Tuesday, March 30, 2010

Public Confusion About Solar

There are many things that confuse the public when it comes to solar.  Included on the lengthy list of confusing factors are items such as: incentives, regulations, restrictions, warranties, technology differences and financing options.

But in my mind, the bigger issue comes from the fact that "confusion" translates into "high risk" in the minds of consumers.

Whenever something appears to be more complex or confusing than the status quo (a.k.a. power from the electric utility) most consumers label that item as a source of risk. This perception of risk comes from the potential consequences of making the wrong decision, based on confusing or complex information.

With most consumer products there is little penalty for making a wrong choice. If you buy a pair of blue jeans and they don't look good, the most you've lost is a couple of hours of time and somewhere around $100.

But if a installation goes bad, the consumer is looking at losing thousands of dollars, the potential of roof damage/repair, time without electric power, inconvenience, etc., etc.  In other words a massive and costly disruption in their lives.

The perceived risk of solar in the mind of the consumer presents the biggest barrier to mainstream adoption of solar power.

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Saturday, March 27, 2010

Is groSolar's new ad campaign the right approach?

groSolar recently announced the launch of a new national advertising campaign that will feature images of real people in real life situations, rather than pictures of solar panels.  According to the company's press release, groSolar's objective is to "communicate the real value of clean energy choices."

This technique is especially common in the healthcare industry.  Doctors, hospitals, clinics, and other providers often show people living a happy, healthy life rather than say, open heart surgery in progress.

The questions is: would you select a surgeon based on pictures of happy people?  Does a value-oriented advertising campaign convince a skeptical audience to buy services from the advertiser?  My answer to these questions would be: not if the product or service is high risk…and solar is perceived as high risk.

Here's the reason why.

Solar requires a complex, information intensive and high risk purchase decision. (Note I said the purchase decision is complex and high risk, not the technology) A solar installation requires a good deal of work on the part of both the consumer and the provider. It is a product/service with a standard base of know-how, but totally customized and personalized. Buyers of want a dealer/installer with a good reputation and would prefer to find one by means of a reference or referral. Information and dialogue are part of the purchase process.  There is the possibility of interaction after the system has been installed and the customer wants to be reassured that he or she can always ask for and receive additional help or information. If the solar installation goes bad, the customer is looking at losing thousands of dollars, the potential of roof damage/repair, time without electric power, and a significant disruption to their life.

With products that are more costly, complicated or high-risk, the customer has more at stake.  So all of the typical methods used in low-risk consumer marketing -- cosmetic factors, product/company name, package color and design, messaging, image, "feel good advertising," celebrity endorsements, logos or symbols to reinforce associations -- are totally ineffective.

The only way to market a high risk offering is with methods that reduce risk in the mind of the customer -- references from someone the customer trusts, professional affiliations, compliance with industry standards, a supporting infrastructure, evidence of expertise, product quality, and ongoing service.

groSolar's ad campaign may raise awareness for the solar industry in general, and that's a good thing. But if the company's goal is to convince customers to buy groSolar's products and services, then advertising is the wrong way to do it.

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Wednesday, March 24, 2010

The Long Term Effects of Government Subsidies

There's never been a technology that was perfected before it was released.  Technology products like solar are introduced when their performance is not as well developed as established products along some dimension that mainstream customers have historically valued.

In order to become competitive over time technology-based products must be refined and improved by a sequence of users (starting with innovators and early adopters).  This dynamic, called the technology adoption lifecycle, is critical to the success of any new product or technology.  Without the adaptation and improvement that's demanded by early users, mainstream customers (the bulk of any market) will not adopt the product.

This is important because government subsidies often completely disrupt the technology adoption process.  When mainstream buyers of begin to enter the market because of a subsidy rather than product attributes, then forward progress on product adaptation tends to stop.

When I surveyed residential solar owners in the Sacramento area I found that the majority of them were late adopters.  That's because the local utility (SMUD) was offering 4 kW systems for only $7 per month. (after 10 years the customer could buy the system for $2400)  SMUD's offering, which included a lot of product intangibles, caused technology laggards to enter the market prematurely.

This subsidy by a utility in Sacramento completely disrupted the normal cycle of adoption that is needed for a market to be sustainable.  And when the subsidy is removed, the market adoption pattern must start over from the very beginning.  This is why government subsidies are so damaging over the long term.  It's more than just a loss of money when the subsidy goes away.  It's also a loss of a key component of sustainable market development: product and buyer evolution.

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Sunday, March 21, 2010

In Pursuit of Solar's Tipping Point

A recent call to action in the solar industry reveals a common misunderstanding of the term "."

An initiative, called National Solar Quote Month, is an effort to encourage lots of people to request quotes from solar suppliers in order to bring solar power to a tipping point in 2010.  Unfortunately, the presence of a large number of people does not translate into a tipping point.

A "Tipping Point," as described by in his book by the same name, is when an idea, product, message or behavior spreads like a virus.  It is the name given to a dramatic moment in an epidemic when everything changes all at once.

