Seeking Alpha
Alternative energy, solar, energy efficiency, grid modernization
Profile| Send Message|
( followers)  

By Michael Kanellos

Ed Richards, the dean of the building strategy, departs.

Is Cisco Backing Out of Building Management?

Cisco (NASDAQ:CSCO) was one of the first large computer companies to jump into the market for technology for managing commercial buildings.

And it could become one of the first to get out.

The networking giant -- currently in the midst of a painful reorganization that will entail 6,500 layoffs -- is now weighing the future of Cisco Mediator, a system for monitoring and managing heating/air conditioning systems and other appliances in commercial buildings, according to sources. Mediator was based on software from Richards-Zeta Building Intelligence, which Cisco acquired in 2009.

Ed Richards, the former director of worldwide business development at Cisco and one of the founders of Richards-Zeta, recently left the company.

Cisco declined to comment on any future plans for Mediator but confirmed that Richards -- a widely respected researcher in building software who spoke frequently to the press and at conferences on behalf of Cisco's strategy -- is no longer with the company.

The departure of Richards and the speculation around the future of Mediator will likely send a chilly breeze through the efficiency world. VCs and other large computer companies, after all, are investing in building management and efficiency at the moment. General Electric (NYSE:GE) and Intel Capital recently invested in Scientific Conservation, which specializes in building management tools, and Intel (NASDAQ:INTC) has started to show off technology that would let it get into the market on its own.

IBM in March bought Tririga, which targets a similar audience. In the same month, Microsoft (NASDAQ:MSFT) green czar Rob Bernard told us that Microsoft was winding down Hohm, its home energy management product, and drafting a strategy for commercial building management. A few months later, Microsoft formally sacrificed Hohm to the angry gods of software.

Schneider Electric (OTCPK:SBGSF), Honeywell (NYSE:HON) and Siemens (SI), meanwhile, bought companies last year to beef up their building management portfolios. Ultimately, building management and demand response will blur together.

Building management software is an extension, to some degree, of networking. Cisco, moreover, has generally been better at it than many other tech companies, especially when it comes to integrating acquisitions.

It's a potentially large market too. Large commercial buildings consume approximately 20 percent of all of the energy in the U.S. and a good portion of that energy is not consumed efficiently. Look at an urban skyline at night and count the lights: very few people are actually in those offices working. In Chicago, many '80s vintage buildings are heated with electricity: inexpensive to install, but insanely inefficient. Overall, buildings and residences account for 39 percent of energy consumption and 76 percent of all electricity consumption.

Heating, ventilation and cooling account for 32 percent of the energy budget in commercial buildings, according to DOE statistics, or 6.4 percent of all energy consumed in the U.S. Mediator, thus, is focused on a somewhat sizeable wedge of the pie.

"Most buildings are wasting 30 percent of their energy off the bat," Ed told us in May 2010.

So what could be going wrong at Cisco? My personal theories include:

1. Cisco hasn't been able to dedicate enough time to it and building management seems to be falling by the wayside in the current consolidation/revival crisis inside the company. Cisco said earlier it will continue to invest in smart grid, but it's not singled out as one of its top core areas under the new strategy.

2. The building management market -- at least for Cisco -- has become a "death by trial" situation where engineers and other employees get sucked into lengthy, expensive, and potentially un-lucrative trials. Some residential networking companies have complained about how trials can become a burden. Back in 2009, Cisco told us 80 customers had been quietly testing Mediator.

3. Efficiency isn't as big of a selling point as many believe. Redwood Systems, which makes a building management system focused on controlling lights and other devices, has begun to add applications to its basic technology platform to make it more appealing. One of the favorite applications is one that lets employees better manage conference room reservations. A retailer wants to employ it to monitor how many people are in line at any given time. In other words, non-energy applications. Mike Dauber at Battery Ventures, an investor in Redwood, recently speculated that large customers may have trouble getting excited about efficiency.

Validus DC Systems, which makes DC power systems to reduce data center energy consumption, says its equipment curbs utility bills, but the real savings come in reducing the real estate needed for data centers. Again, a non-energy function stealing the show.

4. Cisco screwed up the sales process and acquisition integration. It happens. Look at what happened to Flip.

5. I'm imagining all of this.

6. Ed got an offer from someone else. Recently, Scientific Founder John Pitcher defected to Serious Energy.

I put the most stock in theories one, two and four, but number three bears watching. Home networking companies are already discovering that the cost/benefit equation is a tough sell. Utilities will likely have to subsidize these systems to get HAN equipment in sizable numbers into the market. Perhaps commercial building owners are waiting for additional benefits -- utility refunds or retrofit-as-a-service contracts like those offered by Transcend Equity -- before they take the building networking plunge.

And if number five or six turns out to be correct, it will be duly noted.

Stay tuned.

Source: Is Cisco Getting Out of Building Management?