Looks like a streetlight, acts like a computer: GE LED streetlights in San Diego, where intelligent, connected lighting could monitor things like traffic and crime. The new ‘Current’ services group embraces CEO Jeff Immelt’s industrial internet strategy, treating LEDs as computers that route information. The conventional lighting group -no longer called GE Lighting- keeps the old stuff. It’s possibly for sale.
How do you make a viable business out of selling price-wracked LED lighting? If you’re a big industrial conglomerate like General Electric Co., you basically stop treating the bulbs as a sales and profit item, and instead consider them as a tool and a cost in a radically reshaped model that relies on selling a wide range of industrial and commercial services.
That is the take-away message from the $148.6 billion industrial giant’s most recent reorganisation of its lighting business in which it moved commercial and industrial LEDs into a broad new $1 billion “startup” energy services business called Current.
Less well-known in the shift: GE also quietly rubbed out its venerable GE Lighting escutcheon, and rebranded it as the Consumer and Conventional Lighting segment, including incandescent and fluorescent lighting as well as residential LEDs. Some observers expect GE to eventually sell that group, which meanwhile will continue to emphasise the sales of bulbs rather than fully embracing the newfangled service ethos of Current.
The idea of Current is that LEDs with all of their digital proclivities – including sensor and network connections – will be intelligent cogs in a wheel collecting and disseminating data for GE’s commercial and industrial customers. A Walmart might use LED-based ‘visible light communication’ to watch shoppers around physical stores and entice them with tailored promotions that the retailer sends to individuals’ phones. A city like San Diego might use streetlight sensors to monitor and manage traffic, crime, air quality and many other things.
It’s all part of GE CEO Jeff Immelt’s overarching ‘industrial internet’ strategy. Immelt has staked the future of the company on digitally connecting the tools and objects of the industrial world to create nothing less than what he calls ‘the next industrial era.’
‘GE is leading the way towards an age of brilliant machines that can harness reams of data to deliver transformative progress for people and businesses around the world,’ Immelt said when delivering the company’s annual 2014 results earlier this year, calling the industrial internet, ‘the connective tissue of twenty-first century infrastructure,’ and ‘the most important initiative I have led at GE.’
ANYTHING THAT CAN BE DIGITISED WILL BE
GE’s goal is to embed and connect sensors into everything in its habitat, whether it’s jet engines, gas turbines, locomotives or light bulbs. Those networked sensors would allow customers to gather data that helps them run the assets more efficiently, and users could leverage for other business purposes, such as analyzing shoppers’ movements.
From a lighting perspective, Current – officially called ‘Current, powered by GE’ – will not only help a commercial user engage with customers or manage inventory. It would also feed LED-linked information into GE’s cloud-based analytical software called Predix that scrutinizes mountains of data from a users’ solar panels, energy storage devices, electric vehicle charging stations and other sources, and helps make the most efficient use of electricity and decide things like when to sell excess power to the grid in the case of users generating their own.
‘It’s all about bringing to our customers what they tell us they’re looking for from a company like GE, and that’s to help them in a more holistic way solve a burning problem, which is how they become more energy efficient, more sustainable, and think in more of a solutions oriented approach (rather than ) a one-off solution or point solution,’ Current CEO and former GE Lighting CEO Maryrose Sylvester told Lux in an interview.
Current potentially puts teeth into Immelt’s industrial internet bite. And it could restore the financial outlook for the lighting business, where revenues from Sylvester’s so-called ‘point solutions’ appear to be in decline, or static at best. A year ago, around the time of GE’s last lighting reshuffle, the company told Lux that lighting had accounted for about $3 billion in revenue in 2013. Published reports indicate that the number
fell to around $2.5 billion in 2014.
Sylvester would not verify the decrease. Publicly held GE does not break out lighting revenues in its financial line reporting. It includes them as part of ‘appliances & lighting’, a segment that includes washers and dryers and that GE is unloading to Swedish appliance firm Electrolux in a deal that has been delayed by antitrust scrutiny. The company’s Current press release last week described lighting as a $3 billion business.
PRICE DECLINES AND GUNSHOTS
While volume sales of LED lamps have grown, prices have dropped considerably. Three years ago they were around $25. Consumers balked, even with LEDs’ compelling attributes of providing 80-to-90 percent energy reduction, and lasting for a reputed 20 years or more. Today, sub-$5 prices are common for a single bulb; US retailer Home Depot is selling a 3-pack of GE 60-watt equivalent lamps for $10.97, or about $3.65 per unit.
