Survival Guide to the Smart Grid Platform

by Geoffrey Parker

The accelerating Smart Grid discussion has adopted the semantics of “open standards” for architecture and, by some stakeholders, “open source software.” But “openness” has many meanings, and not everyone is in agreement.  A more complete consideration of the issue is needed and, before new systems are widely deployed, the rules of engagement must be carefully crafted.

It is generally agreed that uniform technology standards are needed to create a functional Smart Grid to which vendors, utilities, and customers can all “plug-in.” Efforts underway by NIST, the federal government, and industry are beginning to make important strides in establishing those compatibility standards.  Additionally, more "openness" is seen by many as the key to unlocking vast economic and social value from creative third-party “garage-shop” development of energy services that we are yet to even imagine.

But advocating "openness" leaves much to decide.  What standards will be turned over to the public domain, and which will remain under the commercial control of their developers?  A review of other industries is instructive.

The Platform Framework

Management and economics scholars have recently developed a useful set of tools to describe complex markets in terms of a “platform” that matches service providers to customers. (See links at bottom.) This model has proven useful in describing markets for products such as personal computers, cell phones, gaming systems, streaming media, and telecommunications infrastructure. These markets can be described in terms of systems where developers build “applications” on top of a “platform.” Such systems have become an important way in which firms organize innovation.

Consider that few firms are able to provide a full complement of service applications for their platforms, but instead rely on developer pools to extend their platforms’ functionality. For the developers to participate there must be access, not only in an engineering sense, but also in an open contractual sense.  Contractual access allows market participation without the need for bilateral negotiation and provides enough incentive that developers wish to make investments to extend systems.

The platform view is a useful framework with which to understand how Smart Grids might evolve and as a guide to avoid pitfalls that might stall the growth of a critical industry.  A concern is that new Smart Grid systems will be rigidly designed to enable a few important applications, but will be inflexible to unexpected innovations that hold the potential for increased profit and social benefit.  This is where learning from information industries might be especially useful.

To Open or Not to Open?

We recently explored questions of when and where to open levels of a platform. (See links at bottom.) Although we specifically investigated mature computer platforms in that paper, the general lessons are applicable to the budding Smart Grid.

First, we must understand what it is to be “open.” A platform is open to the extent that (1) no restrictions are placed on participation in its development, commercialization, or use; or (2) any restrictions (for example, requirements to conform with technical standards or pay licensing fees) are reasonable and nondiscriminatory —that is, they are applied uniformly to all potential platform participants.

Second, it must be understood that platform-mediated networks encompass several distinct roles, including:

1. Demand-side platform users, commonly called “end users”;
2. Supply-side platform users, who offer complements employed by demand-side users in tandem with the core platform;
3. Platform providers, who serve as users’ primary point of contact with the platform; and
4. Platform sponsors, who exercise property rights and are responsible for determining who may participate in a platform-mediated network and for developing its technology.

For a given platform, each of these roles may be open or closed. Consequently, characterizing a platform as “open” without referencing relevant roles can cause confusion. Table 1 highlights the extent of openness within these roles, on four familiar platforms.

Since all of the platforms in Table 1 are successful, we cannot make general statements about the attractiveness of open versus closed platform strategies. There is an inherent trade-off in opening up a platform to developers. On the side of increased openness is the potential for innovation and resulting social benefit that otherwise would not occur by a rigidly closed design. But compelling reasons for closed access exist, especially early in the life cyle of a new platform. Often, in order to solve "chicken and egg" adoption problems, firms will subsidize either the demand-side or supply-side of the network. For example, supply side developers often have access to free system developer kits and technical support in order to make it easier to create the content that attracts paying users. However, such subsidies are wasted if they enable value creation for competing networks. In addition, high security concerns may lead to strong platform control early in the smart grid's life cycle.

Smart Grid “applications” are envisioned for improved real-time price response, more efficient delivery mechanisms, the integration of intermittent resources into distributed generation, increased options for energy-use management, and improved robustness to natural events such as hurricanes and ice storms.  But once these initial applications are provided, what else might we expect to see on the Smart Grid platform? 

If the history of platforms like Apple’s iPhone is any guide, then we might be surprised.  At first, the iPhone provided telephony and multimedia functionality supplied only by Apple.  However, once the platform was partially opened to developers, a thriving developer-led ecosystem grew to deliver thousands of applications in diverse categories including business productivity, news, and games.

Yet the iPhone remains a relatively restricted platform and is only open for some prospective demand-side users under onerous terms.  In the U.S., only AT&T Wireless subscribers can use an iPhone.  To buy one, other mobile carriers’ customers must switch to AT&T, incurring inconveniences and contract termination fees.  Other roles in the iPhone network are closed. Software applications for the iPhone are only available through Apple’s iTunes Store. Apple reserves the right to reject third-party applications due to quality or strategic concerns, and often does so (supply-side user role). Finally, only Apple manufactures and distributes the iPhone (platform provider role) and Apple is solely responsible for the iPhone’s technology (platform sponsor role).

In the Smart Grid domain, one prominent application is the possibility of integrating plug-in hybrid vehicles into a system’s reserve capacity and using their quick response to smooth demand. Enabling access for remote providers to deliver commercial and residential efficiency services provides another. Those, however, are only a few examples we can think of.  The unknown and not yet imagined applications are what give the Smart Grid claim to “the next Internet” potential.

Before the vision of a robust Smart Grid platform market is realized, markets must be carefully designed to promote access and participation.  Much can be learned from both the successes and failures of other platform markets.  Critical issues include security, rights to control core engineering standards, intellectual property, information, and evolution.  Until these issues are carefully considered, a large-scale system rollout may be premature.  The technology providers are moving rapidly to deployment, and the time is now for economic and regulatory frameworks to catch up.

Geoffrey Parker is Director of the Tulane Energy Institute and Associate Professor of Economic Sciences at the A. B. Freeman School at Tulane University in New Orleans, LA.  Parker's research focuses on energy markets, network platforms, and distributed innovation. Parker collaborates with the Energy & Environment practice of Charles River Associates on Smart Grid projects. The views expressed in this article are those of the author and do not necessarily reflect the opinion of Tulane University, the Tulane Energy Institute or Charles River Associates.

Email Geoffrey Parker

Tulane Energy Institute

Charles River Associates consulting page

Eisenmann, Parker, and Van Alstyne, "Strategies for Two-Sided Markets." Harvard Business Review

Eisenmann, Parker, and Van Alstyne. "Opening Platforms: When, Why and How?"

SGN analysis of Tendril as a platform producer