As Predicted: Cisco Getting Out of Building Management

It’s de-emphasizing home management too.

That didn't take long.

Last week, we wrote a story noting that Cisco was contemplating ways of unloading or winding down Cisco Mediator, a building management tool that came from its 2009 acquisition of Richards-Zeta Building Intelligence. We also reported that Ed Richards left the company.

Cisco declined to comment then, but after Cisco posted earnings, Laura Ipsen, who runs Cisco's energy strategy, wrote in her blog:

"For building energy management, this means we are actively pursuing several strategic options for Cisco’s Network Building Mediator and Mediator Manager product line, with an emphasis on minimizing the impact on current customers, partners and employees. For energy management in the home, we will transition our focus from creating premise energy management devices to using the network as the platform for supporting innovative applications and architectures that will improve our customers’ value proposition in the consumer energy management market."

In other words, see you around. Ipsen further reiterated Cisco's strong commitment to smart grid. Nonetheless, "smart grid" is not listed among the top five core businesses of the company. It seems to be more secondary. Like in home management, Cisco will likely try to integrate its products into smart grid projects, but it may not be a leader. In other words, you might see Cisco networking technology embedded into someone else's smart meter or voltage management device, but Cisco's name will often be submerged.

Cisco's failure in building management seems in large part the result of trying to do too many things at once. Cisco approached energy the same way Intel approached communications in the late '90s and 2000s: We are big and have lots of money, therefore we will win. The strain of trying to launch a new product line while core product lines lagged definitely helped the decision.

Still, the exit will likely send a chilly breeze through the efficiency world. Cisco is better than average when it comes to integrating new technologies. If they can't do it, can Microsoft, Intel or IBM, which have all recently launched efforts to get into commercial building management?

It's a potentially large market. Large commercial buildings consume approximately 20 percent of all of the energy in the U.S. and a good portion of that energy is not consumed efficiently. Look at an urban skyline at night and count the lights: very few people are actually in those offices working. In Chicago, many '80s vintage buildings are heated with electricity: inexpensive to install, but insanely inefficient. Overall, buildings and residences account for 39 percent of energy consumption and 76 percent of all electricity consumption.

Heating, ventilation and cooling account for 32 percent of the energy budget in commercial buildings, according to DOE statistics, or 6.4 percent of all energy consumed in the U.S. Mediator, thus, is focused on a somewhat sizeable wedge of the pie.

"Most buildings are wasting 30 percent of their energy off the bat," Ed Richards told us in May 2010.

On the other hand, efficiency remains a tough sell. Redwood Systems, which makes a building management system focused on controlling lights and other devices, has begun to add applications to its basic technology platform to make it more appealing. One of the favorite applications is one that lets employees better manage conference room reservations. A retailer wants to employ it to monitor how many people are in line at any given time. In other words, non-energy applications. Mike Dauber at Battery Ventures, an investor in Redwood, recently speculated that large customers may have trouble getting excited about efficiency.

Validus DC Systems, which makes DC power systems to reduce data center energy consumption, says its equipment curbs utility bills, but the real savings come in reducing the real estate needed for data centers. Again, a non-energy function stealing the show.

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For laughs, here's last week's story:

Cisco was one of the first large computer companies to jump into the market for technology for managing commercial buildings.

And it could become one of the first to get out.

The networking giant -- currently in the midst of a painful reorganization that will entail eliminating 6,500 jobs -- is now weighing the future of Cisco Mediator, a system for monitoring and managing heating/air conditioning systems and other appliances in commercial buildings, according to sources. Mediator was based on software from Richards-Zeta Building Intelligence, which Cisco acquired in 2009.

Ed Richards, the former director of worldwide business development at Cisco and one of the founders of Richards-Zeta, recently left the company.

Cisco declined to comment on any future plans for Mediator but confirmed that Richards -- a widely respected researcher in building software who spoke frequently to the press and at conferences on behalf of Cisco's strategy -- is no longer with the company.

The departure of Richards and the speculation around the future of Mediator will likely send a chilly breeze through the efficiency world. VCs and other large computer companies, after all, are investing in building management and efficiency at the moment. General Electric and Intel Capital recently invested in Scientific Conservation, which specializes in building management tools, and Intel has started to show off technology that would let it get into the market on its own.

IBM in March bought Tririga, which targets a similar audience. In the same month, Microsoft green czar Rob Bernard told us that Microsoft was winding down Hohm, its home energy management product, and drafting a strategy for commercial building management. A few months later, Microsoft formally sacrificed Hohm to the angry gods of software.

Schneider Electric, Honeywell and Siemens, meanwhile, bought companies last year to beef up their building management portfolios. Ultimately, building management and demand response will blur together.

Building management software is an extension, to some degree, of networking. Cisco, moreover, has generally been better at it than many other tech companies, especially when it comes to integrating acquisitions.

It's a potentially large market too. Large commercial buildings consume approximately 20 percent of all of the energy in the U.S. and a good portion of that energy is not consumed efficiently. Look at an urban skyline at night and count the lights: very few people are actually in those offices working. In Chicago, many '80s vintage buildings are heated with electricity: inexpensive to install, but insanely inefficient. Overall, buildings and residences account for 39 percent of energy consumption and 76 percent of all electricity consumption.

"Most buildings are wasting 30 percent of their energy off the bat," Ed told us in May 2010.

So what could be going wrong at Cisco? My personal theories include:

1. Cisco hasn't been able to dedicate enough time to it and building management seems to be falling by the wayside in the current consolidation/revival crisis inside the company. Cisco said earlier it will continue to invest in smart grid, but it's not singled out as one of its top core areas under the new strategy.

2. The building management market -- at least for Cisco -- has become a "death by trial" situation where engineers and other employees get sucked into lengthy, expensive, and potentially un-lucrative trials. Some residential networking companies have complained about how trials can become a burden. Back in 2009, Cisco told us 80 customers had been quietly testing Mediator.

3. Efficiency isn't as big of a selling point as many believe. Redwood Systems, which makes a building management system focused on controlling lights and other devices, has begun to add applications to its basic technology platform to make it more appealing. One of the favorite applications is one that lets employees better manage conference room reservations. A retailer wants to employ it to monitor how many people are in line at any given time. In other words, non-energy applications. Mike Dauber at Battery Ventures, an investor in Redwood, recently speculated that large customers may have trouble getting excited about efficiency.

4. Cisco screwed up the sales process and acquisition integration. It happens. Look at what happened to Flip.

5. I'm imagining all of this.

6. Ed got an offer from someone else. Recently, Scientific Founder John Pitcher defected to Serious Energy.

I put the most stock in theories one, two and four, but number three bears watching. Home networking companies are already discovering that the cost/benefit equation is a tough sell. Utilities will likely have to subsidize these systems to get HAN equipment in sizeable numbers into the market. Perhaps commercial building owners are waiting for additional benefits -- utility refunds or retrofit-as-a-service contracts like those offered by Transcend Equity -- before they take the building networking plunge.

And if number five or six turns out to be correct, it will be duly noted.