Here’s a story about two smart meter networking companies that are becoming contenders in the internet of things.
Itron announced Monday that it plans to acquire long-time rival (and occasional partner) Silver Spring Networks, in a deal valued at $830 million. The acquisition represents a 25 percent premium over Silver Spring’s closing share price the Friday before.
If approved, the deal would create a company with more than 90 million networked endpoints -- combining Itron’s older and newer generations of electric, gas and water meters with Silver Spring’s network interface card-equipped electric meters and smart streetlights.
On that measure alone, the combined company will be on its way toward taking the title of the world’s largest advanced metering infrastructure vendor from Switzerland-based Landis+Gyr, according to data from GTM Research’s Grid Edge Service.
In North America, Silver Spring has just over a quarter of the market, while Itron has just under a quarter. Together, they would easily become the largest AMI provider on the continent.
Landis+Gyr has just under one-fifth of the market, with some 18.7 million meters. The rest is split up with Sensus, which has about an eighth of the market, and Elster, Aclara, Trilliant, SmartSynch (now Itron), Tantalus and Echelon making up the tail end.
In the global context, however, Landis+Gyr is the leader, with roughly 20 percent market share. And it's expected to retain a slight lead against the combined companies, GTM Research analyst Paulina Tarrant noted.
Landis+Gyr also holds some of the largest contracts, including Tokyo Electric Power Co. in Japan and National Grid in the U.K. Silver Spring has seen significant penetration in markets including Brazil, Mexico and Australia, where it’s the market leader, and Itron has seen some large-scale contracts in Brazil and France in recent years.
But installed endpoints aren’t the sole measure of merit for this merger. With smart meters increasingly becoming a more saturated and lower-margin business, Itron, Silver Spring, Landis+Gyr and the other contenders in the smart grid networking field are increasingly casting their eyes toward more lucrative, more predictable and faster-growing lines of business.
This can include building a greater portion of revenues from software and services being provided over these ever-expanding networks, to capture ongoing revenues and reduce the up-and-down, one-time nature of AMI contracts. It can also mean tapping the expanding world of distributed energy resources that can be networked for utility purposes.
And outside the strict boundaries of the utility, Itron and Silver Spring are seeking opportunities in the far larger, yet far more nebulous, world of smart cities and internet of things -- streetlights, parking meters, security cameras, traffic sensors, and the plethora of consumer devices that can commune with the cloud.
Itron presented some very rosy projections for these new fields of endeavor, amounting to market opportunities an order of magnitude greater than the core smart grid networking business lines.
To understand the path ahead for the Itron-Silver Spring combo, it’s important to review where each company came from, and how radically the industry is changing today compared to the past 40 years or so.
From AMR to ARRA: A brief history of the modern smart meter landscape
Itron got its start in 1979 as a maker of automated meter reading technology -- the so-called “drive-by” meters that emitted a regular bleeping of core data that could be picked up by receivers held by utility workers driving down the street. There are more than 100 million of these devices now deployed across the United States, many of them nearing end-of-life.
In the 1980s and 1990s Itron bought a number of metering companies in Europe and expanded into Asia. But faster growth came with its 2004 acquisition of Schlumberger Electricity Metering and its 2007 acquisition of Actaris, a big European metering provider also spun out of Schlumberger.
At around this time, Silver Spring Networks was moving its offices from a garage in a Milwaukee-area suburb to offices in Silicon Valley, raising funds from Kleiner Perkins, Foundation Capital and Google Ventures among other investors, and making a play for a new style of advanced metering infrastructure (AMI).
It had two key differentiators. First, it was a networking company, not a metering company. Its networking interface cards were integrated into meters built by Itron, Landis+Gyr, General Electric (now owned by Aclara), Elster and others.
Second, Silver Spring declared itself to be end-to-end Internet Protocol compliant -- a claim that got some attention in 2009, after its lobbying efforts resulted in a rule introduced into American Reinvestment and Recovery Act legislation, stating that AMI vendors would have to be IP-compliant to play a role.
The rule was quickly dropped after Itron, Landis+Gyr, and other AMI vendors objected. They said no vendor, including Silver Spring, could claim to utilize open standards-based technology that compared to, say, Wi-Fi for IP, across the layers of their networking and communications stacks.
These arguments took place amidst the first wave of big AMI contracts that required two-way wireless mesh networks for connecting all residential customers.
That precluded AMR on the functionality side, and cellular-networked commercial and industrial meters built by Itron, Landis+Gyr and other vendors on the cost side -- although it’s notable that Itron bought U.S. cellular metering provider SmartSynch for $100 million in 2012. This is all different in Europe, where cellular meters and power line carrier technologies are dominant.
Itron and Silver Spring competed for North American utility contracts, starting in the pre-stimulus wave of rollouts in California, where Itron won Southern California Edison and San Diego Gas & Electric, and Silver Spring got Pacific Gas & Electric and Sacramento Municipal Utility District.
