I recently had the pleasure of interviewing Dan Ryan, VP Product, IoT Solutions, Acuity Brands Lighting. The topic: disruption in lighting, notably the current trend of “bundling,” which was the subject of his presentation I caught at Strategies in Light. I’m happy to share his responses with you here. The interview informed an article I wrote for the July 2017 issue of tED.
DiLouie: What would you say is the thesis of your 2017 Strategies in Light talk?
Ryan: A great place to think through what will happen next in our industry is to map out how concepts from computing will transfer over to lighting and building automation. The intersection between the two is a great area to spot opportunities.
One famous pattern in the history of computing is best captured in a well-known quote that I really love, attributed to Jim Barksdale: “There are two ways to make money in business: You can unbundle, or you can bundle.”
Almost every major technological wave in computing included either a bundle or unbundle event. Microsoft dominated the pre-Internet computing era by bundling all of your applications onto Windows, and made a fortune. The internet came along and unbundled everything into a sort of chaos, until Google, Facebook, Amazon, and Apple and others emerged to re-bundle everything again. More recently, we’re seeing bits & pieces of these devices and services being siphoned off into discrete items – with products like Amazon’s Echo, Apple’s Earpods (unbundling audio), and Snapchat Spectacles. And there’s currently a sense that another huge unbundling event is about to happen with blockchains and cryptocurrencies.
My talk at SiL was looking at the bundling phenomenon and seeing whether it is a good framework for understanding what’s happening in lighting right now.
DiLouie: In your talk, you brought up the concept of bundling. What is bundling, and how did it play out in the example of smart phones?
Ryan: Bundling is exactly what you’d think – the tendency for products to be sold together in a package, vs sold discretely. 15 years ago, it would take an entire closet full of devices (video recorder, telephone, CD player, TV, laptop) to fulfill the functions that an iPhone can deliver today.
The economics behind bundling is a pretty complex topic, and the definitive piece on this was put together by Chris Dixon.
But the basic aspect is that there are powerful economic forces in play that benefit both buyers and sellers. Buyers get access to more services for a lower cost than they would if they purchased independently, and sellers gain more profits by selling to a larger customer base.
DiLouie: You said you see lighting as the new iPhone. How is bundling applying to the lighting industry right now?
Ryan: The world is starting to recognize that lighting is uniquely positioned to be an aggregation point for the delivery of IoT services – due to its ubiquity in the as-built environment, and the proliferation of networked lighting control systems. So you’re starting to see lighting companies bundle new digital services with lighting, with offers like indoor-positioning, asset-tracking, and occupancy analytics. And much like that closet full of consumer electronics that’s now bundled into an iPhone, you’re seeing a bunch of systems that used to be sold, installed, and maintained independently start to consolidate a single platform – smart lighting.
DiLouie: Lighting is moving beyond its core benefits to potentially offer an array of services. What are these potential services, and what services are being offered now?
Ryan: Indoor positioning has emerged as the early-leader, with significant deployments underway by the major players. Acuity has been a leader in this space, with over 50M sqft of indoor-positioning infrastructure already deployed. For customers switching over to LED, particularly in segments like retail stores, LED lighting simply offers the most cost effective and highest performance platform for providing location services. End-users are leveraging indoor-positioning to deliver a variety of value-added services, with things like shopper indoor-wayfinding, mobile-marketing, and location analytics.
More recently, both startups and established players are starting to explore how lights can act as sensors for other things. Examples of this range from asset-tracking solutions (for tracking the location of critical assets like patient-beds/wheelchairs in hospitals), and space utilization solutions that tap into existing lighting-control occupancy sensors.
The common pattern between all of these solutions is leveraging the lighting network to collect data about the environment, and then using that data to improve a business-process.
DiLouie: You brought up that consumer electronics is undergoing unbundling. How does this concept work, and how do you see it potentially applying to lighting in the future?
Ryan: You’re seeing a physical manifestation of unbundling happening right now. All the major tech companies are offering voice-assistant products, including Amazon Echo, Google Home, and whatever Apple is about to launch. This is taking a service that used to be bundled with your smartphone – a voice based assistant – and unbundling it into a single, discrete device. Amazon even took this a step further with the recent Echo Show product – which contains an app for making phone calls!
Right now, the lighting industry is going through a “bundling” phase, where IoT services as well as BMS are bundling with lighting projects, which is a trend that will continue for the foreseeable future. What I think will eventually change this is the desire for compatibility between different systems. Compatibility drives standardization, which drives competitive dynamics and opens up the opportunity for a new services layer. An independent services layer would allow individuals pieces to pull pulled off – and unbundle yet again!
But that’s still a few years out at least – although you are starting to see some initial momentum around industry standards for networking lighting systems, building automation, and sensor interfaces.
DiLouie: You stated that the impact on distribution matters more than product. What examples can you provide from the consumer electronics industry?
