A Greener Energy Model: Selling Services Vs output

[Ranbir Mahapatra]

This month’s issue of HBR has an excellent proposal for conserving energy in future. Thought I will share it with you.

The proposal talks about utilizing "smart grid" sensor technology for shifting to an energy-services model that considers the impact of greenhouse gas mitigation and a lower consumption of electricity and gas. The business model talks about an energy model that is based on selling services rather than output.

To put it simply, customers would pay for each lumen of light generated rather than each watt of power consumed.

The cellular industry provides an analogy: Your mobile phone service charges you for minutes, text messages, and video download rather than for bits per second, which is the underlying commodity.

Another analogy is the business model adopted by many Indian IT services org. An Infosys (setting aside a Finacle and other products) or a TCS do not sell technology (the underlying commodity), rather they provide services – as in how these technologies can enable or align IT to core businesses of their customer.

In the new model, utilities would charge you for the amounts of light, computer time, heat, cooling, and so forth that you use. So, watching TV for 3 hours over the weekend would cost you Rs 10; vacuuming the carpet in 1 hour would set you back by Rs 2 and so on and so forth.

This business model would be a radical change with far-reaching consequences: Because the use of such energy services will continue to grow for the foreseeable future, power cos could expect rising rather than falling revenues. This would have a strong incentive to develop and market efficient new technologies.

At the same time, all customers would develop a much better understanding of how they use energy and would be better able to lower their costs and carbon emissions. With a more informed consumer, consumer durable orgs would invest more in creating energy smart devices. Samsungs and Philips of the world will be actively working on technology that gives the consumer better cost saving – which means a more effective utilization of energy, and its production.

Do let me know your thoughts about the same.