Shayle Kann and the GTM Research analyst team give GTM Squared members insight into off-the-cuff internal discussion and debate on breaking news from solar, grid and energy storage markets.
Shayle Kann Senior Vice President, Research: Opower sold at roughly half its IPO price to Oracle this past Monday, following an up-and-down two-year ride on the open market. What happened to Opower, and is this a grid edge success story or market letdown?
Ben Kellison Director, Grid Edge Research: Some hype wore off and some reality set in, but this company was not one that was on the rocks. Most customer analytics firms would kill to have the utility customer list that Opower has amassed.
However, utilities have been slower to adopt analytics solutions than the industry expected. This, coupled with delayed AMI rollouts -- a key enabler for leveraging Opower's platform -- has meant that business has developed in a different manner than expected.
Andrew Mulherkar Analyst, Grid Edge: Good point, Ben. With slower-than-expected growth in its core energy-efficiency and behavioral demand response applications, Opower also tried expanding its offerings to address an emerging industry focus on customer experience -- and to unlock more generous budgets for utility customer care and marketing. This expansion saw the company add tools for digital self-service, as well as tools for call center representatives.
Ben Kellison Director, Grid Edge Research: It was a curious expansion, though, as Opower entered into a partnership with billing and customer care provider Oracle in April 2015 even as Opower itself was developing similar applications. This initial relationship has now obviously gone much further than a partnership, a theme not uncommon in the market.
Many larger vendors acquire smaller providers that they first get to know by partnering on a few initial deployments. Oracle has already done so with customer and utility network operations software provider CES International. We also saw a similar scenario with GE's acquisition of GIS provider Smallworld. And the list goes on.
Shayle Kann Senior Vice President, Research: Do you think this was a good deal for both parties?
Andrew Mulherkar Analyst, Grid Edge: This provides Oracle with a great addition to its digital customer experience offering. Oracle has one of the strongest positions in the traditional enterprise customer information system (CIS) market, but seemed to find less traction with its customer data analytics applications built from its 2012 acquisition of DataRaker. The customer analytics market is not nearly the size of the CIS market, which often commands an installed-and-integrated cost of $60 per customer at a utility, but Opower's applications bring strong differentiation and additional value to Oracle's CIS offering.
Ben Kellison Director, Grid Edge Research: This will also benefit Opower, as scaling sales efforts to increase its international presence requires a significant investment. The acquisition drastically increases the sales reach of the organization and offers it relationships with a vast array of utilities. Additionally, Oracle provides Opower with the opportunity to integrate more tightly to Oracle’s operational systems (DMS, DERMS and OMS) to enhance Opower's ability to further develop applications for customer-sited DER.
I’d be interested to get Steve Propper’s thoughts on which players are most affected by this move and how will they respond.
Steve Propper Director, Grid Edge: I'd expect this move to kick off some potential industry consolidation within the grid-edge customer engagement/analytics space over the next year. The trend of a large established player like Oracle buying into a vertical application market is nothing new, and we've seen this pattern play out in other software markets before (recall the enterprise business intelligence consolidation of the mid- to late 2000s). The market could pivot attention once again to vendors with established roots in the residential utility market like Tendril, Simple Energy or others that have strategic partnerships in place, but lack the market muscle of an Oracle. There was an attempt at industry consolidation with vendors in this category before 2010 when the market was more nascent, but the value proposition of these solutions has increased as the grid-edge market has developed and matured in recent years.
Firms like Comverge or EnerNOC, which are increasingly looking to pivot from demand response into customer energy engagement, will be interesting to watch as they go to market and position their offerings to a broader set of utility and customer stakeholders. Additionally, Oracle's competitors on the CIS/customer operations front may look to acquisitions to expand their digital capability and compete in this space as well.
It's also worth noting that this trend aligns not only with software market trends, but also with the changes happening within the utility as an organization. As the lines between customer operations and IT groups increasingly merge with those of the customer care and customer experience groups, there will be a growing interest within utilities for solutions that are integrated across these business lines and lower overall O&M and integration costs in the long term.
Katherine Tweed, you cover Opower closely. Any insights on your end?
Katherine Tweed Senior Reporter: The Opower acquisition by Oracle illustrates two issues: just how difficult it is to scale business in the notoriously slow world of utilities and just how far utilities still have to come in basic customer engagement. There are a lot of startups out there with great tools to help utilities become the energy services providers of the 21st century, but many regulated utilities just aren't ready to go there quite yet.
Opower was slowly moving beyond its core business of basic efficiency reports, but the efficiency offerings weren't that successful in deregulated international markets. As part of Oracle, the ability to expand internationally should be significant, as Ben noted.
After the IPO, Opower had staked its next round of growth on customer engagement, an area in which many utilities still perform poorly. In deregulated environments, it's about churn, while in some regulated markets, it's about creating goodwill as distributed energy resources start to chew away at the customer relationships that utilities have established.
Beyond a few large forward-thinking utilities, however, it's unclear how many are seeking to overhaul their customer experience in the next few years using the type of analytics and tools Opower has developed. As a part of Oracle, Opower can offer its analytics at the point of sale when utilities are thinking about upgrading their CIS, a significant investment, which is probably a better opportunity than as a standalone sales pitch. The deal, while a relatively good one for both Opower and Oracle, should provide pause to other startups that followed in Opower's footsteps about the reality of scaling and booking new business in the regulated utility market.