Stuck in the middle with you: Utilities and their Customers
When we started AIQUEOUS in 2015, the talk then was about flat trends in utility sales and how utilities could stop the tide and restore revenues. That overall trend has continued into 2019 for electric and water utilities. According to the U.S. Energy Information Administration, average monthly electricity sales have continued to remain flat. And 2017 EIA data showed that consumption per person in the United States was declining, where in 2016 residential electricity sales slid to about 4,400 kWh per person, a 7-percent drop since 2010 (from Electric Light & Power). Water sales data have more of a lag, with the most recent data from the U.S. Geological Survey in 2015, and those data show declining public water supply from 2005 through 2015 (graphs from U.S. Energy Information Administration and Circle of Blue, respectively).
One way that utilities are interpreting these declines is to see a loss of market share. In other words, the demand for services – whether it’s light, space cooling, drinking water, or landscape watering – remains, but the purchase of the utility “product” is no longer the only way to receive that service. Certainly, changes in Federal or State laws have driven the supply of more efficient products, whether those are air conditioning systems or toilets. But people have started seeing organizations other than the utility as the supplier, such as Home Depot or Lowe’s, or Cree or GE, or SolarCity. This is due in part to the evolution of media and digital marketing, but it is also driven by a shift in how our society connects to our products and services.
Disintermedia – what?
The evolution of smart phones, computers, and the Internet isn’t just about better-looking websites and mobile apps. People have shifted their experience of community and commerce to go “directly to the source.” If I want to read or experience a specific author, it’s not about going to the book store to find that book – I go online and either have the book shipped directly to my home, or I read the book on my phone or tablet, or I have the book read to me through an online platform. If I want a specific ingredient or drink, I again don’t need to go to a store to find it – I connect directly with that product online and have it shipped to my home.
This phenomenon is called “disintermediation.” Techopedia defines it as “a process that provides a user or end consumer with direct access to a product, service or information that would otherwise require a mediator such as a wholesaler, lawyer, or salesperson. The World Wide Web has often eliminated the need for a mediator. End consumers merely have to "research the product, service, or information for themselves, thus changing the relationship they have with the manufacturer or service provider."
So in our new world, the expectation from people is that they have direct access to their product or service. To the extent that a utility continues to appear as a “mediator” or “middleman,” the utility is viewed as being unnecessary or even a hindrance to market evolution. That’s not a good brand when you’re trying to raise rates to keep the lights on, phones charged, or people hydrated and healthy.
Wait – There Are No Longer Any “Middlemen”?
Uh, no. There are a ton of mediators in the new economy, they’re just harder to see and they are a bunch of newer players. Amazon, Google, Apple, PayPal, Adobe, Facebook, Twitter… the list of new mediators goes on and on, and they are doing quite well in the new economy. Consumers do not actually have direct access to products and services, they need to rely upon a whole host of mediators to power these interactions. In many cases, these services appear to us as if they are free, but the cost of these services and companies are embedded in the prices that we pay. And this isn’t a new phenomenon – according to Quote Investor, the saying that “You’re Not the Customer; You’re the Product” goes back to 1973 and was spoken about television, the first mass-consumed media product. The new mediators sell your data and sell advertising better-tailored to your usage patters and digital fingerprints.
So, personally, I don’t believe that we have true disintermediation – we have a new form that looks invisible to us. (Red pill or blue pill, in a way.)
So What’s a Utility To Do?
Utilities are in a bit of a quandry, because while customers (or at least their legislators) don’t seem to mind that their every move on the Internet is carefully curated, catalogued, and commercialized, they don’t feel that way about their electricity or water use. Utilities are not in a position (at least currently) to sell advertising on their websites or bill inserts, or sell usage data to companies who want to target customers based on usage patterns aligned with their products or services. And utilities are still squarely in the middle, between their customers and product “providers,” whether power plants or utility-scale renewables / transmission lines / substations / distribution lines or reservoirs or aquifers / treatment plants / pump stations / transmission pipes / wastewater treatment / effluent receivers.
At a minimum, it seems to me that utilities need to embrace the desire of customers to directly connect with products and services, and to make that connection as intuitive and seemless as possible. While it’s about a good website and mobile app, it’s also about connecting people directly to the source of their electricity or their water in a way that emulates the experience of choice. It means embracing where we’re going and taking advantage of being in the middle.
For example, I am an Austin Water customer, which means that the water that I will drink is currently in Lake Travis (and upriver in Lake Buchanan). Every time I take a drink of water at work, I can either be connecting with those water bodies or running to Home Depot and buying another Primo container for our office water cooler. What can Austin Water’s online experience do to steer my choice? Austin Water knows, for example, that my household per capital water consumption is lower than my surrounding neighbors (thanks, DropCountr!). And it could know that I have an annual Texas State Parks pass (as well as my visitation patterns), and could judge that water conservation is important to me. So my login to pay my bill could remind me of the many State or Lower Colorado River Authority parks where I can get “on the water,” congratulate me on my efforts to keep my consumption low, and remind me to visit the tap each time I’m thirsty.
This is where AIQUEOUS focuses – helping utilities amplify the positive impact that they have on their communities. It’s not just about tracking energy savings or carbon emissions, it’s about connecting people to their source and helping them make choices that align with what they want from the market. This is best accomplished by being in the middle, not trying to get away from it.
By "catching up" with customer expectations on user experience, utilities can then turn their sights toward new business models. Utilities in general have difficulty commercializing their customers’ usage patterns, but they could mimic the new breed of “middlemen” by facilitating market transactions, or they could start to offer “premium” services or products. AIQUEOUS will discuss that topic on our next quarterly newsletter. Overall, we believe that the disruption in the market provides significant opportunities for utilities to achieve their mission, but it requires a significant change in thinking and approach. We are here to talk that through for anyone who is interested.