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CES Feature Articles

January 08, 2010

Google Energy - Are You Surprised?


Just when you thought Nexus One was the biggest thing coming out of Google (News - Alert) this week, we now get word about Google Energy. Well, Nexus One is a big deal, but I say that wearing my telecom analyst hat. Switching to my smart grid hat, Google Energy is something else altogether.

 
It’s easy to see where Google is going with mobile devices – no surprise there – and for once, someone managed to steal Apple’s thunder at CES (News - Alert).
 
As big as that is – and will be – Google Energy has all kinds of implications for smart grid. For starters, I should say that Google has not issued any public announcements, and you can see for yourself by scanning their Web site. No doubt that will change in time, and for now, most of the reporting has come from news sites like CNET.
 
I’m sure this is by design, and in keeping with their “do no evil” mantra, Google would rather keep our attention focused on Android (News - Alert), where we want to find them. Pushing into energy is a much bigger leap, and when Google makes a move like this, everyone in that space takes cautious notice. Companies like Google are very good at managing entries into new markets, and the cynic in me would say that doing this just after Nexus One is a calculated way to keep a low profile for a sector we don’t normally associate them with.
 
There are many facets to this move, and I’m just going to touch on two of them here. First, a lot of attention has focused on Google’s publicly stated goal of reducing their carbon footprint. In this regard, Google Energy puts them in a good light, especially following the Copenhagen conference last month. This can only be positive, and while their intentions are to be applauded, I think there are bigger forces at play.
 
Not only is it desirable for them to become a carbon-neutral energy user, but this is a business opportunity in its own right for Google. I’m thinking here about PowerMeter, which gives Google a legitimate entry point for the Smart Home market. No doubt, PowerMeter has the potential to help reduce the carbon footprints in our homes, but surely you can see how this sets the stage for Google to provide all kinds of other services and applications that have nothing to do with making the world green.
 
We’ve explored PowerMeter on the portal before, and will continue in 2010 as we think it has a large role to play in smart home. For now, though, I want to move on to the second aspect of Google Energy. At first glance, Google’s move into energy seems like an abrupt right turn. What does energy have to do with search? Or mobility? Or maps? Or browsers? Don’t they make enough money already? How can they make money in the energy business? These are all valid questions, and the answer to me is simple – vertical integration.
 
Google may well be the ultimate Web 2.0 company, but even they have hard assets that drive their business. Just about everything Google does is software and web-based, but the real leverage comes from their massive server farms that power everything else. As the web continues to permeate every aspect of modern life, there is an exponential need for Google to expand its server capacity. I may be oversimplifying things, but energy is a hugely important cost factor that impacts Google’s operations. Data centers are major energy users, and there are two critical variables that Google would like more control over – cheap power and reliable sources of energy.
 
Like any other business, Google wants as much vertical integration as possible. It’s the best way to control costs, ensure quality, and keep barriers to entry high. In this regard, Google Energy makes perfect sense. It’s too early to tell whether they will enter the retail market and try to compete head on with utilities – I don’t think that’s the plan here. Rather, this entry is a strategy to ensure Google gets access to power on their terms to optimize the performance of all those servers. This may sound rather self-serving, but I’d probably do the same thing if I had their resources and ambitions.
 
Putting my telecom analyst hat back on again, I can’t help but notice what this is really saying about the state of the energy business. Cheap, reliable power may be more important to Google than any other company in America, and their move into energy speaks to the very essence of what smart grid is about. Simply put, Google cannot rely on existing power sources to sustain their growth – the costs are too variable, and the supply is too unreliable. That’s exactly what smart grid is trying to address. Fortunately, for those of us in this space, most energy users don’t have the luxury of starting their own operation like Google has. Google will get what it needs, and the rest of us will figure it out on our own.
 
That said – back to telecom – Google Energy is yet another example of an outsider disrupting the status quo – much the way Apple (News - Alert) has changed the balance of power in the mobile market – practically overnight. It’s actually less surprising to see this happening with Google Energy in that the utility market remains highly regulated and is not really a hotbed of innovation. How utilities will respond is a different question, and we’ll address that in due time.
 
I must add there’s an important sidebar to this story – renewable energy. For all my cautionary comments, this is the virtuous side to Google Energy. They have long supported and invested in renewable energy – especially solar – and I believe the end game goes beyond vertical integration. For both selfless and selfish reasons, Google embraces renewable energy, and I think it will become an important aspect of this new venture. Again, we’ll explore that when the dust settles a bit.
 
Finally, I have to circle back to the Android reference at the top of the article. I mentioned that Nexus One was a big story this week, but there was another notable Android item from CES that brings us back to our portal. Let me explain. On Tuesday, MIPS Technologies announced a demonstration of the first Android-based set top box. This may have nothing to do with Smart Grid, but everything to do with Smart Home. Think about the possibilities of communicating with your home media system via a mobile device, both of which run on Android. As Google deepens its reach into the home via the Android platform, it’s not hard to see how this could easily extend to energy management applications. Interesting, no?
 
Here’s what’s even more interesting, especially for our portal readers. One of the partners in this announcement is Home Jinni, a startup run by my ICP partner, Shidan Gouran. On a personal note, this news is great to hear, and for all of us, we can look forward to hearing more about how Android will impact the Smart Home first hand from Shidan as these demos become commercialized down the line.
 
Learn more about Smart Grid technology at the Smart Grid Summit, an event collocated with ITEXPO East 2010, to be held Jan. 20 to 22 in Miami. This is the event you need to attend if you want to understand the role that IP communications technologies will play in how the Smart Grid evolves – not just for making utilities more efficient, but also for enabling the Smart Home and a new generation of communications innovations. Register now.

Jon Arnold is co-founder of Intelligent Communications Partners (News - Alert) (ICP), a strategic advisory consultancy focused on the emerging Smart Grid opportunity. To read more of his Smart Grid articles, please visit his columnist page.

Edited by Michael Dinan





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