Why Tendril may (finally) be positioned for growth
By Jesse Berst
For the past few years I've been negative on home energy management. Sales were slow. And hundreds of companies were fighting for a piece of that tiny pie.
(Yes, I said hundreds. Research firm Groom Energy has identified more than 300 companies in the energy management space.)
Today I'm going reverse my stand and predict that the sector is about to turn the corner, starting now, accelerating in 2013 and becoming widely known in 2014. Sales are rising (albeit gradually). And at least four companies are starting to separate themselves from the pack. Opower and Aclara in the data presentment subsector. And Tendril and Silver Spring Networks in data presentment + device control. (Use the Talk Back form at the bottom to nominate other contenders.)
In this article, I want to talk about Tendril and its prospects. As widely reported in the press, Tendril recently went through layoffs. Today it has 160 employees, with four offices in the U.S. and one in Australia.
Despite the layoffs, I think the company is positioned for a rebound. First, the sector is slowly ticking up. Pike Research says the category will grow at 38% per year to reach $2 billion by 2020. Groom Energy is even more optimistic. It says the energy management software category (which includes commercial and industrial as well) is already a $5.2 billion industry in North America alone and is growing at 40% per year.
Second, the company is positioning itself to be a leader in the next phase, which -- as I'll explain below -- will be about automation.
What comes after engagement and empowerment?
Tendril has been perfecting customer engagement and empowerment in concert with utility partners. (To learn more about Tendril's utility partnerships, click the links below to review the slides and/or watch replays from two recent webinars.)
Â· Leveraging Behavioral Science for Persistent Customer Engagement featuring Kansas City Power & Light
Â· The Science of Customer Engagement featuring Duke Energy
The next step, Steklac tells me, will be to move toward automation, and I heartily agree. I've long argued that relying on consumers to change behavior is at best a stopgap. It will be far better and far easier to train devices to be smart about energy than to train every customer.
I'm talking here about automated demand response and automated energy efficiency. I'm talking about a future world of smart, connected appliances; of grid-connected HVAC systems; of grid-savvy electric vehicles; and of many other smart devices, all of them connected by an underlying control platform.
I think autoDR and autoEE are poised for growth because 1) the autoDR spec is out, 2) the SEP 2.0 profile is finally ready, 3) hardware prices are coming down and 4) utilities are realizing what a pain it is to rely on fickle consumers to change their behavior in order to meet your goals.
The upshot: Right now Tendril is battling with Opower to be the best at behavioral science. In the future, they'll need to be the best at controlling devices. Certainly Aclara and Silver Spring see this future too. And I can only assume that Opower is working with Honeywell and other partners to bolster its device capabilities.
So Tendril wants to grow from its current behavioral emphasis to be the leader in the automation phase. And they have a reasonable shot at success, especially when you consider that this evolution actually takes them back to their roots as a control platform.
(What comes after automation? Optimization in near real time... but I will leave that to a future analysis.)
I see at least eight challenges Tendril must overcome. (Most of them apply equally to Tendril's rivals, by the way.)
1. Getting to scale. I believe 2013 will be the get-big-or-go-home year in home energy management. Or at least "get big enough to seem stable." Utilities may do pilots with tiny startups. But when it comes to system-wide deployments, they want a partner who is sure to be around for the long haul. As we move out of the trial phase and into the deployment phase, utilities will want to know that companies are past the "valley of death" and close to cash-flow positive. I think the leaned-down Tendril is within striking distance.
2. Providing lots of energy management applications. Both utilities and consumers will want to know how many apps the company has in its "apps store." Tendril is beginning to have a strong story in that regard, thanks to its long-term platform orientation and its Tendril application developer support program.
3. Overcoming consumer apathy. Only a small percentage of customers really care about managing their energy. For the rest, the effort is just not worth the $5-$10 per month in typical savings. Only when the industry finally gets to automated systems will utilities truly be able to tap into residential demand response. Which brings us to...
4. Automating demand response and energy efficiency. We are all coming to realize that relying on consumers to change their behavior is not a great long-term solution. Far better to automate as much as possible (while still allowing customers to set their preferred parameters, of course). Achieving that automation will be Tendril's next big hill to climb - and the computational challenge will be even steeper than with its current behavioral approaches. Here companies like Tendril and Silver Spring may have an edge over companies focused primarily on behavior.
5. Overcoming regulatory hurdles. It's not just that Tendril needs regulatory mandates and incentives to "persuade" utilities to adopt demand response and energy efficiency. It's also that some PUCs are suspicious of targeted marketing. Tendril's mantra is personalization, giving customers only what they are most likely to want. Some PUCs believe that anything offered to one customer set must be offered to all customers, at the same time and on the same terms.
6. Expanding past residential. Some utilities may prefer to deal with one partner for all customer programs, whether residential, commercial or industrial. Can Tendril grow beyond its residential roots? And should it? Or should it remain focused on consumers? The real action these days is in small- to mid-sized commercial. What's more, many companies currently focused on commercial & industrial have residential in their sights next.
7. Competition from adjacent sectors. Yes, I believe the home energy management space will see some failures and some consolidation, reducing the confusion. On the other hand, dozens of companies from adjacent sectors are crowding into the residential space. All this noise makes it hard to get noticed no matter how good your offering.
For example, here is a partial list of overlapping sectors. I've included an example for each, but in reality each category has many competitors.
Â· Big box retailers (Lowe's)
Â· Cable companies (Comcast)
Â· Home security companies (ADT)
Â· Controls vendors (Schneider)
Â· Demand response providers (Comverge)
Â· Energy efficiency specialists (C3)
Â· Metering companies (Aclara)
Â· Smart device makers (NEST)
Â· Unified operations centers (Calico Energy)
Â· Utilities on their own (ConEd)
8. Venture capital overhang. Tendril has obtained roughly $100 million in venture funding and convertible debt. Some of it comes from industry sources such as Siemens Venture Capital and GE who can be presumed to have a long-term view. But some of it comes from independent VCs who may have a shorter horizon. VCs typically want their money back -- plus a fat return -- in a relatively short time frame. And some of those VCs can get pushy if a successful exit fails to materialize on schedule. (Just ask GridPoint.) If they lose faith, they may press Tendril to accept a less-than-ideal buyout offer from a larger firm, or otherwise compromise Tendril's options.
If you want evidence of Tendril's progress, click to view a recent Tendril press release that documents some of the company's recent milestones. And feel free to use the Comment form below to agree, disagree or expand on my commentary.
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From the SGN Research Marketplace...
Building the Technology Framework for Home Energy Management: This IDC Energy Insights report provides analysis of the home energy management (HEM) technology stack based on our interviews with utility decision makers including chief information officers (CIOs) and solution providers. Many utilities are somewhere on the continuum of piloting programs such as demand response, load control, energy efficiency, and customer education; all of them could involve home energy management. Get details >>
Jesse Berst is the founder and chief analyst of Smart Grid News.com, the industry's oldest and largest smart grid site. A frequent keynoter at industry events in the U.S. and abroad, he also serves on advisory committees for Pacific Northwest National Laboratory and the Institute for Electric Efficiency. He often provides strategic consulting to large corporations and venture-backed startups. He is a member of the advisory boards of GridGlo and Calico Energy Services.