In the 20th Century, the population of the U.S. grew 3.7x. During the same period, the population of people 65 and older grew more than 11x. Only now is the impact of this tremendous differential in growth rates beginning to be felt and its consequences for business strategy and service development becoming gradually apparent.
The truly explosive growth, however, has been in the population of those 85 and older (the "old-old") whose numbers grew 35x. Currently, the old-old is, by far, the fastest growing demographic in the U.S. About a hundred years ago, a mere 4 percent of people over 65 were 85 years or older. At present, that proportion is over 14 percent.
These demographic and market changes are but a prelude to even more significant changes over the next 40 years. The figures that follow are based on studies conducted by the US Census Bureau and by academic demographers. All projections are fallible, but demographic projections tend to be more reliable than economic, financial and geostrategic projections. The author finds the demographic projections persuasive in terms of trends.
The Growth of the Old-Old
By 2010, the old-old are projected to account for 15 percent of the over-65 population and by 2050 for over 24 percent. The population of the over-65 is currently around 40 million in the U.S. It is projected to reach around 87 million in 2050. The total U.S. population in early May, 2009 is a little over 306 million. By 2050 it is anticipated the total population will grow very slowly to reach 420 million. The current population of people over 85 is around five million (or 1.7 percent of the total). By 2050, the population of these old-old is likely to be over 20 million or about 5 percent of the total. Thus, while the U.S. population grows by a factor of only 1.4 through 2050, the population of those over 65 will grow by a factor of 2.35 and those over 85 will grow by an astonishing factor of 4.0.
The over 65 and over 85 segments are true high growth emerging markets. The popular portrayal of old and older people as intellectually and physically frail and languishing in retirement homes is false. As a whole, the young-old (65 to 74), the mid-old (75 to 84) and the old-old are far healthier, richer, more active and independent than is commonly understood. Many of the mid-old and old-old today do things and live in ways that were associated with people in their 50s just a generation ago. Many of those people are only chronologically “old.” From a political, economic, cultural and even technological perspective, they are not “old” but merely middle aged.
People over 65 are often divided into 3 categories by marketing executives: the fragile old, who cannot live independently, the functional old who can live and work(part time, at home) independently but with help, and the vital old, who can lead full, rich, lives. This is a more useful guide to developing and marketing services than chronological age.
Successful Aging (Aging In Place)
The successful aging market remains largely invisible to the regulated retail energy utilities. Indeed, for those utilities who seek to drive growth via investments in generation and transmission, the market is of little interest. For those who seek to focus on local distribution and retail, especially residential, services this market has to be of great importance. Yet not a single significant U.S. energy utility or utility holding company has cared to understand, much less monetize the Successful Aging (i.e., aging in place, that is, at home) market.
This is in sharp contrast with other industries that clearly see both the strategic significance and profitable service opportunities in Successful Aging. The healthcare/personal medicine industry, as might be expected, is a leader in this market. Following suit are the home appliance, home communications, residential lighting, home remodeling, personal finance and personal transportation/mobility industries.
Governments, too, are trying to understand Successful Aging and its requirements and consequences. Recently, 36 agencies of New York collaborated to discuss aging. They considered many facets. Yet not a single agency mentioned the interaction of something as ubiquitous and essential as relevant energy services and quality of aging. This, perhaps, reflects the, so far, indifference of the regulated energy utilities to demographic change and quality of aging.
Complementing the interest of several industries in Successful Aging are technology design programs at several research and academic institutions as well as major technology companies.
The National Association of Homebuilders has created a Certified Aging-In-Place specialist category of home remodeling professional. It trains remodelers to design and implement aging-in-place modifications for homes. These modifications to existing homes are designed to create a physical environment compatible with the needs of the vital-old and the functional-old and extend the period the fragile-old can stay at home before moving to an assisted living or continual care facility. Aging-in-place remodeling is already the largest segment of the home remodeling industry and is expected to become, by far, the largest segment in a few years. Several home builders and remodelers now advertise their skills and experience remodeling for Successful Aging.
Companies that design and sell fittings, fixtures and appliances for homes are also expanding their offerings in the Successful Aging market. These companies have adopted a concept known as universal design, which allows anyone (young or old, well, frail or handicapped) to use appliances, fittings and fixtures. Universal design has already proved popular and now subsumes the design categories of accessible design, adaptable design and lifespan design which were created to provide independent living for handicapped, disabled or just physically weak people. There are now, literally, dozens of such products on the market with new ones being introduced regularly that, in combination, significantly increase ease of use, in-premise mobility and safety, and access without sacrificing aesthetics or resale value (indeed, proponents claim that resale values are enhanced). The rapid growth of Successful Aging remodeling and refitting is compelling evidence that aging-in-place is already a large business opportunity and consumers over 65 have the motive and means to spend substantial sums for goods and services that manifestly meet their needs and aspirations for quality aging.
