This post was originally published on Tendril’s website. Tendril is now Uplight.
Adrian Tuck, CEO of Tendril, recently sat down with Greentech Media’s Stephen Lacey and Julian Spector to discuss the evolution of the energy industry and what it means for the utility customer relationship. You can read the full transcript is available below:
Use these links to jump ahead:
- Introduction: Amazon’s transformative business model
- It’s time to stop passing grid issues to the customer
- Shifting from one market of millions, to a million markets of one
- Accessing the data, tools and skills needed to build customer relationships
- Where utilities stand in evolving the customer journey
- Working with new products and services in the home
- Building customer trust: What’s in it for them
- Not everyone needs to care about energy
- How Tendril has evolved alongside the industry
- Sustained results come from partnerships, not vendors
- Additional reading
Lacey: Amazon made $177 billion in 2017, selling us, well, everything, and knowing exactly when we’d want it and for how much. It was hard for most people 20 years ago to imagine just how transformative Amazon would become. In 1999, Bob Simon of 60 Minutes profiled CEO Jeff Bezos. Looking back, the language is clunky and a bit comical:
(Bob Simon) You can’t drop by, not in person anyway. For the customer, Amazon only exists on the computer screen. But Bezos does have an office, so we wangled an invitation.
Lacey: There’s an important moment in this story when Simon sits down with Bezos to look at his buying history and realizes just how much Amazon can already predict all the other things he’ll want. It’s quite a foreshadow.
(Simon) Now, every time I use your website, you learn more about me.
(Jeff Bezos) Yes.
(Simon) One of your employees has said that you collect half a gigabyte, whatever that is, of information on your customers every day. That’s about 350 floppy disks worth. What do you do with that information?
(Bezos) That’s the data that allows us to predict or try to predict what books and videos and music that you would like, that you haven’t discovered yet.
Lacey: That predictive analytical approach to understanding the customer, which we’ve all come to expect now in online retail, was Amazon’s special sauce. It’s what allowed the company to expand way beyond retail into computing, consumer electronics, entertainment, and now groceries and food delivery. Bob Simon captured just how mind-boggling that concept was a couple of decades ago.
(Simon) A couple of geeks who sketched out some software could destroy Sears Roebuck.
(Bezos) That’s the beauty of technology. And the microprocessor. We’ve never seen anything like it.
(Simon) But history has seen revolutions before, one thing supplanting another. Could Amazon and its tributaries be flowing towards the shopping mall and eventually drown it out?
Lacey: By now, the story about underestimating disruption is a familiar one. We’ve seen how it plays out, and it’s not pretty for the incumbents who fail to catch up with them, which is why it’s such a compelling narrative in the utilities space, where we are smack in the middle of an online bookstore moment. Electricity consumers want choice. They respond to personalization, but they still don’t really want to think about it, and there’s a whole new generation of technology providers who think they can give consumers what they want better than traditional brick and mortar utilities. That’s why Adrian Tuck sees the importance of talking about Amazon as a model.
Tuck: How did they go from one thing to this broad level of disruption? They massively focused on the customer and what the customer wants, and they looked at every piece of the chain and tried to make things easy and convenient for the customer from free shipping to next day shipping to same day shipping, to recommendations…“If you bought this, you might like this,” kind of things. They’ve really looked at all of those pieces and innovated rapidly in order to make their buying experience compelling and simple to use.
Lacey: Tuck is the CEO of Tendril, a data analytics software company that’s been delivering behavioral based energy services for over a decade and a half. It’s served some of the biggest utilities in the world. In fact, Tendril was founded back when Amazon was still seen largely as a bookseller.
When Tuck talks to utility customers, he tries to get them to imagine what Amazon would do if it was entering the utilities space. They use a lot of data to understand their customers. They’d offer a wide variety of rates and energy products. They’d make it as simple as possible.
And utilities are taking this customer centric approach, but there’s a catch. Often if there are problems on the grid, utilities pass them onto customers. Tuck explains, and then GTM’s Julian Spector takes over for a deep conversation on the next phase of the utility customer relationship.
