Sluggish growth in the utilities sector has seen market players increasingly looking across borders for organic and inorganic growth. The increased availability of low-cost, market-ready Software-as-a-Service (SaaS)-based alternatives are helping traditional utility companies, as well as their non-traditional competitors, move quickly into new and adjacent markets. These new capex-light models are important enabler to pursue new sources of revenue growth, but the real game changer will come from utilities using these technologies to establish business model and ecosystem plays around which new products and services can be sold. Recent Accenture Strategy research found that 55 percent of utility executives expect their primary growth in 2020 to come from new products versus 25 percent today.1 Using technology for agility and innovation will be key.
Technology’s role in cross-border market entry
For decades, sizeable upfront technology investment, changing regulatory environments, complex tariffs and billing, and low margins represented sizeable barriers to entry keeping many new competitors out of retail energy markets. Traditional players remained dominant. Recently, however, the "market entry gates" have opened, ushering in a new market paradigm that encourages competition among a diverse set of new entrants.
While market complexities have largely marginalized SaaS in some geographies like the United States, in many others it is on the rise. SaaS poses both the solution to the problem of those seeking to enter new markets and a threat to those incumbents seeking to maintain existing market share. In the United Kingdom, the market share of the "Big 6" energy retailers fell from almost 100 percent in 2013 to 80 percent by 2017. Thirty-two of 44 new energy retailers in the United Kingdom during that time period leveraged SaaS in areas such as billing, market interactions, CRM and digital engagement.2 This trend is expected to accelerate with the intended introduction of a "price cap" in late 2018 putting further pressure on prices with some retailers anticipated to need to reduce cost to serve by up to 30 percent.3
SaaS is enabling industry disruption because it requires minimal upfront capital outlay, and utilizes a "pay-as-you-go" model. This reduces barriers to cross-border market entry and associated risks, as capex is minimized and players can enter the market rapidly, capitalizing on favorable market conditions. While SaaS has not been proven at scale beyond one million customers, the industry view is that any obstacles of scale are solvable. Traditional players have not been deterred, and in Europe, some providers are already jettisoning their traditional high-cost technology platforms in favor of lower-cost models as they expand into new markets and segments.
Refocusing efforts to value-add activities
Energy retailers are shifting towards SaaS offerings, particularly in areas that are not customer-facing or where customers do not differentiate, such as billing and energy market interactions. Costs in support functions such as finance and billing are being slashed. This is allowing retailers to invest and focus on digital transformation efforts and value-added customer experience improvements such as digital interactions and much more personalized customer journeys. These billing and market interaction platforms for core energy are then given even more power when linked to API integration software players like Del Boomi and MuleSoft that provide the gateway to sell other products and services. With the sale of electricity and gas a pure commodity, it is the customer journey and the new products and services that are proving to be the differentiator. Further confirmation of this trend is apparent in Germany, where 20 utility firms have established a consortium to create a common billing platform. They are creating an industry-based billing platform aiming to lower costs and improve accuracy to redirect efforts to enhance customer experience.4
Cross-industry players enter energy retailing
Adjacent industries such as telecommunications, consumer retail, and industrial solar players are also leveraging SaaS to enter European energy markets. For example, some telecommunications companies are offering telephone and energy services, highlighting the trend of established firms in other markets moving into energy retailing. In the European context, large supermarkets have entered the energy retail sector.5 While in Australia cross-industry players are currently limited to telecommunications firms, this is set to change, with new competitors poised to quickly follow.