1. 14
Harnessing
the power of
persuasion
Over the last two decades, however, that’s changed.
Deregulation, advances in renewable energy, oil and gas
price volatility and concerns over global warming have
transformed a highly predictable business into a prime
candidate for technological disruption — with utilities at
risk of being pushed aside by younger, nimbler players.
Some energy analysts predict that most utilities are
doomed because they won’t be able to cope with all
this complexity. However, executives at cloud software
company Opower argue that traditional utilities still
hold the most important asset of all: an established
relationship with the energy consumer.
The rapid rise of the Arlington, Virginia, company
suggests that the Opower executives may well be right.
After only seven years in business, Opower now works
with over 95 utilities and more than 50 million homes and
small businesses in nine countries. It partners with some
of the largest utilities in the world, including 28 of the top
50 in the US, E.ON in the UK, EDF in France and TEPCO in
Japan.
Now valued at US$775m just a few months after its
successful debut on NYSE in April, Opower is one of a
number of new entrants to the power industry that see
huge possibilities in offering the energy consumer more
artificial intelligence, but perhaps the first to gain real
traction in the market.
A joint effort of longtime friends Daniel Yates, a
successful entrepreneur of educational software, and
Alex Laskey, a political and policy advisor in Washington
specialized in environmental issues, Opower began from
a rented desk in San Francisco and has grown to a global
company of more than 560 employees.
Case study Retail
B
eing a power company used to
be a straightforward business:
you generated the electricity the
customer needed, kept the electrons
flowing, and sent out the bills. The biggest
headaches belonged to the engineers and
the rate-board lawyers.
Behavioral analytics holds enormous
potential for utilities to better
understand their customers. By
partnering with utilities globally,
Opower is focused on bringing this
value to the market.
Report by Brad Hartnett
2. 15Utilities UnbundledIssue 17 | October 2014
Initially, it offered utilities a compelling pitch: by combining data
analytics with behavioral psychology, Opower’s software could persuade
people to cut down on power voluntarily (see Utilities Unbundled #8, May
2010). Yates and Laskey found that rather than try to make people feel
guilty about using power or giving them financial incentives to use less
power, if they showed them that their neighbors conserved more power
in comparison, then they would actually cut back by as much as 6%.
The friends built the company on the work of Robert Cialdini, a
professor emeritus of psychology and marketing at Arizona State
University and now chief scientist at Opower. The author of Influence:
The Psychology of Persuasion, a 1984 best seller that outlined a
theory of how people are persuaded, Cialdini found in a 2004 study of
Californian energy consumers that appeals to conserve energy because
their neighbors were conserving energy worked much better than
appeals to conscience or the pocketbook.
As Laskey put it in a 2013 TED talk:1
“If something is inconvenient,
even if we believe in it, moral suasion, financial incentives, don’t do much
to move us — but social pressure, that’s powerful stuff.”
The idea worked: among their utility clients’ customers, average power
use declined by 1.5%–3.5% — all without the installation of smart meters
or other hardware. Already, Opower has saved consumers more than
US$550m on energy bills — and has helped utility clients shave demand
by more than five terawatts.
Beyond efficiency
In 2010, executives saw an opening beyond usage analytics. According
to Roderick Morris, Senior Vice President of Marketing & Operations,
clients began to ask for additional services that would help them meet
their customers’ demands for more control and information about
US$560m
Opower has saved consumers
more than US$560m on
energy bills
Opower has helped utility clients
shave demand by more than
5 terawatts
85%
Opower customer surveys
revealed 85% of consumers
trusted their utility to give them
power information
7 billion
Opower’s customers have
abated 7 billion lbs of CO2
“Utilities now realize that they can turn their
customers into energy assets by proactively sharing
more energy information and tools – and
customers are eager for it. It’s up to utilities not to
lose this strong position.”
Roderick Morris, Opower
1. TED (Technology, Entertainment, Design) is a global conference series run by the non-profit Sapling
Foundation. TED talks address a wide range of topics in the research and practice of science and culture,
often through storytelling. Source: Opower
3. 16
SummerSpringWinterAutumn
2.3%
2.6%
2.7%
3.5%
Source: Opower
their energy use, and to meet the
challenge of rising competition due to
distributed power generation and market
deregulation.
Opower executives saw that their
company was well-placed to give utilities
the tools they needed to offer next-
generation customer service, based on
the insights gained from crunching its
global data bank of past and present meter
readings.
“All major trends were pointing toward
utility customers being more and more
central to the future success of utilities.
And so for us, it made sense not to invest
in any other part of the business beyond
customer, but instead to go even deeper,”
Morris says.
At the same time, they could see that
other industries were raising consumers’
customer service expectations by using IT
to improve the quality of their interactions
with the company.