Tuck: The grid is famously inefficient and is structured in a way to make sure we always have electricity whenever we need it. That means that at times there’s congestion in the network, and that will only get worse as more intermittent sources of energy come onto the grid.
Making that the customer’s problem by rolling out things like demand response or time of use pricing and effectively making the customer have to fix the problems in the grid is entirely the opposite way round to the way that Amazon would solve this problem. Amazon is all about, “We don’t want you to think about shipping, so we’re gonna give you Prime. We don’t want you to think about how many movies you’ve downloaded or what time of day you download them, so we’ll put them all in the same price and you can use it as much as of it as you want, whenever you want.”
That mindset of rigorously putting a customer first and imaging how to simplify and delight the consumer experience is, I think, the key to how Amazon has evolved and grown their business from online bookstore to the giant it is today.
Spector: Now, that’s fascinating, and do you think, obviously the utility business is very different, but still has a very personal relationship with their customer in terms of providing the power for their life. Are they finding innovative ways to really connect with that customer, put that customer first, and use that as a way to develop new lines of revenue?
Tuck: Yeah, I think at the vanguard of this industry, there are some incredibly creative people who are working hard to try to solve these problems. I’m not ready yet to say that the whole industry is moving in this direction, but we’re involved in some amazingly creative workshops where people are exploring different retail channels, different pricing models, different methods to bring power to the market, and it’s driven from this idea that historically utilities have treated their customers as all the same. From a regulatory perspective, they’ve been encouraged to do that.
In the last three or four years, that’s evolved from okay, they’re not all the same, to sort of segmentation into four or five segments, and what we’re seeing from the leading players in this space now is a move to what I call a million markets of one, right? This idea that every consumer has a personalized experience around energy, and that the recommendations, products and services that are offered to that consumer are offered in a unique way. That’s required some fairly fundamental changes in thinking. It’s required a change in thinking in the utility to understand that with data analytics and modern communications methods that’s a possibility and a desirability, and it’s required some complex conversations with regulators where the regulatory construct is often designed to make sure that those most at risk in a society are least likely to be harmed, and that’s a very laudable goal. So, regulations are constructed around low income communities and other forms of at risk communities to make sure that those people are not disenfranchised.
The challenge has been to find constructs under which those people are well served by the utility, but that doesn’t mean that other segments of society can’t move at different paces into different levels of engagement with the utility. So, that’s been the first sort of set of changes that we’re starting to see at the utility end.
I’d add one piece, which is that that’s required fairly significant organizational change in the utility. I’ve been staggered in the 10 plus years I’ve been in this industry at how siloed the utilities have historically been. The guy thinking about energy efficiency is in a different building from the guy thinking about demand response, who’s in a different building than the guy thinking about EV or solar. As such, the utilities have a wealth of data, but it’s very siloed. Not everybody yet has found ways to plum that data and information in order to bring learnings from one part of the business into the other part.
Spector: To what extent do you think the tools to really access that customer relationship are already there in the utilities, but may be untapped so far? And to what extent do they have to look outside of the organization, find partners, find innovative companies to work with to get the goal that they’re looking for now?
Tuck: I’m gonna try to break this problem into three areas. There’s data, there are tools, and there are skills. The data, by and large, exists inside the utility. All of the historical consumption information, all of the past participation in various programs and things exists, albeit often in silos. Now, that data can always be augmented with more information that is readily available in public markets around building types, income levels, education levels, past purchasing histories of consumers and so on and so forth. You can always make that data richer, but there’s a core set of data in the organization that exists today.
The tools to mine and turn that data into business useful information don’t exist inside the utility, for the large part, and there’s quite a lot of work going on at the moment inside utilities and quite a lot of debate about where should these tools come from? Should we build them ourselves? Should we partner with somebody in order to develop those tools? The data analytics capabilities.