In addition to the “passive” modifications to the physical environment, companies are now designing, developing and marketing “active” modifications that allow the physical environment to sense, monitor and respond to the presence and actions (i.e., behavior) of the occupants of the home. While the market for passive modifications is almost entirely a one-time capital expenditure, the market for active modifications is both a capital and an operating expenditure by consumers. The repeat, regular, service fees that can be generated render this an attractive business for many kinds of companies.
It is clear that both passive and active modifications to the physical living environment of its customer intersects with a retail energy utility’s business in several ways. These modifications have obvious implications for and depend upon the on-premise energy infrastructure, systems and services of the residence. Thus, there are multiple points of entry and profit in facilitating and piggybacking on these passive and active modifications.
As further evidence of the value and importance even the largest companies place on the Successful Aging market is the relatively recent formation of Continua, an alliance of healthcare and technology companies to develop platforms and services for health care, life extension and quality of aging services to the home. Continua claims 180 member companies around the world. The technologies, business models, service design and delivery approaches being developed by the members of Continua are germane to the future customer monetization strategy of a retail energy utility. The issues and challenges of customer monetization in the Successful Aging market that Continua is addressing are almost directly applicable to the ambitious retail energy utility that wants customer centric growth. Continua members hope to create a new “personal healthcare utility” just as a retail energy utility may, in imitation, aspire to create a new “personal energy services” utility.
The members of Continua represent a convergence of connectivity technology, broadband/RF, devices and applications across multiple industries. This convergence seeks to establish “an eco-system of interoperable personal health systems that empower people and organizations to better manage their health and wellness.” Substitute “quality of independence via tailored energy services” for “health and wellness” and one might derive the long term mission statement for a retail energy utility that eventually discovers and seeks to monetize this opportunity.
As Continua seeks to create a personal health eco-system over the next decade, a customer centric energy utility (assuming such a utility actually emerges) could borrow several concepts in its own multi decade effort to create the personal/residential energy eco-system as it seeks to become a true energy services, if regulators permit the creation of a new regulatory model over the next 5 to 10 years that fosters such a transformation. The economic value of the personal/residential energy eco-system may eventually exceed the economic value of the traditional energy utility.
Some of the home healthcare technologies that are now either commercially ready or reaching deployment and are relevant to a retail energy utility are:
Sensor Network: A sensor network senses the location of people and objects in the home. The network uses a combination of motion sensors, cameras, contact switches, magnetic switches and Radio Frequency Identification (RFID) tags. RFID uses electronic tags to store identification data and a wireless transmitter to capture it. The network enables multiple sensors to be wirelessly networked together around the home.
Home Network: A home network allows a household to interact not only through multiple, distributed touch points, including traditional PCs, PDAs, and tablets, but also through televisions, clock radios, and telephones. This is particularly important for old people who forget how to use the newest technologies like PCs. These people must rely upon more familiar interfaces of older technologies such as phones or television sets to get reminders and prompts from the system. Most important, the system can deliver a reminder to a person on any familiar, proximate device.
Activity Tracking: An activity tracking system using dynamic Bayesian network and other artificial intelligence (AI) technologies is used to translate all of raw sensor network data into useful trending information about what activities people are doing in the home.
Ambient Display: Ambient display technologies allow distant family members or designated care givers to check in on their aging parent or clients. For example, smart photo frames can show a person at-a-glance that “all systems are normal at the parent or client’s house,” and presence lamps turn on to let a person know that a loved one has returned home safely.
Companies are also beginning to view Successful Aging as a source of labor supply (in addition to being a market). Within this demographic are millions of people who have the skills, knowledge, experience and motivation that make them an alternative pool of labor, outside the fulltime employee base. Indeed, these willing and competent people are an alternative to outsourcing: eldersourcing. There are many part time, home based jobs that the vital-old and the functional-old can perform at levels of efficiency and creativity that match or exceed those realized by remote foreign workers. Indeed, there are many tasks and professional activities where eldersourcing is definitely superior to outsourcing, especially those that require sticky knowledge, deep cultural affinity, language and accent affinity and local relationships and proximity to managers.
Eldersourcing is also being viewed as a channel for marketing and reputation enhancement. By creating working ties with people from within the Successful Aging market, companies hope to obtain endorsements, word of mouth marketing, referrals from elders to elders and to also deploy people in the 65 to 90 age cohort as formal salespeople to their peer group. Finally, eldersourcing can result in a partnership between company and consumer/worker that leads to several relevant new service ideas, co-designing of services and service prototype testing.
