Cloud-computing giant Oracle has bought Opower, a major provider of cloud-based energy efficiency and customer engagement software to utilities, for $532 million.
While the deal brings an end to Opower's rollercoaster startup story, it also highlights the fact that energy data means big money.
Other recent big deals point to this. For instance, Honeywell International bought Melrose Industries’ metering company Elster in 2015 for $5.1 billion and Google bought smart thermostat maker Nest Labs Inc. in 2014 for $3.2 billion.
While each partnership is different, the acquisitions point to energy data as a very valuable investment.
Opower started its journey in 2007 under the name of Positive Energy, known then as the “darling of the emerging energy efficiency software space”. Dan Yates and Alex Laskey started the business with the aim of creating a more user friendly utility bill.
But, the business mission broadened and evolved and the company rebranded in 2009 and became Opower. The company aimed to bring behavioural science to energy efficiency and demand response, encouraging utility customers to save energy through personalized energy reports that compared energy consumption to their peers.
Opower set itself apart from other energy efficiency startups by working within the existing utility model and as a result, gained partnerships with a number of leading utilities like National Grid, Pacific Gas & Electric and Exelon. Utilities used the service to help them meet state by state energy efficiency standards. The company has also made inroads internationally. Opower’s chief financial officer, Thomas Kramer, said 10% of the company’s 2015 revenue comes from international business.
In recent years, Opower stepped beyond its core analytical business to discover new ways of helping utilities to engage better with their customers especially when it comes to billing. While energy efficiency has always been the primary driver of new client acquisition, according to Yates, customer care fuelled a significant number of deals.
However, with the company venturing into new areas like customer engagement, high R&D and marketing costs pulled down its bottom line. Last year, Opower reported an operating loss of just under $45 million with annual revenue of $145.7 million. The company was forced to let 7.5% of its workforce go after announcing a loss in its most recent quarterly earnings report.
What Oracle gets out of the deal
For Oracle, the deal will provide the technology company with Opower's suite of cloud-based energy efficiency and customer engagement software, adding to Oracle's existing software offerings to utilities.
The acquisition forms part of Oracle’s goal to acquire cloud-based data companies, transforming the way numerous entrenched industries operate.
Oracle has just announced a $663 million buyout of Textura, which sells software for construction management. In January, Oracle announced plans to buy web analytics firm AddThis and, a month later, said it is buying cloud analytics firm Ravello Systems.
Cloud-computing services netted Oracle $735 million in the most recent quarter, a 40% jump from a year ago.
According to Rodger Smith, senior vice president and general manager of Oracle Utilities Global Business Unit, the deal between Oracle and Opower will provide the industry with the “most complete, modern and integrated cloud platform for the entire utility value chain, from meter to grid to end-customers."
“The move to the cloud is a generational shift in technology that is the biggest and most important opportunity in our company’s history,” Oracle chief executive Safra A. Catz
Opower will become part of Oracle's utilities business, a relatively small percentage of the software business. Mark Bünger, a research director at Lux Research, said that Opower brings capabilities to Oracle that may bind it more tightly to power companies. Already, Oracle will have access to Opower’s 100 utility partners across the globe that serve 60 million consumers.
Oracle's utilities business has focused on back-office tasks like order management, billing and planning, functions that are important but that aren't especially tailored to electric utilities. The addition of Opower will give Oracle access to a completely new range of data, much closer to the end customer, which could be combined with its existing data sets in new ways.
Oracle claims that more than half of Opower's utility customers also use its solutions. Opower has brought online "unsupervised machine learning" tools that can take unstructured information and turn it into reports and forecasts, Bünger said.
Young companies like Opower "have tech advantages that have taken them to a certain point, but now it's about relationships with utilities. Oracle will bring more of that marketing and sales oomph to Opower," Bünger added.
Increasingly, utilities are looking to change the way in which they interact with their customers. They realise that in order to keep customers happy, they will need to provide customers with a positive digital experience, comparable to that of other industries like banking and web retail. Oracle and Opower have been supporting this digital transformation independently and the deal is sure to bring about some much sought-after innovations for the utility sector. The investors seem to have noticed this as Opower shares, which were trading at less than $8, rose 30% to over $10 after the deal with Oracle was announced.
Keep your eyes peeled.