On page 33 of the book, Gladwell describes the need for more than just large numbers of people to create a Tipping Point.  It requires the participation of so-called connectors -- people with unique social gifts who have an uncanny genius for being at the center of events.  In other words, connectors are "influencers."

To illustrate the need for connectors, Gladwell tells the story of how Paul Revere's midnight ride started a word-of-mouth epidemic, while a virtually identical ride by fellow revolutionary William Dawes did not.  Paul Revere was a connector and William Dawes wasn't.

So fundamentally it doesn't matter HOW MANY people are spreading the message…it matters WHO is spreading the message.

Parts of the tipping point concept have been used successfully in the electric power industry in the past.  Thomas Edison used the power of influencers to accelerate adoption of electric light when he selected financial institutions in lower Manhattan as his first customers.  Seeing the windows of the financial district aglow by night demonstrated electric lighting technology to the metro population living across the Hudson River in New Jersey.  And because the financial community was considered to be an influential source of new techniques and ideas, Edison jumpstarted a word-of-mouth epidemic that had a tremendous impact on the rest of the country.

Interestingly, a group of researchers just reconfirmed the tipping point concept by studying the social networking site, Twitter.  They found that "follower count" is a meaningless metric when it comes to determining influence.  It doesn't matter how many followers you have.  It only matters who is following you.

Concepts like the Tipping Point, the Principle of Disruptive Innovation, and the Technology Adoption Lifecycle are extremely valuable in our efforts to expand the use of renewable energy around the world.  But it's important to first understand what these concepts really entail, and how they can be applied correctly.

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Thursday, March 18, 2010

Utilities Speed Solar Adoption

A recent article in the New York Times takes an interesting look at a partnership between TXU (a utility in Texas) and SolarCity (a Silicon Valley solar supplier) designed to help homeowners go solar. The article says "TXU Energy, with two million customers, is making it possible for homeowners in the Dallas area to lease or buy rooftop solar-power systems in one of the first programs of its kind."

Although this type of program is not one of the first, the author correctly states that utilities are the key to widespread adoption of .

When solar suppliers partner with energy providers (especially utilities), adoption happens much faster. This is because most buyers in a market wait for the availability of a standard product that is made by a leading supplier who sells the product through someone familiar. These attributes are known as product intangibles. And together TXU and SolarCity can deliver most of these requirements.

This type of solar program however is certainly not new. In 1993 Sacramento Municipal Utility District (SMUD) began offering a standardized 4 kW solar electric system valued at $24,000 for only $7 per month. SMUD retained ownership of the system. After 10 years the customer could purchase the system for 10% of its original value ($2,400). Then in 1999 SMUD began selling the same system (worth $24,000) for only $4,800.

When SMUD offered PV to their customers through these two programs (called PV Pioneer) my research revealed that late adopters started signing up in droves. SMUD's program effectively delivered all of the product intangibles required by laggards and late adopters before making a purchase.

This latest initiative by TXU Energy is another version of a concept that is at least 17 years old. But it works!

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Monday, March 15, 2010

Solar in the Mainstream

There is an unfortunate fact about emerging technologies and markets that can cause great frustration for anyone offering something "new." The solar industry is a perfect example.

Most people do not view something new as "in the mainstream" until they see someone exactly like themselves using it.  So a homeowner in Iowa with a 2000 sq. ft. house located on a hill, wants to see another homeowner in Iowa with a 2000 sq. ft. house located on a hill using solar before he describes solar as available here and now. You can have millions of people using solar in other parts of the world, on many types of different buildings, and it means NOTHING to the guy on a hill in Iowa.

This peculiar market-behavior pattern applies to anything new or innovative that is introduced into a marketplace. In every case, the secret to achieving mainstream market acceptance is: focused vertical marketing. In other words, focus on one vertical market segment at a time because mainstream buyers/users will only accept information from people who are identical to themselves.  And it's impossible for solar suppliers to serve the vertical needs of all segments at once.

Any technology that is considered mainstream today, had to go through a phase of focused vertical marketing to get there. And with maybe one or two exceptions, I'm not seeing many suppliers do this yet in the solar industry.

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Friday, March 12, 2010

Edison was a Marketing Strategist

Most history books say 1882 was the year the light bulb was invented. This is incorrect. The basic technology had existed for almost 100 years. The reason 1882 is important is because that's when Edison extended the adoption of electric power and light to the early majority. And the methods he used are strategically very important to the solar industry.

Edison’s strategy for accelerating the adoption of electric light was based on minimizing disruption to people's lives. Since gas lamps were the dominant method of indoor lighting, Edison designed his electric lights to look and operate almost identically. His initial electric lights provided 13 watts of light, almost the same as the 12-watt gas lamps he wanted to replace. The new electric lamps looked almost exactly like those same gas lamps.

Recognizing that many commercial and residential landowners in New York had invested considerable capital in gas infrastructure to light their buildings, Edison chose to run his first electrical wires through existing gas lines, fitting directly into the system people already understood for the delivery of light.

Edison’s technology was new, but the form and function were decades old.

