oracle can develop additional use cases in the near term with this data, this could be a significant opportunity for Oracle to further access the utilities industry,” said David Groarke, an energy expert at PA Consulting Group.
Swapnil Shah, the CEO of FirstFuel, said he thinks the deal is a win-win.
"Opower is providing a service that not only helps with energy efficiency but is actually redefining the way utilities do business and engage customers. Oracle has the size and scope to take that service and integrate it into other business processes making an attractive offering to the utility market," he said through email.
FirstFuel has been working with Opower since 2014 to target small and medium businesses for efficiency and customer engagement opportunities. He didn't seem to think that partnership would be negatively impacted by the Oracle acquisition, saying that FirstFuel and Opower had closed "several joint deals" in the past year.
The deal also takes some pressure off Opower. Closing new utility customers has proven to be incredibly difficult. Consequently, the company didn't have a strong long-term growth story -- it therefore had to adjust investor expectations and focus on short-term profitability.
Being a part of Oracle helps insulate Opower from some of those reactionary decisions.
Finally, the acquisition raises a bigger question. Can smaller companies selling efficiency, customer care and grid analytics software to utilities scale on their own -- eventually rivaling behemoths like Oracle, SAP and Accenture? Or will they need help from these legacy players? So far, there's little evidence that newer entrants are capable of doing it completely on their own.
Opower's stock was up 30 percent this morning. The acquisition will likely close in the middle of this year, pending regulatory approval.