By Jeff St. John
Siemens’ (SI) decision to buy long-time smart grid software partner eMeter this week might have been announced in an almost off-hand way during a big corporate conference call Monday morning. But its significance as a trend in the smart grid space speaks volumes.
Indeed, Siemens’ buy is just the latest in a string of big software acquisitions by grid giants like General Electric (GE), ABB and Schneider Electric (OTC:SBGSF). Beyond them, we're seeing IT giants like HP (HPQ), Oracle (ORCL) and SAP competing to deliver back-end software systems to help utilities integrate their new smart grid systems into day-to-day operations, as well as analyze the floods of new data they're delivering.
So how does Siemens purchase of eMeter illuminate the new world of smart grid software and its suitors? Let’s take a look.
What’s Siemens going to buy next?
First, don’t expect eMeter to be the last smart grid software company the German industrial giant will buy. Siemens has some catching up to do with its big rivals in terms of smart grid aquisitions in general:
Siemens hasn’t been spending a lot on acquisitions in general over the past four years — only 1.5 billion euros since 2007, Bloomberg reported in June. At the same time, Siemens was sitting on an 18.5 billion euro ($27 billion) cash horde as of this summer, giving it an imperative to start buying.
What’s it missing? Siemens’ smart grid software buys so far include HVAC optimization software startup Site Controls and utility software consultancy Energy4U, both for undisclosed amounts. EMeter gives it a top-tier seat in the world of meter data management software (MDMS) providers, amongst market rivals like Itron, Oracle, Ecologic Analytics and Aclara.
Even without any disclosed figures to use by comparison, it’s hard to believe Siemens spent nearly as much as its big grid competitors have. Swiss grid gear giant ABB spent about $1 billion to buy Ventyx, maker of grid management software. Schneider Electric capped of a string of software purchases with its $2 billion purchase of Telvent, a big European smart grid software vendor. (GE has been more focused on big power gear, though it's picked up a few software startups as well.)
Siemens Won’t be Buying Smart Meters
We’ve seen some speculation that smart meters might be on Siemens shopping list. A June report from Bloomberg laid out the possibility that Siemens might bid for smart meter giant Itron, in a repeat of sorts of Toshiba’s decision to buy big smart meter vendor Landis+Gyr for $2.3 billion earlier this year.
But one eMeter insider told me that, while Siemens is definitely smart grid shopping, it isn’t for a smart meter vendor. That view was backed up by Kevin O'Hara, vice president and general manager of Siemens Smart Grid Services in North America, who told Intelligent Utility that "Strategically, at the moment, we don't have any plans to be a meter provider. We work with meter vendors and meter providers."
Indeed, Siemens actually has a small smart metering business, called Automated Metering and Information System, or AMIS. Based on technology from VA Tech, an Austrian company Siemens bought in 2005, it’s being tested out by Austrian utility Energie AG in a 1,000-household pilot project which could grow to up to 400,000 customers by 2014. An October news report said that Siemens has deployed about 100,000 of the meters worldwide, for electricity, water and gas metering and distribution grid management.
Smart Grid Needs Software to be More Profitable
Siemens announced its eMeter acquisition without much fanfare (or details on price) during a Monday, Dec. 5 conference call. But Roland Busch,CEO of Siemens’ Infrastructure & Cities sector that’s absorbing eMeter, did put the acquisition in a broader context of creating an integrated IT platform purpose-built for the smart grid.
“The smart grid is really a software and IT driven business by the way,” he told analysts. But he drew a contrast between the general world of enterprise software, which is “not the IT which is really addressing the core processes of customers,” and the kind of smart grid and utility-specific IT “which requires a deeper understanding of their processes.”
That’s an important distinction that’s been borne out in Siemens’ corporate strategy. The company sold its enterprise IT operations to Atos in July, indicating a move out of the enterprise IT business. But when it comes to software that serves its core markets, including the smart grid, software is “a strategic important factor in the whole chain of gathering data in the smart grid,” Busch said. “Here we have clear focus and as we said we are investing here as well.”
After all, Siemens and its competitors can only build so much hardware for the smart grid market, and the health of that business is tied directly to GDP growth, essentially. Given the economic turmoil in Europe and around the world, that’s not a recipe for short-term business gains.
But building an IT infrastructure to control, analyze and optimize all that gear could allow Siemens and its utility customers to continually squeeze more and more value out of those hard assets over time — and yield ongoing revenues as well.
Indeed, that’s a key strategy behind Schneider Electric’s massive smart grid and energy services IT investments over the past year, Jeff Drees, Schneider Electric’s US Country President, told me in an interview last week. While the company’s market share in low-voltage systems within buildings is very strong, “Our relationship with utilities was not as strong, pre-Telvent,” he said. With Telvent, Schneider now serves utilities with an outage management system, an advanced distribution system and an asset management system, all under one integrated package — not to mention its grid assets from Areva, which is split with Alstom.
Building the Smart Grid IT Platform Takes Time and Money
Of course, that doesn’t mean that Schneider can do it all by itself — far from it. Telvent may be a major player in smart grid, but it’s also a partner with a usual-suspects list of players in the space, such as Microsoft, Cisco, HP, Oracle, SAP and the like. The same goes for eMeter (partners like Oracle, IBM, Logica, Accenture, etc.), and just about any other smart grid company out there.