But Edison's most ingenious strategy was in selecting the location of his first customers -- financial institutions in lower Manhattan. Seeing the windows of the financial district aglow by night demonstrated electric lighting technology to the metro population living across the Hudson River in New Jersey.

Because the financial community was seen as a credible source of innovative building technology, Edison helped meet the reference requirements of early adopters, who then shared the idea with their local communities. This endorsement of electric power and light, by demonstrating its use in a visible location, had tremendous influence on the rest of the country.

Who should the solar industry be using as a credible reference?

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Tuesday, March 09, 2010

Does Grid Parity Matter?

One of the primary assumptions in the solar industry is: "if the cost of something gets low enough, everyone will automatically buy it." In my mind there is no guarantee that solar power will become mainstream when it costs approximately the same, or even less than conventional sources.

Here's why. Even with lower and lower cost per watt, solar power is missing two key elements of market expansion: product intangibles and a compelling reason to buy.

Consider what happened with the personal computer (PC). Not only did prices go down (and performance went up) but MANY other things helped make the PC a mainstream appliance. One of the biggest factors was the addition of IBM's backing and reputation to the desktop computing industry (does anyone remember the so-called "IBM compatible PC" standard?) IBM's blessing along with other "standards" such as the DOS operating system and the ISA/EISA bus (i.e. product intangibles) all combined to reduce the perceived risk of buying a PC.

But the most powerful factor in PC market development was a compelling application called the spreadsheet. Early spreadsheet software (Lotus 1-2-3 and Context MBA) running on the PC provided a quantum leap in capability over the existing ways of manipulating numbers…with adding machines, calculators, pens, pencils and sheets of paper.

It's true there are future benefits associated with solar such as greater environmental health and sustainability, but that's like selling green bananas. The promise that someday a green banana will turn yellow is not compelling enough.

In the solar industry, there are few if any risk-lowering product intangibles (who's the IBM of solar?) and the compelling "mainstream" reason to buy hasn't been sufficiently articulated yet. So when solar reaches grid parity, it will provide something that people already get from a utility…electric power for the same price. There's no quantum leap in capability or extraordinary advantage above what a utility already offers. Plus, there's no need to install a bunch of complex equipment when power comes from the grid.

Without risk-lowering standards or intangibles, and a compelling reason to buy, the solar industry needs to use reference-based techniques to overcome these missing elements of market expansion. (more about this in future posts)

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Saturday, March 06, 2010

Credibility and Market Leadership

The most important quality a growing solar company needs for rapid market access and positive competitive positioning is credibility. Credibility can be gained by inference, reference or evidence.
  • Inference is often used by startups to gain recognition. Who invests in a company is often more important than how much is invested.  Much of the initial interest in Genentech was stimulated by the involvement of Kleiner, Perkins Caufield & Byers. Similarly, the interests of Venrock Associates and Sequoia Capital in Apple Computer provided "larger than reality" credibility. The quality of investors and directors, along with the backgrounds of initial employees say a lot about the company to the marketplace.
  • Reference, or word-of-mouth, is the most important credibility-building tool an emerging company can use. Almost all computers, from personal to mainframes, are still bought because of word-of-mouth. All service-based businesses are word-of-mouth. And, in all segments of the high-technology industry, there are networks of analysts, industry experts, BOS and supporting product producers, and bloggers/journalists who spread the word.  Moreover, potential customers understand and rely on word-of-mouth to determine a new company's credibility.
  • Evidence is the third factor that builds credibility. Satisfied customers are essential. But the most visible reinforcing evidence is growth and profits from the business. This falls under the category of "If you're so good, why aren't you making money?" Many solar companies suffer from lack of evidence of financial success because they believe only public companies disclose results.
Other kinds of evidence exist, of course. These include clearly differentiated product performance, market share growth, significant products, the quality of initial customers, and the company's alliance partners, along with the quality of investors. All of these can be tangible evidence of credibility.

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Wednesday, March 03, 2010

Solar Customers are Changing

The Technology Adoption Lifecycle and the Principle of Disruptive Innovation share at least two fundamental attributes.  First, both models describe market development in terms of the changing nature of the user rather than the product.  Using similar terminology, both suggest that products are initially used by early customers who base their purchase decisions primarily on the product’s functionality.  Then, once the demand for functionality has been met, vendors must begin to address the need for reliability that is demanded by an initial wave of mainstream buyers.  A third phase of growth occurs when market followers and conservatives require that vendors meet their needs for convenience.  The final group is mostly concerned with price.

Another shared attribute is, despite a track record of proven success, both models are counterintuitive to most business managers.  When struggling for survival, a solar organization will find it incongruous to focus on the peculiar or specialized needs of a small group of potential buyers, before addressing the more common needs of larger groups.  Too often managers attempt to serve an entire market all at once, and unintentionally delay the market transformation process.

The inescapable task of winning over a sequence of buyer types, combined with the necessity of promoting intangible benefits tailored to the user’s point-of-view, form the cornerstones of market transformation.  These principles have repeatedly guided new products and companies to the achievement of mainstream market acceptance and commercial success.  Much of the history and experience behind these models can be translated into helpful guidance for the solar industry.

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