Should Utilities Dive Off the Platform-as-a-Service?
Lessons from the Smartphone
The value provided by water and electric utilities is indispensable to our everyday lives. These services ensure public health, quality of life, and economic vitality. With the turn of a handle or switch, we have these services delivered right to us. And yet, even though we depend on running water and electricity for nearly every aspect of our daily lives, we do not easily recognize the value of these vital services by virtue of what we currently pay for them. Although many factors contribute to this disconnect between value and price, the utility-customer relationship is a driving force behind the way customers monetize the value of utility services.
Water and electric utilities have one primary role—provide safe, reliable, and adequate supplies of water and electricity at a reasonable cost. The utility business model encompasses both the sale of a commodity and the sale of the services necessary for producing and delivering that commodity. How customers perceive the value of these goods and services is critical to the financial resilience of utilities. It can be extremely difficult, however, for utilities to adequately convey this full value through the interactions they have with customers. Often times, many utilities position themselves as solely a commodity provider, leading customers to undervalue the breadth of their services.
How can utilities reframe the value of their services to better resonate with their customers? In this three-part blog series, we begin by shifting our focus to smartphones and how this innovative industry has transformed our phones into our “mobile internet devices.” Given the transformation of the telecommunications industry in the past decade, we offer our own translation into the water and electricity sectors, highlighting opportunities for the water and electric utilities to build a stronger sense of value amongst their customers.
From Mobile Phone to Smartphone
At the time Apple introduced the first iPhone in 2007, no one could have anticipated the revolutionary impact it would have on the mobile phone industry. Unlike its predecessors, the original iPhone offered a multi-touch, seamless interface, making it even easier for consumers to move from one task to the next. Apple’s unveiling of the App Store, a platform where third-party developers can build and sell mobile-based programs, also set the iPhone apart from other smartphones on the market. With its impressive technology and capability, the iPhone quickly solidified its market presence. Since the smartphone boom took off in 2007, average household annual spending on cellphones has increased from $608 in 2007 to $963 in 2014, or a 6% annual growth rate.
Source: U.S. Bureau of Labor Statistics
The release of the iPhone marked a significant shift in the mobile phone industry: the transition from mobile phones with limited capabilities to mobile internet devices with phone capabilities. Driving much of this transformation has been the App Store and its unmatched level of accessibility and functionality. Through the App Store, consumers can browse, buy, and download an endless array of service-based applications. This feature has contributed to substantial growth in data usage over the past ten years. Meanwhile, voice usage has largely remained the same.
The App Store and its counterpart, Google Play, have turned the smartphone into a multi-functional device capable of meeting diverse consumer needs. In recent years, revenue from app downloads has exploded.
Source: App Annie (Recode.net)
Since 2007, sales from the iPhone have steadily risen to the extent that it is now the biggest source of revenue for Apple. The key to the iPhone’s success has been Apple’s ability to leverage and market its value, as both a product and especially as a “platform-as-a-service” via the App Store.
Source: Nicholas Rapp (Fortune.com)
A lot can be learned from the evolution of the iPhone and how this technology has altered our connection to our devices. Given the increase in revenue experienced by Apple and also water and electric utilities’ needs for ratepayer investments in their own systems, could and / or should utilities take Apple’s lead and re-envision their role as a “platform-as-a-service” provider too?
From Utility Services to Smarter Services
To make a transition from traditional utility services to utility “platform-as-a-service,” the water and electric industries must reframe the utility as a platform for reliable, safe water- and electric-related services. In other words, the utility could shape its services to function like the App Store or Google Play. Whereas the iPhone and the App Store serve as a marketplace for accessing mobile applications (i.e., services), the utility serves as a platform for producing and delivering water-related services (e.g., potable water, landscape irrigation, sanitation) and electricity-related services (e.g., light, cooling, heating, ventilation). Rather than focusing solely on utility-owned assets, utilities could envision their scope to include interconnected, distributed systems of supply, including photovoltaics, batteries, rainwater harvesting, onsite water reclamation, etc. Utilities could also complement these distributed systems with demand management practices, such as smart thermostats, smart meters, and smart irrigation controllers. Together, these strategies would form a distributed network of infrastructure that provide the water- and electricity-related services sought by customers.
Although the utility would continue to serve as the backbone for water and electric service, the “platform-as-a-service” could function as marketplace where third-party providers could offer their services for designing and installing this decentralized network. In exchange for providing end use customers and contractors access to the platform, utilities could receive a fee, supporting revenue generation and growth. Using Apple’s model, water and electric utilities could create a scalable solution that addresses capacity constraints without straining the utility financially. The primary question is whether this approach can translate to physical resources (gallons and electrons), given that it is working with virtual resources (bits and bytes) in the smartphone realm.
In the next two installments of this blog series we will focus on specific approaches the water and electric industries have taken to implement this platform as a service model. As the success of the Apple demonstrates, utilities can leverage greater value and capture additional revenue by positioning themselves as more than just a commodity provider.
