As we learned in class, when digitalization is central to core capabilities, vertical integration moves further away from economies-of-scale achieving lower costs, and instead, we see “economies-of-expertise” appearing through integrating portfolios of capabilities through relationships. In short, companies are partnering or merging together in order to encompass more of the industry.
The Smart Grid industry has seen a lot of this. As discussed in our previous analysis, one of the interesting things we’ve seen in analyzing the Smart Grid network is that companies are spanning across multiple layers within the industry. Due to the industry’s maturity coupled with the decade long partnerships among several of the industry’s main players, the energy industry has traditionally been almost incestuous in its growth. Basically, larger players will swallow up smaller players to take advantage of their expertise and increase the company’s vertical integration within the industry. For example, Siemens recently signed an agreement to acquire all of the stock of eMeter Corporation. With this acquisition, eMeter will become part of the Smart Grid Division of the Siemens Infrastructure & Cities Sector and will become Siemens’ center for meter data management. (http://www.environmentalleader.com/2011/12/07/siemens-to-buy-emeter/)
However, as Smart Grid networks are built-up, we’re seeing increased activity of new players entering the market, especially at the consumer-facing level. Several competitions throughout the world offer incentives for young entrepreneurs to build clean technology startup companies. For example, the Cleantech Open has fostered such companies as ByteLite, NextGenEn, Inc. and Qado Energy. Will the small companies continue to be acquired, or will Smart Grid be dominated by small players? We predict that it will be a combination of acquisitions and partnerships over the next five years that drive this industry.