“If you look at the way consumers buy
in retail, how they interact with their
telecom provider, their retail bank, even
how they purchase media or other goods,
everything is becoming more personalized;
everything is becoming more intelligent,”
he says. “And the customer has an
expectation not only that you are going to
understand what they’re looking for, but
that you are going to make their life easier
and richer.”
The in-depth analytics Opower developed
now help its clients identify little things
that can make a big difference to
consumers’ energy use and loyalty:
► In 2013, Baltimore Gas & Electric
used Opower’s platform to send out
telephone, email and text messages
before a peak usage period, and
succeeded in reducing consumption
by 5%, first by warning customers that
a peak usage day was coming, and
then by providing personalized tips on
how they could reduce usage based on
each customer’s unique situation.
Case study Retail
► Mercury NZ, a New Zealand utility, set
up a personalized customer service
center on the Web and cut down call
center volume by 19%.
It’s no accident that Opower’s successes
generally include the name of a utility.
Opower executives aren’t among those
power professionals who believe the
traditional utility is on the way out.
Morris argues that utilities still own the
relationship with energy consumers:
Opower’s customer surveys have found
that 85% of consumers say they trust their
utility to give them power information.
Include versus exclude
Unlike some new entrants providing
beyond-the-meter services, Morris
says Opower doesn’t see itself as
disintermediating anybody. Instead,
he argues that Opower is helping keep
customers and utilities together through
more responsive and intelligent customer
service. “These companies are trying
to take the utility out of the equation,
actually, and we partner with utilities to
help them be trusted energy advisors for
their customers,” he explains.
Clients see a variety of advantages
to plugging into the Opower platform,
according to Morris. “By providing
customers with more proactive energy
advice and information we’re helping
utilities to achieve multiple objectives,”
he adds. “They’re improving the customer
experience and retaining customers in
competitive markets; they’re meeting
efficiency targets in regulated markets;
and in all markets, they’re driving down
cost-to-serve expenditures on things like
peak demand or customer calls for high
bills. And customers benefit from this
because they have more control over their
energy usage and access to tools that can
help them lower their bills.”
Another incentive is that the insights
keep getting better. Armed with a data
Figure 1. Opower’s longest-running utility program has led to seasonal energy savings
as high as 3.5%
“If you look at the way consumers buy in retail …
everything is becoming more personalized;
everything is becoming more intelligent. And the
customer has an expectation … that you are
going to understand what they’re looking for
[and] make their life easier and richer.”
Roderick Morris, Opower
4. 17Utilities UnbundledIssue 17 | October 2014
Roderick Morris took up his current
role in 2010. He is Opower’s chief
marketing officer and global leader
of the company’s client operations
P&L. Previously, Roderick was VP,
Marketing at Vovici, a leading provider
of customer feedback solutions.
Prior to joining Vovici, Roderick was
general manager for LexisNexis US
Business Information Solutions. He
has also worked for Bain & Company,
Microsoft, Simmons & Company and
the Corporate Executive Board.
Senior Vice President of Marketing &
Operations, Opower
Roderick Morris
Brad Hartnett
Strategic Analyst — Power & Utilities
Washington, DC, US
+1 202 327 7053
bradley.hartnett@ey.com
Opower …
began from a
rented desk in
San Francisco in
2007 and is now
a global company
with more than 560
employees
works with over
95 utilities and
more than 50
million homes and
small businesses
in nine countries
partners with
some of the largest
utilities in the
world, including 28
of the top 50 in the
US, E.ON in the UK,
EDF in France and
TEPCO in Japan
debuted on NYSE
in April 2014 and
is now valued at
US$775m
bank of more than 300 billion data points
and counting from 50 million customers
around the world, along with a constant
stream of real-time data, Opower’s 100+
team of engineers and data scientists
continue to scour the numbers for new
relationships and new insights.
For example, they now target particular
events in the customer life cycle that
have the most impact on consumption,
where a utility can capture a great deal
of value in terms of customer experience.
“We’ve now built products around specific
customer interactions, for example, if a
customer moves into a new home or if
the customer’s on a path to a high bill or
calling into a utility,” Morris says.
The upshot of all this effort, however, is
not just greater efficiency, according to
Morris, but higher customer satisfaction.
“We’ve seen across our customer base
that when utilities do this, when they
provide proactive advice in a format that
takes behavioral design and customer
sentiment into account, you get happier
customers,” he says. “And it helps the
utility to become a trusted energy advisor
to customers, improving satisfaction and,
in competitive markets, brand loyalty. It
also improves cross-sell of other products
or services to customers, including solar
panels.”
Finally, Opower’s work may be changing
the way the utilities themselves see
their relationship with their customers.
“Utilities now realize that they can turn
their customers into energy assets
by proactively sharing more energy
information and tools — and customers are
eager for it,” continues Morris. “It’s up to
utilities not to lose this strong position.”