2019 was quite a year for the retail energy industry. We saw and lived through the incredible prices in the Electric Reliability Council of Texas (ERCOT) in August, saw the impact that systematic/data errors can have on the industry, and continued to watch companies enter the market with new and unique products. Capco lived through much of this firsthand as we helped our retail energy clients improve their systems, processes, and strategies. As 2019 has now come to a close, I wanted to pause for a minute to share a few of my thoughts as to what may be in store for the industry in 2020.
The common thread tying my thoughts together is the impact that technology innovation is having on the industry. For many years now, retail energy providers (REPs) utilized the same base sets of systems (ex: CRM, CIS, forecasting, customer portal, etc.). This left only a few major strategies that REPs could employ for beating their competition, such as better business processes, better customer service, and better marketing. Few used their systems and technology as a core part of their strategy except to lower operating costs.
This is starting to change. In the last few years, new technologies and technological approaches are arming retailers with entirely new ways of outpacing their competition.
We have seen the emergence of ‘Technology First’ retailers that focus first on the technology enablement of the business, while traditional core retail functions can be seen merely as a necessary evil. An example of this is Griddy, which won the Most Innovative Marketer Award at the Energy Marketing Conference in early 2019. I believe 2020 will bring more of these ‘Technology First’ companies into the industry as outsiders with the technology expertise see opportunity in an industry that is behind the times.
A ripple effect from the change of pace in technology innovation is that smaller, and in some cases, mid-size retailers that follow a traditional business model utilizing traditional technology stacks and architectures will be left in a difficult place where they can’t innovate like the technology first companies and can’t compete on cost against larger companies. Thus, I would predict we will continue to see a plethora of acquisitions of this type of retailer (mainly for their book of customers) and limited success for smaller, traditional startups. By contrast, larger retailers have better been able to keep up so far. However, if they are not ready to rethink their conventional technical approaches to handle the ever-increasing rate of change, we are likely to see some major REPs begin to lose market share or look to consolidate with those that can better keep up.
For traditional retailers that are having success but have legacy systems and technologies, 2020 will likely bring many of them to the conclusion that in order to stay relevant, they must quickly move to systems that can support the products that are becoming commonplace. Legacy in house CIS/billing platforms that were developed years ago, as well as many off the shelf CIS platforms, are the crux of their issues. Many REPs sat on the problem for years, taking a very tactical viewpoint on the matter, based mostly on cost.
Unfortunately, they have now fallen behind as they missed the shift in the market and are limited by systems that can’t keep up with the market. Capco has been guiding REPs of all sizes through this process, and we only see this type of movement to nimble cutting-edge platforms accelerating in 2020.
Finally, I have continued to be surprised by how little the retail energy industry has embraced machine learning (ML) and artificial intelligence (AI). While both are certainly buzzwords, they are no longer cutting-edge, nor are they challenging to begin implementing, especially if the REP is already migrating their architecture to the cloud. Sure, it can take a long time and a lot of effort to overhaul a company by making ML and AI a core piece of the business.
However, many companies outside of the retail energy industry have done it successfully. A few retailers have begun moving in the right direction and a few technology first REPs have made it a core part of their business. Based on the gains Capco has been able to provide to our clients in the financial services industry utilizing ML and AI, I believe it is only a matter of time before REPs realize the outsized gains they can reap by effectively implementing it.
Are my predictions correct? While these technology shifts are enormous, they haven’t yet given us the ability to time travel. So for now, we will just have to wait and see. Happy New Year!