MS/ABB: My Smart Grid Dream Team Combo # 1
Did you read the story about Apple passing Microsoft in market cap as of May 26th at $222 billion compared to Bill Gates’ $219 billion? This is one of the great rivalries of the tech world but I am not sure it means much when you consider the vastly different strategies these two companies have pursued.
Microsoft sought to be ubiquitous and be part of everything we do with its Windows operating system and Office productivity suite. It largely succeeded in that goal but finds itself in a place where cloud computing and advances in mobile technology are enabling us to ditch our desktop and thus Bill’s grip on our wallet to get things done.
Apple is also a control freak and Steve Jobs’ Apple Ecosystem is the envy of every tyrant for its full control over every aspect of life along the information food chain. Mess with Steve and you get “flashed” right down the Apple toilet!
What does this have to do with Smart Grid?
Smart grid is struggling because so far it has been all about meters and subsidies from the Federal Government. The Feds can spend money like drunken VC wannabe’s installing smart meters but without the rest of the software, sensors, gadgets and devices needed to make them user friendly consumers will see smart grid as that menace that raises our utility bills.
For utilities smart meters were a convenient way to get state regulators to pay for upgrades to the distribution system with Federal subsidies on the promise that something good—we don’t really know what yet—will come of it. For utilities the promise of smart grid is back office efficiency from laying off all the meter readers and improving distribution automation. But there is a problem. The problem is what do we utilities do with all this dang data? And how do we deal with the raised expectations of our customers for—eee’gads—better service! What do they want? We keep the lights on!
So we’ve reached an inflection point where the capacity of utilities to deal with the complexity of smart grid exceeds their business models and core competencies and collides with customer aspirations for better energy information, better energy options and stable if not lower energy bills.
And when that utility bill arrives in the mail expectations are dashed and steam pours out of the customers’ ears at how much their utility bill is going up to pay for the collective costs of our politicians’ aspirations for smart meters, renewable energy and emissions reduction. Smart grid gets the blame.
VC firms and the start-ups they fund in the smart grid enabled cleantech space do NOT want smart grid to get sucked up into the regulated utility for fear that those pesky state regulators will redistribute the wealth they hope to create and give it back to customers—damn socialists!
Regulators don’t want smart grid to get sucked up into the regulated utility either, but for different reasons—they doubt the culture of the utility will allow the innovation and entrepreneurial spirit necessary to make smart grid actually work. Besides, they can just wait for smart grids promise to play out and then take back the savings that flow to the utility in the form of lower operating costs and use it to reduce rates instead of improving earnings. Gotcha!
The problem is everything is changing for utilities, for investors, for regulators and for customers, and the way we manage the power grid—but no one is happy about it right now
Let the Smart Grid Consolidation War Begins!
Recently ABB announced it was buying Ventyx (my former employer) for $1 billion. Ventyx came along way in a short period of time. ABB said it was buying Ventyx to improve its competitive position in the smart grid space. The trade press said ABB was falling behind after muddling along in its traditional slow growth engineering, equipment and power system services business lines. Ventyx gave ABB software for operations, analytics, logistics, trading and risk management solutions configured more for the smart grid future. All true, but the question is will Ventyx be enough to enable ABB to complete with GE, Siemens and others?
So what should ABB do with Ventyx to get $1 billion in value out of the deal?
That question lead me to an interview that Jon Arnold at Microsoft gave to Phil Carson at The Intelligent Utility blog. Jon Arnold is a very smart guy and his interview tells the story of being quizzed by Bill Gates about what MS was doing in the power grid and utility space several years ago. Read it. It tells the story of customer frustration and Microsoft’s view that one option for applying its business model of ubiquitous recurring revenue is to position MS to be the guardian of the customers’ user experience at the front gate of the smart grid. If MS can do for smart grid what Windows and Office did for their niches then life would be good. Microsoft’s Hohm portal is Redmond’s front gate approach to the ‘consumerization of energy management’ as Arnold calls it.
The risk for MS is that might end up for them like Zune. OK as far as it goes, but it’s just not as cool as iPod. And worse, now with iPad it would only take a clever app purchased, of course, from Steve Jobs Apps Store to push MS aside with a bright shiny new toy. And while people have come to trust MS for Windows and Office few will believe MS knows anything about the power grid. So if MS sees Smart Grid as its next big thing it must do something bold and burrow deeper into the DNA of the electric power business.
Now back to ABB, one of the world’s great electrical engineering and construction firms. ABB knows power systems, it knows transmission grids but it knows little about the consumerization of energy management and buying Ventyx isn’t going to help much with that. ABB is buying stuff like Ventyx because it can—not because it knows what to do with them.
So my first Smart Grid Dream Team combination nominee is Microsoft/ABB:
If Bill Gates wants to rub Steve Jobs’ nose in the market cap game he should buy ABB and stake a MS claim to owning the smart grid by combining ABB’s power systems prowess with MS consumer software and marketing prowess.
While Jon Arnold gets all hot and sweaty about the consumerization of energy management at the customer level billions will be spent on power systems automation, distribution system automation, meter data management solutions and the network integration of all those machines, sensors and devices with world class operations software. MS/ABB could apply the MS ubiquitous recurring revenue business model to own the energy automation and optimization back-middle-and front office.
And on the seventh day when Bill Gates and his ABB “A” team are resting, Jon Arnold can HOHM consumers with Zune enabled energy management services.
And at a mere $32 billion market cap, ABB is a bargain for MS and would push it well above Apple again giving Steve Jobs a ‘come to Jesus experience’ since not a single App would be sold through the Apple ecosystem to get there.
If would one more thing, change the game for both Microsoft and ABB—and that might not be bad for both of them.