Ryan: My point here was that when people look at these big, disruptive technology shifts, most of the analysis is very product-centric. People very naturally focus on the things they see – Netflix, the Apple Watch, Snapchat Spectacles, Spotify, etc. But the real story is underneath in distribution – technological shifts that impact distribution are the real drivers. “Disruptive” products are merely symptoms of an underlying disruption in distribution.
Probably the example that hits closest to home is what’s currently happening to the cable TV industry. Before streaming-video over the Internet, it was basically impossible to get access to content outside of the cable bundle. Whoever had the local monopoly on the data-pipe to your home became the sole provider of content, so everyone got used to paying for 1000 different cable channels that they never watched.
Once it became feasible to stream video over the Internet, you saw the rise of all the standalone subscription services for video content, like Netflix, HBO GO, and Hulu. So by changing the distribution model for content from cable to the Internet, an unbundling event happened.
DiLouie: What impact do you see lighting technology bundling (and unbundling) having on traditional electrical distributors?
Ryan: The powerful economic principle behind bundling is that both buyers and sellers benefit. So in that sense, when you apply this to the lighting channel, electrical distributors will benefit. The sale of higher-end systems will lead to larger project sizes, and help fight the commoditization and price erosion that we’re currently seeing in the traditional lighting market.
DiLouie: What impact do you see lighting technology bundling (and unbundling) having on electrical contractors?
Ryan: One of the major product challenges with deploying bundled IoT services is making them simple to install and maintain. Complicated systems lead to longer time spent on the job site, frustration, and lost profits. Companies need to keep their products simple so that IoT doesn’t get in the way of traditional jobs. Technology should make the lives of contractors and installers easier.
DiLouie: The smart/IoT-enabled lighting bundle may serve two markets—core benefits serving traditional buyers and value-added services serving new buyers. Will electrical distributors be able to serve both of these markets?
Ryan: I think the real question for distribution is where the intersection is between IoT service sales and the tradition lighting sale. At one level, distribution will sell higher-end systems, and will see benefits there. There are also some lighting-channel specific IoT services – things like preventative maintenance, and lighting-asset management, that will unlock new opportunities for selling to the traditional buyer. But I think it’s still very much an open question of how value-added IoT services will actually be sold, and what role the traditional channel will play there. The majority of the new services being developed are really orthogonal to what distributors do today. Regardless of how it all plays out, I expect traditional distribution to play a huge role.
DiLouie: You stated that the buyer of lighting is not the user of the bundle’s value-added services, which is a key difference with consumer electronics. What does this mean? How does it affect the lighting market?
Ryan: The reason bundle economics are so powerful is that it reduces the price of obtaining a suite of products for the end-user. Instead of buying a music player, a telephone, a calculator, and a mobile TV separately, I can just buy an iPhone. That model works because the person making the purchasing decision (me) is also benefiting from all of the services. And since the utility of the bundled product is so high, the seller of the product (Apple) gets to serve a much larger market.
Lighting is different in that the buyer of lighting – typically someone in facilities – is not the user of, and does not benefit from, IoT services. If a facilities manager invests in deploying IoT technology from their own budget, another department will get the benefits. This would be like someone like myself spending $900 on an iPhone and only using it to do phone calls, but then handing the rest of the phone over to my cousin to watch YouTube videos, surf the web, and post on Facebook.
DiLouie: What potential roles will electrical contractors serve in the future lighting market? What are potential scenarios where contractors are winners or losers? How can they position themselves best to survive, and thrive, during disruption and bundling in lighting?
Ryan: I don’t think contractors need to – nor should we expect them to – become experts in IoT services to still play the important role they play in the channel today. Intelligent lighting systems need to be simple to install, commission ,and maintain. If deploying a lighting-based IoT network becomes as costly as maintaining an independent network, then why bundle at all?
The one wild-card in the market is low-voltage DC lighting controls solutions like PoE, which is gaining momentum in the new-construction segment and allow contactors to tap into a different pool of labor for executing projects.
DiLouie: What potential roles will electrical distributors serve in the future lighting market? What are potential scenarios where distributors are winners or losers? How can they position themselves best to survive, and thrive, during disruption and bundling in lighting?
Ryan: As anyone who’s ever looked at the value-chain for lighting & constructions projects will tell you – it’s a complicated channel. And most of the “disruptive” products that people talk about aren’t going to change the buying process for your typical project. So I think that for the foreseeable future, distribution’s role will remain largely the same. There will be more opportunities to sell higher-value products, and for those distributors who strive to move up the value-chain, opportunities to develop deeper end-user relationships. I think the broader point here is that by moving into an entry-point for IoT, the total available market opportunity for the entire industry is going to increase – which will benefit multiple players in the channel.
DiLouie: If you could tell the entire electrical industry just one thing about disruption posed by LED/IoT, what would it be?
Ryan: Channel & access to market – not technology – continue to remain the most important drivers of activity in the lighting space. I don’t think we’ll see true “disruption” – in the classic sense of the word – until we see changes in how lighting projects are specified & sold. That is certainly going to evolve as IoT capability starts to make its way into more project specifications, but I tend to think the disruption story gets a little overhyped.