Then on top of that, there’s the set of skills required to take analytics and turn it into business useful knowledge and actionable information, and it’s our argument that utilities absolutely need to build these skills in house, or let me be specific: Utilities need to build the skills to take analyzed data and turn it into business useful information. But they don’t need to build the tools to do that, and the analogy I use when I’m talking about this with utility executives is: we want you to write the book that is, the Duke Energy book. But you don’t need to build the word processor to do that.
Let people like us do that. We’ll bring you all of the hard yards that are needed to clean and make sense of the data that you’ve got inside your organization. The fact that you’re then going to use it to more intelligently plan how your network works, to think of innovative products to bring to the market, those kind of things, that’s the skills that you need to build, and we’re here to help you do that. But you don’t need to spend all your time building data analytics tools.
Spector: Is this a case where the utility industry can benefit from all this work that’s been done in it seems like every other industry in the digital age to really dial in on customer segmentation and track all of our online presence, and all these different digital markers? Has that knowledge been developed outside in a way that’s easily transportable to the utility world?
Tuck: Yeah, that’s exactly right, Julian. This is about bringing best practices from other industries and applying them to the energy industry, which is late to the game.
Spector: Gotcha. Well, could you step back and give us a timeline of where we are in terms of utility adoption of these demand side management customer oriented techniques? How long have they been working on it, and what stage of evolution would you say we’ve reached so far?
Tuck: We’ve broken this problem of ‘how do you engage with consumers on a personal level and drive value for both the consumer and the utility?’ into three pieces. These pieces have largely existed in a vacuum from each other up until now. Some of them have been around for a while, and some of them are relatively new. But maybe I can explain them and then pick them a little bit.
At the early stage of our customer journey, you have the engagement phase, or the education phase, where really you’re trying to build an understanding with the customer about the choices that they make in their home, about how energy is used, the impact of that on their bill, and for those who are interested in the climate impact, the carbon impact of the decision they’re making. So, that industry has been around now for just shy of a decade. The drive to use combinations of meter data and smart meter data and technologies like home energy reports and web portals and the various things to give the customer some basic background on their energy consumption, I think I came into this market about 12 years ago from the telecom space. I was actually quite surprised how little consumers knew about their energy consumption, so that was my first lesson. But there has been a roughly decade old business focused on engaging with consumers.
Now, the challenge with that business is that it was largely driven by a set of goals around what’s called behavioral energy efficiency. The use of social norming and other techniques in order to drive down the consumption of energy. That’s a worthy goal, by the way, and it’s a very achievable task, but the key is that if that’s your sole goal, then you’ll use all sorts of techniques that perhaps don’t lend themselves to a long term relationship with a consumer. So, in other words, you can use frowny faces and other things in the way you communicate, which will shame people into using less energy, but won’t necessarily set themselves up for what I believe is the second phase of this journey, which is how you activate a customer.
So, the first phase has been around about a decade. There’s continuing innovation in it, and there are all sorts of techniques about how you can engage with consumers. But once you’ve engaged with them, then what? So, you’ve opened the conversation, what are you going to say now?
I think the next area is this idea of activating the customer. For us, that means nudging the customer to do something. That could be behavioral, a change in behavior pattern. It could be that they purchase a product, a smart thermostat or solar panels or something like that, and it could be that they sign up for a new type of tariff or a new type of program that the utility has. That nudging action requires us to go back to our Amazon story, it requires a seamless way to take you from the nudge of doing something to the ability to transact on that action. There’s a lot of clever work needed to build the bridges between engagement and activation.
Activation today mainly takes the form of utility marketplaces. There have been marketplaces around, again, for I think around a decade. Some of those have been utility owned and built, and increasingly there are people, including I think, Amazon looking at this space, where it’s possible to work with the utility to enable the transactive nature of the products and services that an activated consumer might buy.
That’s been, as I said, around for a while. And then at the top of this pyramid of value sits the idea of managing the energy for the customer, and this has existed in a rudimentary form for perhaps the longest. For 20 or 30 years, there have been various programs that have helped the customer, well, at least the promise has been to help the customer manage energy. But in the residential market, that has really been about helping the utility manage the network rather than the consumer manage their energy. What you’ve seen is for two or three decades now a set of technologies that have allowed the utility at times maximally convenient to the utility to turn on or off, or up or down, various things in and adjacent to the home in order to do what we call demand response. Solving a utility congestion problem on the grid but effectively making it the customer’s problem.