Thus, Successful Aging is an expanding market, a distribution resource and a pool of desirable yet highly flexible labor and specialized skills.
An Illustrative Service
A substantial suite of services can be designed and offered by a retail energy utility, based on the service proposition: Quality of Independence. Almost all the residential devices, applications and services people need in the Successful Aging market depend on energy reliability, precision and control. The residential energy ecosystem is the foundation for all other relevant and desirable ecosystems in the home. Effective sensing, monitoring, data analysis and transmission, information display and intervention all require an underlying robust energy ecosystem. From personal climate management to personal healthcare, from security management to appliance/device/appliance management, from personal communications to ambient illumination control, all depend on the correct, tailored, domestic energy ecosystem.
The energy ecosystem consists of several layers: all interfaces with external energy conduits and external standby or back up systems (such as generators); all internal energy conduits (piping and wiring); all sockets and outlets, back up batteries and power management and quality devices; HVAC systems; lighting systems; major appliances; heated pools, spas, gas logs and similar systems; all energy using devices especially those essential for healthcare, personal medicine, life support (e.g., home defibrillators), personal monitoring and maintenance, personal mobility (e.g., lifts, elevators, electrical ramps) and all personal communications devices and home networks.
The illustrative service is called “Energy System Remodeling to Enhance Independent Living.”
- General Service Trigger: the customer decision that passive and/or active modifications are needed to the residential physical environment to facilitate quality aging in place and the acceptance that this will entail capital and operating expenses.
- Specific Service Trigger: the acknowledgement that the local franchised energy utility can be a valuable branded resource in implementing the customer decision.
- Decision Maker: could be the customer who will directly benefit from the service or members of the family concerned about the customer or a third party care giver or a third party provider of services predicated upon a suitable energy ecology ; the decision may involve one or more parties. Accordingly, there may be one or more payment sources involved with the service.
- The Service: consists of two components which could be purchased separately or as a value bundle.
a. Component One, the Front End Service, which, in turn, has three parts, each of which can be purchased separately or as a value bundle.
i. The Audit: of the complete energy ecosystem of the residence. The work product would be a complete specifications list with annotations about quality, vintage, issues, concerns and suggested action items by the auditor based on the specific aging in place requirements of the customer.
ii. Infrastructure Enhancements tailored to the specific needs and desires of the customer: this entails physical upgrades to all piping, wiring, outlets, switches, control panels, circuit breakers, valves, etc., needed to increase safety, reliability, convenience and compatibility with the healthcare, communications, climate control, cooking/cleaning, lighting, mobility, etc., systems the customer desires as part of the passive and active control of the physical environment to facility independence and quality of aging.
iii. Equipment Installation, Upgrading and Replacement: this service focuses on installing new hardware, appliances and devices and/or upgrading or replacing existing hardware to again increase safety, reliability, convenience and compatibility. This also includes changing major appliances from one fuel to another if needed (e.g., from oil to gas or from oil to electricity or from oil and gas to electricity if the customer has deemed he or she wants an all electric home to avoid risks from oil and gas).
b. Component Two: Annual Diagnostics and Continuous Service Contract. This is a service agreement highly tailored to the customer. It entails conducting an annual diagnostic of the energy ecosystem, providing maintenance and repair services on an as needed basis and continuous remote monitoring and response. The price of this contract will depend on scope, speed of response, and specific maintenance and repair actions. Its cost will also depend on the extent and sophistication of the sensor network in the customer’s house that permits remote monitoring, analysis, pre-failure alerts and response and post-failure remote interventions.
Under this arrangement, the energy utility could also be a review and maintenance subcontractor for third party providers of communications, insurance and healthcare systems to the same customer increasing efficiency for all involved, reducing costs to the customer and increasing revenues and margins for the energy utility.
The Potential Business Opportunity
A retail energy utility seeking customer-centric business growth and possessing the necessary regulatory, technological and business acumen has an opportunity to become a new intermediary in the Successful Aging market. It can be the energy service intermediary and principal for the customer and a service interface between the customer and third party providers of other services . The subcontracted revenue streams from third party service providers can be considerable. The ecosystems or services of these third party providers are layered atop the energy ecosystem of the customer, positioning the energy utility as a foundation level company with many opportunities to broaden and deepen its presence with the customer and his or her physical residential environment. Therefore, if a large retail energy chooses to, it could become the “In Premise Personal Utility” of the customer and a major player in the Successful Aging market
Disclosure: the author owns stocks in gas and electric utilities