Microsoft Retreat

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Microsoft recently ended its bid to create a new huge business managing consumer energy use.

When the effort was launched, many utility leaders braced themselves for a bruising competition for the hearts and minds of electricity users.

Microsoft and Google were feared as huge but nimble technology giants who would know how to mine information about energy use patterns to benefit customers. Some utilities saw themselves as endangered dinosaurs.

A debate emerged as to who should have access to customers’ energy use data. Did it belong to utilities? Should it be made available to new market entrants?

The fight has cooled.

In response to our inquiries earlier this summer, Microsoft’s public relations firm acknowledged via email: “Microsoft is discontinuing the Microsoft Hohm service effective May 31, 2012. While the response from customers and partners was promising during the service’s beta period, we have decided to focus on future products and solutions.”

I asked Jon Arnold, Microsoft managing director of the worldwide power & utilities industry, why Hohm failed. He replied via email that it is the result of a “combination of weak customer demand (recession, energy efficiency not mainstream) and the lack of a coherent national energy policy [that] encourages solutions like Hohm.“

Soon after Microsoft launched Hohm, I interviewed Craig Mundie, the company’s chief research and strategy officer.  He said Hohm would be a four-phase effort over many years. Similar Microsoft initiatives would transform health care and education, Mundie said.

Microsoft intended to make money on its pioneering energy management business through advertising.

Mundie said a few years back, “Our primary focus here is not on the utility.” He continued: “It's on the consumer. If you're going to control demand, you have to start with where the demand is. The greatest single demand is actually in residences. It's an area where Microsoft has brand permission from the consumer to interact with them in their home.”

You can read the entire interview that appeared in the March/April 2010 EnergyBiz by clicking here.

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As utilities wonder about the large amounts of information they are receiving from an ever smarter energy network that allow for innovations in operations as well as customer care, the Microsoft retreat must be carefully pondered.

A large potentially dangerous competitor may have suffered a setback.

But what are the implications of that setback to an industry making hundreds of millions of dollars of investments in new capabilities? What will be the business models for recovering those investments?

If Microsoft is stumped, what does that augur for investor-owned utilities, munis and co-ops?

 

 

Comments

Microsoft's decision to exit the retail energy space by shutting down Holm should not come as a surprise. it is only the latest in a long line of smart companies that have concluded that the consumer side of the meter is an ugly place to try to do business. the reasons are many but include the fragmented nature of the electricity grid making it difficult to scale any business; the duplicitous state by state regulation which limits opportunity; the persistence of average cost ratemaking undermining any incentive for customers to shop even if the laws in their state permitted it.

In 1997 while I was Director of Global Power at Cambridge Energy Research Associates (CERA) we hosted a Retail Energy Forum that spent several years bringing together major energy, industrial, consumer products and transportation companies to imagine the opportunities and risks in a distributed energy future where customer had access to technology and choice among suppliers. our conclusions were essentially the same as those drawn by Microsoft more than a decade later. Not enough had changed in that long period to make a profitable, scalable competitive market in retail energy services.

That is not to suggest for a moment that we should give up on the concept, but rather that the drivers of such change are probably not residential customers but will show benefits first in the customer aggregation of commercial and industrial demand, applications of new energy efficiency and cost reducing technologies, and the rise in use of microgrids and combined heat and power applications to gain more control as well as cost savings in streamlining energy use and relying on the grid as backup.
Gary Hunt


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