Tendril Networks - being smart about energy

Saturday, August 2, 2008

Over the last month, I have written several articles on smart energy. Yesterday, I also posted on the interesting parallels between cellular wireless and smart energy industries. Today, I will focus on the company that got me interested in smart energy in the first place - Tendril Networks.

Tendril Networks is a smart energy startup based out of Boulder, Colorado. Tendril was started with the intention of providing Zigbee middleware that can enable a multitude of applications. Since Adrian Tuck came on board as its CEO, Tendril has turned around and solely focused on the smart energy vertical. Smart move, I should say. Today, the company seeks to be a niche player offering a complete end-to-end solution for the utility company and the consumer.

Tendril, unlike other players in this market, has taken a customer-centric approach to the smart energy problem. The company’s philosophy is simple – give the consumer the choice. Consider the following situation -

It is peak summer and you cannot stay inside your home without the air-conditioner. It is very likely that your neighbors think the same way. The resulting peak utilization leads to capacity limitations. In a model being promoted by Tendril’s competitors such as Comverge (NASDAQ: COMV), the utility company steps in and turns off these high utility devices. This outage helps the utility company recover from this peak capacity crisis but may potentially ignore consumer inconvenience.

Tendril’s Residential Energy Ecosystem (TREE) begs to differ by passing the control and choice onto the user. The in-house display, Insight provides usage and cost details to the user. Examples of such data include variable electricity prices, current and projected usage and costs, price increase and emergency situations. So, if the utility company senses peak hours, it can send out warnings and spike the price and let the user react to it as against forcing an outage.

Besides the residential gateway that controls the devices and their usage, Tendrils’ USP comes with its backbone software portal. This portal, aptly named Vantage, allows the users to remotely control these devices and define rules for various signals from the utility company. You may, for example, decide that you want your heater turned on when you come home from office, no matter what the current rate of electricity is.

Tendril does have its share of challenges. It has to compete with existing metering and devices companies to gain foothold. Besides, it has its task cut out in terms of being able to convince the consumer of its benefits. If the device is not mandated at homes, the utility company may not see value in its solution. After all, if it can neither prevent outage nor monetize it enough if the consumer does not feel the need for TREE, then the entire model fails. Perhaps a work-around would be for the utility company to mandate TREE with subsidies for the devices.

Tendril looks to deploy its end-to-end solution in around 50000 homes by the end of this year by partnering with utility companies. The company has grown from less than 20 beginning this year to about 60 employees to match the rapid recognition and success it is gaining in the smart energy market. Adrian expects the company to grow to around 150 by the end of 2009 commensurate with the 10-folds deployment increase that it hopes to achieve during the same period.

Tendril raised $12 million recently and is looking for a much larger round of financing by the end of this year. For VCs and private equity companies looking at Tendril for an investment, I will say that Tendril is well-positioned to exploit growth in the smart energy market. This is true for the simple reason that the company has all components that have the potential to drive the value chain (read my previous article on the value chain here.) Depending on how the industry moves, the company has the ammunition to very quickly adapt, discard or outsource commodity and low-margin components to carve out a sustained revenue stream.

For me, Tendril is for smart energy what Qualcomm was for wireless twenty years ago – a bold startup with a complete, novel solution that efficiently addresses the capacity problems dogging its industry. Whether Tendril will meet with the kind of phenomenal success that Qualcomm has had will depend on the company’s understanding on the value chain drivers and also the strategic and tactical acumen of Adrian and his team.

[Note: In case this article sounds too esoteric, I would encourage you to read the previous Smart energy articles I have published here, here, here, here and here]

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Smart Energy and Cellular - a study of parallels

Friday, August 1, 2008

I recently started writing about Smart Energy as an exciting new technology frontier. There is another reason that Smart Energy was attractive for me. As I dug deeper and started thinking more about it, I found an uncanny resemblance between one of the possible smart energy business models and the cellular mobile carrier business model in the US.

The basic issue

The utility companies fear that they will be capacity limited in the future and wish to use smart metering as a way to slow the process. If, for example, the grid supported 20 users previously, they now hope that with ‘smart’ usage, 25 users can be supported. This will also guarantee a delay in the deployment of additional infrastructure. This, in turn, translates to a delay in Capacity Expenditure deployment.

This is very similar to the capacity problems that 3G network carriers will face as more users begin to extensively use their smart-phones for data. The carriers will turn to advanced transmit and receive techniques so more users can be supported for the same power expended at the base-station. This, in turn, will delay the deployment of more base-stations. Advanced receiver techniques like interference cancellation will assist the carriers to get a higher RoI as well.

The Value Chain

The cellular value chain, in my mind, comprises of four players namely the service provider, the cell-phone maker, the chipset/technology provider, and the consumer. In a model which is driven by the service providers trying to reduce CapEx, they will be driving the chain. In the US, for example, the service provider determines technology, the devices and the usage model. Until Apple changed the name of the game with its iPhone, the service providers called the shots here. Though the iPhone is tied to AT&T, it has been driving the increase in the latter’s customer base proving the power of brand and user experience.

The Smart Energy is closest to the cellular carrier-centric model. The utility company is akin to the service provider. The back-end software infrastructure and platform provider is parallel to the technology provider (e.g. end-to-end CDMA-based network for cellular). We have zigbee chipset companies such as Ember. I also like to use the cell-phone analogy to describe the two hardware components installed at the consumer site – the in-house display is parallel to the cell-phone and the gateway that controls the devices is similar to a femtocell or an in-house base-station.

The drivers

The Smart Energy value chain is slightly different in that the energy company has a monopoly. In other words, it is unlikely for the user to be able to pick the utility company. This implies that at least initially, the utility company will drive the value chain. A sound business case and monetization capabilities become imperatives. It is also the task of the technology providers (software platform makers, for example) to make their case with the utility companies. Their task is cut out – why is their system the best method for monetization? At the same time, how attractive is it to the consumer? How do they sell the devices and the services to the consumer?

These technology companies are hence in a position similar to Qualcomm’s about 15 years ago when the latter was trying to pitch CDMA to carriers world-wide. The difference, however, is that the utilities companies are more local and regional in scope. So, the technology companies will have to win over multiple utilities companies to grow market share. Hence word of mouth and deployment success become very vital.

Word of mouth will be driven by consumer feedback and user experience. So, much like the iPhone that has given 3G a big impetus in the US, devices with a great UI, look and feel become important as tools to mold consumer mindset much. The utility companies, in order to maximally monetize on ‘Smart Energy’ will go with the solutions that gain maximal consumer traction. Of course, devices/services that offer great consumer experience without much for the utility companies will automatically be sieved out of the equation.

The gateway companies will directly interface with the utilities companies to sell themselves. Gateways will be similar to the modems that Comcast installs at consumer sites. So, its capabilities will be driven by the needs of the utility company.

Clearly, while the technology and devices companies have the potential to drive the value chain at various points, I am not as optimistic about chipset companies. Though they will ride on shipment volumes, they will never be in the driver seat since the chipsets already seem to be commodity products.

A final word

So, while there are differences in the value chain between the cellular and smart energy industries, there are many similarities that cannot be ignored. On the contrary, companies should actively learn from how the cellular industry has evolved in the last fifteen to twenty years as they look to gain foothold in this promising new technology frontier. Feel free to contact me if you need additional insights along these lines. For now, let me throw in some future questions whose answers may well lie in past lessons –

How do companies protect themselves from another intellectual property war?
How about sustained consumer interest? Device churn etc.?

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Posted by Vijay Nagarajan at 3:58 PM 0 comments Links to this post