What Tendril’s research has shown is that consumers, by and large, would like someone to manage their energy use for them, because energy doesn’t sit, nor should it sit, in the front of the customer’s mind. We shouldn’t wake up every day and think about our energy, but we should wake up and know that our energy provider is managing our energy for us.
This is a huge opportunity for utilities to become the trusted advisor and manager of energy for their customers. We see in the advent of technologies like our Orchestrated Energy product the ability to customize program devices in the home to achieve an outcome for a consumer. It could be the cheapest energy, or it could be the greenest energy, for example, that is in sync with the utility’s need to optimize the grid for all the variable sources of supply on the grid in an efficient manner, and if done correctly, the consumer doesn’t even notice it’s happening and just sees savings on their bill in the end.
Whilst the management piece of the grid has been around for two or three decades, it’s really only now that the combination of smart in-home devices, broadband penetration to the home, and the data analytics and cloud computing horsepower that’s been required to do these kind of programs have all come together at the same time, and we think this idea of continuous management of energy by the utility on behalf of the customer so that the customer knows that they’re getting the best deal every day is a key part of the future role of the next generation of utility.
Spector: Well, then, what’s the next step of development? Are there any tools or resources that the market of startups need to provide to utilities that they don’t have so far?
Tuck: I think in order to make this vision come true, the first thing that has to happen is a recognition that forces outside of the energy industry are going to drive a change in consumer behavior. What I mean by that is that companies like Apple, Amazon, Google and others will compete for the automated home, and they will provide what we hope is a bewildering array of products and services that become cleverer and cleverer because they can connect with each other and through various apps and voice activated programs, we’ll start to have more and more connectivity with the things that consume energy in our home.
The first step here is for utilities to realize that they should be co-opting that movement, not fighting it. It would be remarkably brave of a utility to imagine that they can beat Apple and Google and the others in terms of getting mind share with consumers about the products that they buy in their home. So, far better to co-opt those products rather than to compete with them.
The first thing to understand is that we should welcome the complexity that comes from all of the crazy devices and products that we’ll start to see turning up and are already starting to see turn up in the home. So, the challenge then becomes for the utility, well, okay, well, am I gonna build a series of bilateral relationships with Nest and with Honeywell and with Tesla and with Whirlpool and all the other people that are gonna build products in the home, or is there a way to partner with somebody to have that connective tissue that means that whatever turns up within the home (within reason), we’ll be able to have a conversation with it if the consumer allows us to?
I think the first order problem to solve is that if you don’t control what comes into the home but you still want to speak to everything, then that’s gonna be a challenge. A challenge for the utility if they have to build bilateral relationships with everybody, and frankly, it’s going to be a challenge for the hardware and system banders if they have to build a different relationship with Duke Energy than they have with National Grid and so on and so forth. There’s a role that sits in the middle there to better manage the complexity that comes from that sort of environment.
Beyond that, there’s this idea that we all imagine that everybody who bought a Nest thermostat bought it because they wanted to save energy, and I think the reality is that most people bought it because they wanted to be able to turn the heat up and down without getting off of the sofa. What I mean by that is energy is not yet a mass market value proposition for consumers. It’s not a reason to go and buy, to replace a thermostat on your wall with a new thermostat. Convenience, that’s a reason. The ability to do things remotely, that’s a reason.
If you recognize that your value proposition is largely secondary in the customer’s buying habits, then you need to find ways to interface with these products and services that is behind the scenes, not front of house. Building clever ways to turn things up and down and on and off without customers noticing is where the next challenge arises. There’s a lot of computing complexity in reprogramming 400,000 thermostats every night uniquely for the day ahead, uniquely for each home. So, those kinds of capabilities are best to be partnered with, I think at the moment, given the computing complexity and the data complexities around building this kind of system. I think those are the areas that utilities are best to focus on when it comes to working with products and services in the home.