By the time of its 2013 IPO, though, Silver Spring seemed to be in the lead, with multimillion-unit meter deployments at Florida Power & Light, Oklahoma Gas & Electric, Pepco, Baltimore Gas & Electric, Commonwealth Edison and Progress Energy. Since then, its largest wins have included the 5.2-million meter rollout with New York utilities Con Edison and Orange & Rockland and a 2.8-million-customer rollout with Entergy.
Itron’s list of multimillion-meter wins include a 3.3-million rollout with Centerpoint in 2009, a 2-million-meter deployment with FirstEnergy in 2014, a 500,000-meter extension of what could become a 4-million meter rollout with Duke Energy, and a 1.3-million meter deployment with National Grid.
But both Itron and Silver Spring faced some significant challenges in the post-stimulus period, when North American metering contracts slowed significantly, and the two failed to pick up some of the largest international contracts, such as the TEPCO and National Grid U.K. deals won by Landis+Gyr.
Itron went through two rounds of layoffs in 2011 and 2013, and underwent a broad restructuring in 2014 to move away from legacy products and concentrate on more modern technology offerings. And Silver Spring announced its own layoffs and restructuring plan in 2014 likewise aimed at its “growth and key businesses.”
The big shifts: Software and services, distributed intelligence, and networks beyond the utility
For the two companies, the solutions were largely the same. First, both made an effort to grow their shares of managed services and software-as-a-service. Silver Spring made this a primary focus over the past several years, increasing these categories to roughly 20 percent of revenues, or about $60 million in fiscal year 2016.
That annual growth rate of 17 percent is an attractive metric for Itron. It wants to grow software revenue from roughly $200 million today to more than $500 million in the coming years, both through organic growth and acquisitions -- including Silver Spring and its $100 million purchase of demand response provider Comverge earlier this year.
Beyond that, however, Itron envisions an even broader market in what it calls “outcomes+analytics+orchestration,” a term that Sharelynn Moore, senior vice president of Itron’s Networked Solutions group, defined in an interview this week as “taking it to another level beyond managed services and running the network as a service.”
That could include the managed smart grid network concept that’s been promulgated by grid vendors over the past few years, albeit with a fairly low uptake amongst utility customers. Or it could include deploying new capabilities on an existing network, and sharing the resulting revenues and cost reductions with the customer, she said.
Second, both companies made major investments into improving their technologies to meet that long-ago promise from Silver Spring of an end-to-end IP network. Itron’s big move into IP came with its 2010 partnership with Cisco, aimed at merging Itron’s 900-megahertz unlicensed band mesh networking with Cisco’s smart grid routers.
From the first joint deployment in 2012 with Canadian utility BC Hydro, Itron claimed an “open architecture” for its AMI networks by 2014. Later that year it launched its Riva platform -- an open standards IPv6 network with Linux-programmable, Cisco IOx fog computing-capable field devices, able to share data and make decisions without spending the time and bandwidth to communicate with central office servers.
Riva is capable of running over mesh, cellular or PLC, and Itron is connecting it to EV chargers, solar inverters, load controllers and other nodes beyond the standard meters and distribution automation equipment.
Itron laid out a multitude of utility-centric use cases during its 2015 Utility Week event. Its biggest unveil was a pilot project with Spokane, Washington and local utility Avista, called Urbanova. It is Itron’s first move into networked streetlights, air quality sensors, and other city-centric endpoints, along with solar PV and battery inverters testing transactive energy concepts developed in the DOE’s Pacific Northwest Demonstration Project.
Silver Spring’s big move into distributed intelligence platforms came in 2014 with the launch of its SilverLink Sensor Network, aimed at providing the same distributed computing and applications interface as Itron envisioned with its Riva platform and Cisco partnership. It’s made use of the network for utility-facing applications like improved theft detection, tapping data from partners like Sentient Energy and the software provided by Detectent, which it bought for $12 million in 2015.
Silver Spring also got into the streetlight game early, through its partnership and eventual acquisition of Streetlight.vision. That helped it land standalone streetlight projects for European cities, including Paris and Copenhagen, and expand the offering to smart meter customers like Florida Power & Light and Commonwealth Edison.
This streetlight work helped pave the way for the launch of its Starfish network in late 2015, a “robust, scalable and secure IOT networking solution” built with non-utility clients in mind.
To prove it wasn’t just an expanded AMI network, Silver Spring highlighted its plan to expand IOT coverage across the city of San Jose, California, independent of its PG&E meter network. It did the same with streetlight and smart city customers like Copenhagen and Glasgow, as well as with utilities like San Antonio, Texas municipal utility CPS Energy.
Itron and Silver Spring said their technologies will be integrated on an ongoing basis. Both have been building on standards-based technologies, including IPv6 networking and the IEEE 802.15.4g wireless mesh radio technology that’s slowly coalescing into standard form, through the work of the Wi-SUN Alliance industry group.
At the same time, Silver Spring CEO Mike Bell told us last year that the true competition isn’t with other AMI vendors, but with a newer generation of low-power wide area network startups, such as Sigfox and Semtech, whose systems are purpose-built for connecting large numbers of low-power, distributed devices.