Sep 6, 2011
The utility industry is hitting an inflection point. This statement would have been unthinkable for the last five decades, but a few forces have converged, prodding the industry out of its conventional ways. Inexpensive wireless technology, political pressure to integrate renewables, and increasing demand will compel utilities to move forward with smart grid technologies and develop capabilities at a pace unprecedented in the industry.
How does a smart grid company position itself in a still-developing industry? By leveraging widely-used standards and offering solutions that address a range of regulatory structures. Trilliant executives Rob Conant, Chief Marketing Officer and Paul Karr, VP of Commercial Operations discussed their vision and strategy with MITER.
Trilliant provides smart grid communications solutions that help utilities and end-consumers improve energy efficiency, optimize grid operations, and integrate renewable energy resources.
What is a Platform?
Greentech Media’s taxonomy of the smart grid market breaks down this space into three main layers: application, communication, and physical. Applications use the communications layer to provide the interesting functions, and the communications layer connects the physical equipment of the smart grid. Now that equipment supporting the physical layer is widely available, significant action has shifted to the communications layer.
As with the personal computer industry, the communications layer functions as a platform – the glue that holds together the physical layer, so that applications can be easily developed and run. In personal computing, the operating system (Mac OS or Windows) is a platform, and the user primarily interacts with the applications (word processors, video players) that run on that platform. Similarly, smart grid applications (advanced metering, distributed generation, electric vehicle charging) run on a platform that enables the multitude of meters, generators, and vehicle charging stations to communicate.
In the personal computing and mobile spaces, only a few competing platforms remain, and most of the action has shifted towards applications development. In the smart grid space, however, the most competitive area is still in platforms – much like the personal computing industry in the early 90s. Trilliant has positioned itself to compete in this space.
A Good Platform Separates Applications from Hardware
A well-designed platform provides two main benefits. First, it simplifies applications development through a consistent set of interfaces, and second, it makes the system robust enough to handle hardware upgrades without disturbing applications’ functionality. Compared to individual products, platforms penetrate a market more slowly, but once a company’s platform is established, the competitive advantage is longer-lasting and can be leveraged to offer a series of products.
An example of a well-designed platform is Apple’s iOS. On this platform, a single app can be developed to run on the iPhone, iPad, or iPod touch. Furthermore, when new hardware becomes available, users can upgrade while preserving the same app functionality as before. Over time, the platform becomes more valuable as Apple adds features to the hardware (e.g. 2-way camera) and as the selection of available apps grows.
Influencing early adopters is critical in markets with Network Externalities
The most distinctive characteristic of a platform is the positive network externalities: its tendency to become more valuable as more users adopt it. For example, as more users adopted the Microsoft Office file format, the more valuable it became – more users meant more possible collaborators with whom to share files. The competitive implication is that when positive network externalities exist, signing up early adopters is crucial. Each competitor seeks to move the market past the tipping point in its favor, so a well-designed platform product should by easy for early adopters to integrate and grow with.
One example of the market dynamics with strong positive network externalities is the competition between GSM and CDMA in the mobile phone space. The first commercial deployment of GSM was in November of 1992 – three years before the equivalent milestone for Qualcomm’s competing CDMA technology. Despite the superior spectral efficiency of CDMA and Qualcomm’s outstanding execution, the network externalities associated with GSM’s early start have left CDMA with less than 15% worldwide market share.
The lesson is that when positive network externalities are strong, influencing the early market is crucial. “Our strategy was to first build a product we knew the market would buy today,” said Karr. “The market developed faster than many thought it would, and this made Trilliant well positioned to launch into some early large-scale opportunities.” Trilliant attributes its success with early adopters to three strategic anchors:
1. Regularly Expand the Scope of Supported Hardware
Trilliant signaled its ability to incorporate new hardware into its platform with its acquisition of Skypilot in 2009. By integrating Skypilot’s long-range, broadband wireless mesh technology in 2009, Trilliant added data backhaul as a feature of its platform. “After the Skypilot acquisition, we were able to offer a truly multi-tier network,” said Karr. “Our product combines between a high bandwidth, low latency wide area network with a low-cost neighborhood area network into a single integrated solution.”
A utility executive, speaking anonymously, commented “We made our choice of communications platform based on total cost of ownership, but right now we do our own backhaul. If one of the vendors we were evaluating had offered backhaul services at the time, we definitely would have taken that into consideration.” By adding another major feature to its platform, Triliiant enlarged its scope of supported functions and more importantly, signaled to the market the robustness of its platform for even more expansion.
2. Leverage Existing Standards
Trilliant chose to adopt an existing market standard for its mesh networking, rather than a proprietary standard. “Our choice of 802.15.4 as our RF mesh standard provided us with a foundation to leverage a mass market standards-based technology into this application,” said Karr. “The standard already had a lot of thought on things like co-existence of other in-band RF devices. Lots of competing products out there don’t have a way to deal with interference.”
While competitors with proprietary communications protocols must invest R&D dollars to regularly upgrade the standards and deal with new issues as they arise, Trilliant can leverage the R&D that goes into each successive generation of the 802.15.4 standard. This decision also gives the company a wider selection of chip vendors and a more convincing case to potential customers that its platform will become a widely-adopted industry standard.
3. Customize for different Regulatory Structures
Trilliant offers products that make sense under a variety of utility regulatory structures. “This is a unique environment because utilities’ decisions aren’t always straight business decisions,” said Conant. “There are various constituents who have to be involved in the buying decision. The constituents and the process are different, depending on the regulatory framework.” Trilliant offers a solution to the three major regulatory frameworks under which utilities operate: munis, competitive deregulated, and investor-owned:
Municipal utilities (“munis”) are generally run as part of a local government, reporting up to a city council. Since a local government considers both political and financial inputs, a straight cost-benefit analysis is usually insufficient for this customer class to reach a decision. Munis also generally have less IT capabilities. “Munis have a variety of technical needs that are different from an IOU,” said Conant. “We tailor the product to match their budget and the effort they want to spend managing the system.”
Competitive deregulated utilities are free to set their energy prices as they compete for customers’ business. Energy retailers in this environment aim to add value through smart grid services and capture that value in the form of higher prices. “Utilities in deregulated environments are not limited to the grid side of the meter, so they can directly offer energy management services,” said Conant. “Our products span multiple tiers and application sets of the smart grid, including wide area networking, metering, and home area networks.” Trilliant offers a product based on cellular communications, rather than on a mesh network, for this segment of the market, simplifying the operational requirements each time customers switch providers.
For investor-owned utilities, any expenses are recovered by the IOU through increased rates. Because a public utilities commission must approve expenditures, a vendor must emphasize that their product is cost effective for the entire society – not just for the utility. A communications platform based on a mesh network  is more appropriate under this regulatory structure, since it is cheaper to deploy.
By customizing its products for utilities under a range of different regulatory structures, Trilliant is tipping the network externalities in the market in favor of its platform.
Selling a Platform to Utilities
The smart grid communications platform represents a major opportunity for sustained revenue, because once a platform becomes established, switching costs are high. In this space, technology leadership is not enough to guarantee success. Convincing utilities to commit to a particular platform requires offering robustness and flexibility. By building its product marketing strategy around demonstrating long-term viability, Trilliant aims to take advantage of network externalities and establish its solution as the standard platform in the industry.
For more, see http://www.trilliantinc.com
 Mesh networks are cheaper to deploy because fewer relay points (data aggregation devices) are needed. Messages are passed from device to device instead of directly to the relay points, as in a cellular network.