Are Digital-First Energy Retailers Ahead of the Curve: Part 1

The entire value of the digital economy was worth more than $3 trillion in 2019, all of which has been created over the past 20 years since the launch of the internet. Some sectors of the economy have fully digitized, such as media; others are significantly behind the digitization curve, such as energy. In 1999, the launch of peer-to-peer MP3 file sharing site Napster, which allowed users to (often illegally) share music files with each other, was the canary in the proverbial coal mine. While Napster fell afoul of copyright laws, Napster’s impact (combined with Myspace and Facebook, and later, Spotify, Pandora, and iTunes) turned the entire media distribution industry on its head.

More than 20 years later, the electric industry is beginning to show the first roots of this trend, with companies such as Octopus Energy and OVO emerging as digital-first energy retailers. Digital-first energy retailers are companies that have a digital platform at the core of their operations and customer engagement instead of outsourcing those tasks to technology vendors, breaking the barrier between energy companies and tech companies.

Digital-First Energy Retailers Use the Benefits of Software

A shift to digital-first energy retailers would not be different from the transformative changes that upended the distribution of media content in the 1990s and 2000s. In industries that have experienced more aggressive digital transformation, the companies that thrive are typically those positioning themselves as a gatekeeper to the end consumer. 

Borrowing Stratechery's characteristics of tech companies, digital-first orchestrator companies rely on four common maxims to drive customer value:

1. Software platforms create ecosystems: Ecosystems protect orchestrators from new entrants since the cost of breaking into an ecosystem (or replicating an ecosystem) is high for followers as platform users will generally stick to just one solution. It’s generally easier to adopt an existing software solution and join an existing ecosystem than to compete.
   
2. Software has zero marginal costs: Adding a new customer once the initial layout has been deployed is virtually free, so scaling is easier and more efficient.
   
3. Software enables zero transaction costs: Once parties join a marketplace, the cost for the orchestrator to initiate or facilitate a transaction is close to zero.
   
4. Software offers infinite leverage: This attribute allows companies to expand seamlessly and relatively quickly into new markets, making digital-first orchestrators effectively global from day one.
   

Utilities and energy companies innovating around new digital-first business models can borrow from these principles. While the electricity sector will always operate in a hybrid (physical and digital) world, there are ample opportunities to embrace lessons learned from digital disruptors to orchestrate emerging Energy Cloud platforms. In the second part of this blog series, I’ll explore how some energy retailers are trying to become digital-first companies.