News, Analysis and Informed Opinions from the Industry Experts.
Centrica: A Case Study in Connected Home Innovation
Energy supply and service giant Centrica PLC recently announced profits in 2016, which topped £1.5/$1.9 billion, on a turnover of £27/$34 billion. The FTSE 100 company owns a range of brands including: British Gas, Hive, Bord Gáis Energy (Ireland), Direct Energy (USA) and Dyno and has placed strategic focus on Connected Home, as outlined in its publicity below.
For an energy company, its strategy is unusual in that its success has come through deep vertical integration rather than through 3rd party partnerships (eg with Nest) and by the creation of a new brand – Hive – to support its move into the innovative, early adopter smart home market and remove the need to be a British Gas customer.
The main propositions that have been developed to date are:
- Hive Home – a range of smart devices to enable home automation including a thermostat, smart plug, motion and window/door sensors and an LED light bulb.
- My energy (British Gas) – a personalised insight into home energy use.
- Boiler IQ (British Gas) – remote identification and reporting of faults to support predictive maintenance.
The first thermostat was launched in September 2013 in conjunction with AlertMe, a Cambridge based company who also provided a basic energy insights product under the British Gas brand. The energy insights product (my energy) was subsequently re-developed in house as a fully digital proposition using smart meter data and offered free of charge.
In March 2015, AlertMe was acquired to ensure full ownership of the core technology platform and the much-improved Hive 2 thermostat was launched in July 2015. Subsequently, Boiler IQ was launched in March 2016 and in August 2016 FlowGem was acquired to support the development of a leak detection product.
Over 500,000 Hive connected hubs are now installed, and the company is the market leader in smart thermostats and my energy is available to all 3.3 million British Gas smart meter customers. Around 30,000 Boiler IQ devices are now in use. Internationally, Centrica expects to invest £500/$633 million (OpEx and Capex) in this area by 2020 and is now expanding to Texas via the Direct Energy brand.
So how has Centrica achieved this? Some of the reasons include:
- The Connected Homes operating model. The business was founded on lean start-up/agile principles as a stand-alone entity based in central London. A significant proportion of the employees come from non-energy industries and were familiar with cutting edge technology. In addition, it was run as a product centric company based on customer insight and rapid iteration.
- The development of the separate Hive brand supported a mass market launch to both British Gas and non-British Gas customers, together with acceptance as a technology innovator (compared with the British Gas brand).
- Sales channel reach – British Gas has a significant sales and engineers force who can install and maintain these products. In addition, they already offered support for gas boilers under HomeServe and therefore Boiler IQ was a natural extension.
- Significant marketing budget was available through the parent and there has been heavy promotion of products to British Gas users.
- British Gas has been at the forefront of the UK smart meter roll out, enabling the business to offer powerful energy insights to a significant number of customers using 30 min data free of charge.
- Investment levels – Centrica has, and continues to invest a significant amount of budget in the development of a digital capability, believing it will offer a significant differentiator in the market.
Some of the business benefits to the parent company include:
- Additional revenue and margin through the sale of hardware.
- The development of new services revenues through Boiler IQ (£3/$3.80 per month) and Hive Live (£4.99/$6.30 per month).
- Churn reduction by being able to clearly show customers the energy consumption of their home for example and ways in which they could save.
- NPS (Net Promoter Score) improvements through association with more innovative solutions, putting customers in control of their spending and demystifying their bill.
- Enhanced stance with the regulators by showing a clear investment in trying to pro-actively assist customers in reducing their energy consumption.
- Use of smart meter data to enhance energy insights for pre-smart customers i.e. those who do not have a smart meter currently.
- Proof of concepts such as my energy live offering near real time – i.e. less than 10 second data – from the home, viewable via an app. This offers significant benefits to prepay energy customers for example, so that they can ensure they are never out of credit.
- Energy forecasting can be made more accurate using the energy data and analytics capabilities that are available through the deployment of smart meters.
- Development of new tariffs such as British Gas “HomeEnergy FreeTime” which offers free electricity on a Saturday or Sunday.
In the future, such solutions could support the shift to distributed generation and storage (e.g. batteries), peak load management (of the grid), more innovative demand response/ ‘power-by-the-hour’ energy pricing and new business models using demand level disaggregation which can analyse individual devices in a home.
Meanwhile, current users of Centrica services benefit from the additional insights they - and their supplier - now have of the energy they use, enabling more control and potentially greater savings. In addition, the offer of Hive smart home products to households that do not currently take Centrica services extends the reach and profile of the company to a wider audience.
Here at Futuresource Consulting we deliver specialist research and consulting services, providing market forecasts and intelligence reports. Since the 1980s we have supported a range of industry sectors, which has grown to include: CE, Broadcast, Entertainment Content, EdTech and many more.