Market view: A bite of the Apple?

Could the world’s biggest company be circling the utilities sector? Yes it could, because bad customer service has made the industry vulnerable to disruptive outsiders, says Robert McFarlane.

Apple registered as an energy company in the US this summer, outlining its plans to sell excess power back to the grid. Then Apple announced its commitment to using 100 per cent renewable energy for all of its data centres and offices. And now Apple has launched the “Home” app, bringing smart home controls to every iOS 10 device. All these events hint at something significant: Apple is circling the utilities sector.

The danger is a serious one for the sector, which has several of the criteria that make it deeply vulnerable to disruption: consistently poor customer satisfaction (for the big six energy companies it is lower than banks and train companies), lack of innovation, and significant barriers to entry that have kept competition low.

In part, this is down to the nature of the business. Customers do not get to enjoy a slick user interface or a shiny new device; the power or water either works or it doesn’t; and we only really notice when it doesn’t. But the vulnerability is there and Apple is well placed to exploit it.

For Apple, the move into utilities is a sensible and logical one. With declining desktop, laptop and tablet markets, the company needs to diversify. The solution is to reach out to different touch points in people’s lives. It needs to go beyond the device sitting in people’s hands or on their desks, and start transforming the environment in their homes, workplaces and cities.

Utility companies sit at the heart of that world, providing the resources on which everything else operates. It does not matter how smart your washing machine is – if the water supply fails, it will not operate. When Apple is investing in smart home technology, the quality of utilities services becomes its business.

How Apple will position itself

It is unlikely that Apple will set up shop as a traditional utilities provider, building a power station or two and hooking up to the grid. Instead, it can make the most impact by situating itself between the customer and the provider.

HomeKit, Apple’s home automation framework, will be one aspect of this. Through smart appliances, Apple can tap into data on customers’ energy and water usage and provide them with a means to manage their consumption.

With this, Apple positions itself as an ally that helps you keep costs low, so you do not have to pay too much to utilities providers that you probably do not like. If Apple succeeds, the providers will be left merely as “dumb pipes” in the eyes of consumers, much like telecoms companies have become. All providers will be good for is supplying the resource, fixing it when it breaks and charging you money. The positive customer experiences of monitoring, automating and improving the way resources are used will be credited to Apple, and the negative experiences of billing and broken pipes blamed on the provider.

In the long-term, Apple could tighten its grip on the industry even further. There is no reason why the company’s newly registered Apple Energy subsidiary will be limited to selling back excess power. If Apple were to act as an electricity retailer, it could act as an overlay between the customer and the suppliers. Apple could offer more competitive rates, commit to making a large proportion of its supply from renewable energy and extend its first-class tech support service to help people fix electricity and water issues.

The more homes with HomeKit devices and services, the more data Apple has to create intelligent communities that can regulate their own energy consumption and save money. Signing up to the programme could be monetised eventually, but more straightforwardly it would help ingrain Apple products into the home as a necessity. There will be plenty of competition, Google Home will bake in its Assistant AI and Amazon already has Echo marketed as the homeowner’s butler to manage daily life.

What utilities companies need to do

Utilities companies need to start to prove their value if they want to stay relevant and positive in the minds of consumers.

The sub-par consumer experience that has plagued the industry needs to be brought to an end. Legacy IT systems need to be upgraded: issues still take too long to diagnose, the system of metering and billing is archaic (requiring irritating home visits and estimations); and consumers are left in the dark as to how they are consuming resources.

Suppliers should also be providing additional services such as smart community hubs to regulate power usage based on patterns of consumption. And they should offer home safety services, by detecting and notifying suppliers and home owners about gas, carbon monoxide, smoke and water leaks, as well as power cuts. This could be subscription based and packed with smart detection units that are installed and upgraded regularly as part of the deal.

If this innovation does not happen, a company like Apple which lives and breathes cutting-edge technology can enter the space and offer a better front-end experience to customers.

Utilities may want to start applying digital transformation thinking and actions to meet the demands of an evolving customer base with greater expectations. Understanding customer journeys, digital technologies, the Internet of Things, mobile and cross-departmental co-operation are good starting points to prepare for the possibility of an upswing of technology in the home.

There are significant barriers to entry into utilities, particularly in terms of infrastructure, that have protected the big brands from competition for a long time. But now that the most powerful and richest company in the world is circling, it is time to sharpen up and innovate.