Spector: How do utilities overcome the challenge that exists in many cases where customers maybe don’t like their utility that much? For a lot of people, their experience is they get charged a bill, maybe the power goes out and they get upset. For many residents, the utility is not the same kind of friendly relationship as you would have with an Amazon where it gives you nice things very quickly. Is it the utility’s job to overcome that and create a new kind of relationship?
Tuck: Absolutely, the utility has to evolve their relationship with their customer, and the reason why we’ve broken our sort of thinking about this customer journey into three pieces is if you just go in and start to say to the customer, “I want to manage your thermostat,” without first having gone through the sort of engage phase, then the activate phase, before you get to this point, then you’ll have a difficult time convincing consumers to do that.
So, there’s a trust building exercise to be done that leads to this point where a consumer trusts a utility in order to manage things in their home. So, that’s the first thing.
The second thing I would say is we’ve done a lot of research in this area, and I wouldn’t say that consumers love their utilities, but I would say that by and large they trust them. They are trusted brands for the most part, and they’ve got a great place to start versus somebody that’s never been heard of before in order to establish this evolved relationship with the consumer. Obviously, anyone who treats and serves millions of customers is going to have their fair share of people who are frustrated, but our research has shown that trust is something that people associate with utilities. So, they’ve got that great place to start.
Then I think you have to clearly articulate what is in it for the consumer. To give you an example, the thermostat program that we run for utilities that manages the thermostat on each home uniquely for that home, uniquely for each day, saves customers somewhere between $50 and $250 a year, and it makes them more comfortable. When we’re managing the thermostat, people go up and adjust the thermostat roughly a third less than they do when we’re not managing it, because we’re able to tailor their comfort based on all the things that we learned about that consumer.
Then I would add that we turn the air conditioning on and off less, which prolongs the life of the system. So, if you can capture those benefits and say to the consumer, “Look, we’re going to do these things for you. These are real tangible outcomes, and we’re going to measure them and show you how you’re saving money every day,” consumers will welcome you into their home, providing you’ve educated them and built that trust environment.
Spector: Do you think the success of all these demand side management techniques requires a consumer who down the road comes to really care about energy and want to take an active role in that, or will it be possible to deploy them without crossing that hurdle?
I really hope that we are able to convince people who don’t care about energy that utilities can help them manage energy better than they can manage it themselves. If this whole revolution requires everybody to suddenly start caring about energy, I think it will take a long time.
We’ve designed our solutions based on the idea that people largely don’t care, but they do like to see outcomes that we can deliver, saved money or greener or more comfortable homes. We need in small instances for people to care enough that they give us permission to manage their energy for them, but then we’d like to just sit back and enjoy the fruits of our labor.
I’m constantly amazed by the number of vendors in this space who feel the need to continue to share with consumers at greater and greater levels of granularity the minute data about their energy consumption in their home. That is, at best, a minority value proposition for a tiny, small number of us, and even those of us who live in this space and obsesses about it get bored with looking at energy data after a few weeks. So, the key here is I just want to know that somebody’s giving me the cheapest possible energy every day and keeping me comfortable. If I know that, then that’s all. I don’t need to get involved beyond that.
Spector: Your development as a company has also been informed by these changes in market demand and customer demand in terms of interest in home energy management, right? You’ve gone through several different stages. I was wondering if you could talk about that and how your core product and core business effort has changed as the consumer attitudes have grown.
Tuck: It’s amazing that as I look back on the 12 years I’ve been at Tendril that our vision and our strategy has changed very little, but our tactics have changed amazingly. In other words, we’ve always had this view that if you give customers enough information about energy consumption and you can create enough intelligence around controlling devices and things, then software can have an amazing impact on energy consumption and that there are all sorts of ways to deliver value to consumers and energy providers alike.
