Elster strategic overview: Playing well with others
By Jesse Berst
I periodically look at major players in the smart grid space to assess their strengths and challenges. My goal is to help utilities decide which vendors will make the best long-term partners. With the May, 2013 appointment of a new President for Elster Solutions and the recent adoption of a refreshed strategy, Elster is stepping up to make a strong push in 2014. Having noticed Elster's renewal, I arranged to spend time with President Mark Fronmuller to learn about Elster's strategic directions.
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When the smart grid launched in earnest more than a decade ago, most major vendors competed with proprietary approaches. Today, most vendors give lip service to interoperability. But the company that's putting the most real effort into interoperability -- to my surprise, I'll admit -- may well be Elster. It has launched an effort to become genuinely interoperable, which I label "play well with all others."
I say "to my surprise" because for years, Elster was perceived as "good but not great" by many North American buyers. It had solid products, but its marketing efforts were lackluster. What's more, it rarely played the thought leadership game that helped some of its rivals gain mindshare. (To be fair, its marketing and its reputation were stronger in Europe than in the U.S.)
The parent company, Elster Group, is headquartered in Germany. It employs roughly 7,500 staff and operates in about 40 countries. It supplies meters for electricity, gas and water, plus related communications, networking and software. Over the past decade, it has installed more than 200 million meters of one kind or another.
"We are the facilitator," replied Fronmuller when I asked him to explain Elster's place in the electric power ecosystem. "Our systems collect, communicate and organize the data needed to deliver applications. We do not develop the core applications, we enable them with our technology and deliver them with partners such as Oracle, ESRI, and Calico Energy Systems."
Elster's offerings split into four major groups. Let's glance at all four, with an eye towards where Elster plans to take things in 2014 and beyond.
I see several areas of clear advantage for Elster.
Multi-service utilities. Many of North America's large investor-owned utilities have already installed meters and communications systems. The rest of them are dragging their feet. As a result, Elster (and many of its North American competitors) are turning their attention to municipals and co-ops. Here Elster benefits from its ability to handle electricity, water and gas on the same network and with the same head-end system.
Gas. Elster's gas metering has always been a strong suit. In addition, it has upstream capabilities that could be a growth niche when you consider the growing availability of shale gas and the number of utilities switching to natural gas generation.
Interoperability efforts. It's too soon to label Elster's play-well-with-all-others initiative a success, but it's clearly the right strategy.
Callisto concept. By the same token, it's too early to know if Callisto will be able to deliver all that it promises. But it is definitely making the right promises. Utilities urgently need unified operations and workflow automation.
Some of the challenges listed below are shared by many of Elster's competitors.
Go-to-market capabilities. It's one thing to be good at producing products and services. It's another to be good at taking them to market. In the past, Elster was what I refer to as a "tactical" marketer. They made sales calls on the meter shop. Meanwhile, many of its competitors were also calling on senior executives with a top-down sales pitch.
If Elster truly wants to be a thought leader and strategic partner, it will have to stick to its guns long enough to change minds. It is much harder to acquire mind share in the later stages of a market, as compared to the early days.
I see several signs that Elster is serious about stepping up its game. For instance, it has partnered with Smart Grid News and other vendors to produce a thought leadership guide to AMI. For another, Elster has reorganized to be more responsive to customers. They have formalized how sales feeds market requirements into product management so those requirements show up in future products. Teams now focus end-to-end from sales to product management to engineering to manufacturing to deliver innovations with speed.
Declining hardware margins. Competitors such as Itron and Silver Spring Networks are working hard to make software sales a significant part of their revenue. Yes, they partner effectively, but they also build applications on their own.
Elster is in the "middleware" business with its headend system, its MDMS and its workflow engine. But its decision to work almost exclusively through partners for applications will shut it off from that revenue stream. Don't get me wrong -- I believe Elster is smart to stick to its core competency. I don't think it has the DNA to be a software company. But even though it may be doing the right thing, it will still face the challenge of preserving margins in a world where value is migrating to software.
Building a partner ecosystem. Elster lags behind some of its competitors, who have built extensive partner networks to provide applications. Opening up its APIs should help. And, in theory, the Callisto workflow engine could make it very easy for Elster to embrace almost any application, including legacy and home-grown applications. If that proves true, this challenge may turn into a strength.
Many companies throw around the "plug-and-play" idea. Few can actually achieve it. With its play-well-with-all-others initiative and its unifying workflow engine, Elster may become the glue that makes plug-and-play a reality. If it can hit that goal, I predict it will achieve new heights.
Did I get it right? The Comment form awaits below.
Jesse Berst is the founder and Chief Analyst of SGN and Chairman of the Smart Cities Council, an industry coalition.