Echelon's smart grid strategy coming into focus... and it is NOT aimed at the U.S.

By Jesse Berst

Echelon just announced a cloud-based smart metering solution for a small Danish cooperative. It is further evidence of a trend many are predicting -- namely, that utilities in general and small utilities in particular will migrate towards hosted solutions. Smaller utilities simply don't have the manpower to run big data centers. If they want ultra-sophisticated software, they'll have to get it via cloud-based services, where a vendor can get economies of scale by hosting services for many different utilities.

I thought this was a good excuse to take a fresh look at Echelon and its overall strategy. Because the company does most of its business overseas, it often gets dismissed by U.S.-based analysts. Lately, however, it has started to look like Echelon's overseas orientation could prove a benefit in the long run. I spent some one-on-one time with CEO Ron Sege to find out where he's steering the company next.

Did you ever play Risk as a kid? It is a board game where you try to achieve global domination by conquering one region at a time. The game quickly teaches you not to focus exclusively on North America. Put too much effort there and you will be overwhelmed by an opponent who has amassed strength in other parts of the globe.

I wonder if Ron Sege played a lot of Risk when young? You might think so if you examine his strategy to build Echelon into a leading smart grid company. (Notice I said smart grid, not just smart metering. More on that later.)

Bullish on the smart grid

Sege is a thoughtful fellow who has been at Echelon's helm for about a year. Prior to that he had stints as President and CEO at 3Com and at Tropos Networks. Like me, he spent his formative years in high-tech. (He was telecom and networking, I was IT.) That background has made him very bullish on the smart grid. "It has so many similarities," he says. "An early-stage market ready to lift off."

Going where the money is

Sege inherited a firm that is much better known overseas than in the U.S... and that's fine with him. "Investors and analysts focus on U.S. deals as the end-all," he comments. "But I don't see the same political will or the same market drivers in the U.S. as elsewhere." He points out that other regions have a shortage of supply; or big theft issues; or strong political mandates; or some combination of factors that make them better prospects for growth in the next phase of the smart grid.

(My take: Fair enough, when you take the long view. But I would argue that Sege's predecessor missed an opportunity to cash in on the U.S. market while waiting for the rest of the world to get rolling.)

Sege sees Brazil, Germany and China as three big growth opportunities short term, followed closely by South Africa, Russia, and portions of Latin America. The company can already claim an 81% share of all smart meters in Europe. It also has a newly announced partnership in China with great promise. When you realize that China's five-year plan calls for 300 million smart meters, you can understand why Echelon wants to be there early.

What about prospects in the U.S.? I think Echelon's North American hopes ride on the success of its deal with Duke Energy. And so far, so good. The first tranche of meters installed were recently audited to good results. Given Duke's goals of creating a single company-wide architecture whenever possible, there is real hope that Duke will continue with Echelon for the rest of its smart meter rollout. And, given that Duke is purchasing Progress Energy, Echelon may have a leg up there as well.

Differentiation strategies

Here are some of the ways in which Echelon is trying to gain competitive advantage:

·         Multi-purpose platform. Like rival Silver Spring Networks, Echelon is building out its system to accommodate distribution automation, electric vehicles, renewables integration and more. Sege has big ambitions here, calling Echelon's strategy "an Android model." His partners already include the likes of Oracle, S&C Electric and Coulomb.

·         Multi-pronged go-to-market strategy. Echelon will sell entire turnkey systems. But it will also deliver just the components. In both Brazil and China, Echelon is providing the guts and its partners are providing the rest.

·         Powerline as a communications option. In the U.S., Echelon's powerline technology has been a liability. (It now has an RF option as well.) In some other parts of the world, powerline has cost, reliability and simplicity advantages.

·         The Edge Control Node. Echelon makes a device that attaches to transformers. It acts as a communications hub (supporting multiple connectivity options) and as a concentrator. It collects data from the meters that are attached to that transformer. But it does two other important things. First, it can also collect data from other sensors. Second, it has enough intelligence to aggregate and preprocess the data. The node then sends along only what's needed – aggregated totals, exceptions, alerts, etc. This approach minimizes communications congestion.

Click to page 2 for Sege's perspective on utility priorities around the world >>