But there have been several key learnings along the way. The first was I think we didn’t fully understand the degree to which people didn’t know about their energy, and the degree to which that was gonna become a precursor for asking them to do anything beyond that. So, we merrily set off at the beginning of the life of Tendril trying to solve what I describe as the problems on rung five of the ladder, where we hadn’t really solved the problems on rungs one, two, three, and four. We got into the game of thermostats and being able to turn them on and off and smart plugs and all sorts of things, and came to this grinding realization that our utility customers didn’t understand their consumers, and our consumers didn’t understand their utility providers.
We then pivoted and move ourselves into solving the data analytics and consumer engagement challenges that are necessary at the front end of the consumer journey that I described. Taking somebody whose prior relationship with the utility was just a bill and an outage, and turning them into a, at least an educated and engaged consumer who understands at least some of the basics of what’s going on in their home and how that’s affecting their energy bill. And helping the utility understand that their consumers are not all the same, and that there are unique ways to treat consumers that will help drive benefits for the utility.
That was the first big pivot–go get into the data analytics game and the consumer engagement game. We bought a company way back in 2009 that was excellent at both, and sort of built upon that set of skills in order to build that set of capabilities. Today, we have utilities with about 26 million consumers, and I saw something the other day that suggested that we’re about to pass, I think it’s 35 billion meter reads a month being ingested in our system.
The second sort of area of growth for us was to understand how utilities did what they did. In other words, as consumers, we expect from our utilities a greater level of reliability than we expect from our mobile providers, from our broadband providers, and so on. That has evolved, or that level of service has evolved out of a culture and a focus on quality of service inside the utilities that makes them more methodical about how they deploy new technologies. Somebody once famously, or not famously, but somebody once told me that utilities make a product that if you touch it, it will kill you, and that’s the mindset they take with everything that they do. We have worked hard to move from a model that was sort of whiz-bang driven–look, we can help you give your customers this new amazing feature–into one that much more ties back to the core utility operating metrics around efficiency and asset utilization and so on. So, that’s required us to invest heavily in the pieces of infrastructure that are required in order to support the utilities.
I would say that in my 25 years of being an entrepreneur, selling into the utility industry is the hardest, sometimes the most frustrating, but occasionally the most rewarding thing that I have done. Utilities have to serve everybody, so in a normal business, you build a product, it’s adopted by the early adopters in the market, you’re then able to sort of reduce the cost and add to the features and things over time and gradually you have bigger and bigger audiences of people take on the product. In the utility industry, our customer has to serve everybody, and so the focus on making sure that we’ve designed solutions for the mass market, not for the minority, is pretty key and that requires a lot of engineering effort.
Secondly, that level of concern about reliability and security and privacy and all those kind of things that make the utilities the reliable providers that they are is necessarily passed on to their vendors and partners, and we’ve had to invest $100 million in technology in order to make sure that we can do the kind of things we do with billions of meter reads, in private, secure and robust ways.
Then thirdly, this drive to make sure that everything, every dollar that the utility spends they can justify to their regulators, has meant that the need to pilot technologies over large periods of time in order to justify the results that are coming out is a discipline that is hard won here at Tendril and takes a long time to build.
Spector: So, do you have a pro tip for how to close a deal with the utility?
Tuck: I think it starts with not walking into the room thinking you know more than the more utility does. There may be areas that you know more about. I think we know a lot about customers and end users and what they do, but that has to be married with the knowledge that the utility brings to the table. Illustratively, we run the largest behavioral energy program in the US with Duke Energy. It’s incredibly successful, and almost uniquely amongst these programs, it’s been around for about five years. It treats about three million customers. The performance of the program has been growing across critical metrics around energy efficiency that we’ve attained, customer satisfaction, various things like that. That’s a result of genuine collaboration between us, who know a lot about technology and behavior techniques and things like that, and the utility who have been willing to treat us as a genuine partner as opposed to a vendor and help us design solutions with them and their customers in mind that have delivered the kind of sustained results that we’ve seen with that program.
- Tendril e-book: The Amazon Effect: Energy in the On Demand Era and What It Means for Utilities
- Greentech Media: Utilities Have the Tools to Unleash the Power of Customers
- Accenture: 2017 New Energy Consumer