But while all these companies work together on complex smart grid projects, they’re all jockeying for a bigger piece of the pie for themselves. That’s especially true in the emerging fields of smart grid systems integration, which doesn't really exist yet. Overall, utility enterprise management will be an $8.5 billion business in its own right by 2015, GTM Research predicts.
There’s good reason for Siemens and its competitors to pay more now to gain market share here. In an interview with Xconomy, eMeter CEO Gary Bloom mentioned that eMeter was “right on the brink of being cash flow neutral,” but that this was a choice on the company’s part.
“Just tell me, and I’ll make it profitable,” he said. “I just don’t think that is the best decision for the company. We are taking the money we collect from customers and investing heavily in innovation, customer acquisition, and customer success.” While Bloom is leaving the top job at eMeter and won’t be making those decisions, I’d guess that Siemens won’t be squeezing the company for cash, but rather investing more heavily on its data analytics and systems integration capabilities, which eMeter has been beefing up for the past year or so.
Siemens’ Busch had a similar response to analysts’ questions about low single-digit profit margins in the company’s smart grid divisions, lower than its chief rivals. Essentially, he said Siemens has been moving aggressively into new markets, investing in the company’s product platform and spending on “total integrated low and medium-voltage power solutions” — in other words, linking grids to buildings.
IT Rivalries Moving Into Smart Grid?
Let’s not forget that GE, Siemens, ABB and Schneider may have the gear to control what the power grid does, but it's the likes of SAP, Oracle, HP, Microsoft (MSFT) and IBM that provide much of the back-end smarts to the utility sector. That includes the same kind of meter data management that eMeter does, as well as all the traditional back-end systems like customer billing and relationship management and workforce and asset management.
All those back-end systems must be integrated with the grid-facing devices and all the data they’re delivering, if the smart grid is to grow out of its current status as a bunch of one-off, siloed IT systems. This goes beyond the device-to-device, network-to-network interoperability on display at Grid-Interop and other such industry showcases, and gets deep into the guts of how utilities use IT to manage the smart grid as a business.
I’m curious to see how some of the big enterprise software rivalries might play out in this smart grid context. In particular, we’ve been seeing database behemoth Oracle duking it out with rivals such as SAP and HP for years, and according to reports, those rivalries are extending to the utility field as well.
In terms of direct competitors with eMeter’s meter data management software, Bloom told Xconomy that “The one we probably see the most is Oracle. They are trying to do a completely integrated, vertical technology stack… We are saying, ‘Pick the ERP (enterprise resource planning software) you want and whatever meter and network you want and we will integrate to any of them.”
One such integration partner may be SAP. In 2009, Siemens bought Energy4U, a European software consultancy that works with utilities in Germany and Central Europe on, among other things, integrating SAP software into utility systems. Siemens is also working with SAP on car charging pilots.
SAP is a giant in enterprise resource planning (ERP) software for utilities, but Oracle would no doubt like to capture a bigger share of that business. One way to do it would be to get in with its meter data management customers, where it holds roughly one-quarter of global market share. But that number also includes software for all the world's "dumb" meters and grids. Oracle’s global share of interval meter data management business — the category that properly includes smart meters — was only about 7.5 percent in the third quarter of 2011, compared to Itron’s 35 percent, eMeter’s 20 percent and Ecologic Analytics’ 17.5 percent, according to Computer Sciences Corp..
Oracle also sells distribution grid management software. There’s competition on that front as well — in August, SAP launched a smart grid software suite that uses in-memory computing to process grid data in near-real time, unlike the batch processing that still dominates the utility IT world.
Cloud Computing for Smart Grid, Other IT Players
SAP has also been throwing money around to beef up its cloud computing against Oracle, spending $3.4 billion for San Mateo, Calif.-based SuccessFactors earlier this month. Gartner predicts the global market for cloud services is set to grow from $68.3 billion in 2010 to $148.8 billion in 2014, making it a much bigger prize than smart grid enterprise software, which GTM Research estimates will be an $8.5 billion business in 2015.
But the cloud and smart grid do intersect — eMeter partnered with Verizon in January to host utility meter data management on the telecom giant’s cloud service. Indeed, companies like GE, Lockheed Martin, Honeywell, Itron and many others have been launching cloud-based smart grid services, making them a hot new trend for 2012. It makes sense to take the IT burden integration challenge off utilties’ backs.
Other big utility IT players include IBM, which works on tons of smart grid projects as master integrator, including the Siemens-eMeter rollout in Kansas City. Big Blue’s services model lends it less to head-to-head competition — it’s partnering with Schneider, Honeywell and Johnson Controls on the smart buildings front, for example — but IBM did buy Tririga, a real estate management software company, that could give its smart grid efforts more connections to the buildings they power.
Microsoft has a big utility-vendor smart grid partnership program, just as IBM does, but it hasn’t announced as many projects as IBM. Another, less well-known utility IT giant is OSIsoft, a big data management firm with lots of utility business, which raised $135 million in January from TCV and Kleiner Perkins, in the largest single smart grid funding round of the first quarter.