‘The paybacks are getting to a point where it becomes a really good choice,’ notes Sylvester.
A good choice for consumers, but not one that supports a long term profitable business for GE, especially considering that there isn’t much of a replacement market for a product that lasts 20 years or more. Making things even tougher for an incumbent company like GE is that it continues to carry the costs of a traditonal lighitng business, including factories. Even as GE reported on Friday (16 Oct) that LED revenue was up 65 percent for the third quarter and now represents 39 percent of the lighting business, the cost and price outlook almost certainly taints the profits.
Thus, GE is moving to a Current-branded service-based business model, in which LEDs are a sort of loss leading but vital tool in a data services scheme. Those services are potentially as varied as anything that can be digitised in the potentially ubiquitous Internet of Things.
For example, GE is already piloting smart, Predix-connected streetlighting
in San Diego and in Jacksonville, Fla., where sensors mounted on luminaires are helping with things like traffic and emergency response. Public outdoor smart city lighting schemes are
taking hold in cities around the world, not just from GE, supporting a wide variety of operation such as parking, traffic, air quality, noise and even monitoring the bird population.
In an acoustic addition to its sensor stable, GE at the end of September began working with SST Inc. to use that company’s ShotSpotter technology to detect gunshots, which could link into police force and public safety operations.
SPY LIGHTS FOR RETAILERS
GE’s smart lighting reach extends to indoor environments such as Wal-mart and Walgreens – the largest drugstore chain in the US – which are already using GE LED lighting for energy saving purposes. Sylvester noted that GE is talking to both of them about possibly deploying visible light communication (VLC), a technology that GE is already piloting with two retailers each in the U.S. and Europe (it won’t reveal who).
Not to be forgotten in the brave new play of lighting-based digital services is that the LEDs will still, of course, provide illumination, even if lighting is ironically looking like an afterthought.
And while the LEDs will still offer significant energy advantages, those will become more de rigueur.
‘It’s our view that the energy efficiency benefit will be less material in a few years,’ notes Jed Dorsheimer, an analyst with investment bank Canaccord Genuity. ‘That’s not to say it’s less important. But the drivers toward solid state lighting will be about the other services and the things you can do when you digitise all these sockets.
‘For a large retailer, knowing what the floor traffic is on a real time basis and being able to harness that is probably more valuable in terms of inventory management than the energy savings are to their utility bill.’
Which is why GE, while retaining conventional lighting, will as Sylvester notes put ‘all the heavy investment…into the LED space.’
WITHER CONVENTIONAL LIGHTING?
That, in turn, rekindles speculation that GE will want to unload its traditional lighting business, now called Consumer and Conventional Lighting (CCL) after the breakup of GE Lighting into Current and CCL.
‘What happens to the GE Lighting legacy is a good question – I think it may mean that GE will be looking at selling that part of the business to somebody else, because in the end, it doesn’t form part of the core of GE,’ notes David Vos, an analyst with Barclays.
GE’s Sylvester says GE remains committed to the business, even after the breakup of GE Lighting. ‘We work to make sure we have the right products available for our customers when they need them,’ she says. Sylvester will oversee CCL as CEO; John Strainic will run it day-to-day as chief operations officer. Strainic had been general manager of GE’s North America consumer lighting.
The creation of Current marks the company’s latest attempt to stir up its LED business with an innovative business model. GE calls Current a ‘startup’ that groups together lighting with other existing business streams including revenue related to solar panels, electric vehicles and energy storage. It plans to grow those revenues from around $1 billion today to $5 billion by 2020.
It is piloting Current services with customers including Walgreens, Simon Property Group, Hilton Worldwide, JP Morgan Chase, Hospital Corporation of America (HCA), Intel and Trane, a brand of Ingersoll Rand, all of whom hope to drive energy efficiency, reduce costs and leverage data from connected devices like light bulbs.
‘It will be interesting to see how much commitment they’re truly going to make, or whether this is more of a marketing and PR type initiative,’ notes Canaccord’s Dorsheimer.
Wherever Current lies in the reality-to-PR spectrum, it’s coming from the very top of GE.
‘The combination of LEDs and analytics puts a computer where a light bulb used to be,’ CEO Immelt said earlier this year. ‘In cities around the world, GE is working to transform street lighting into the analytical brain of urban life. Today, lighting is becoming a high-tech infrastructure business. It is a gateway for most energy management solutions.’
Whether it is a profitable gateway remains to be seen.
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Photo is from GE
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Reconvergence: Beth Comstock has helped guide industry convergence before, when she ran digital media for NBC Universal and the Googles were infiltrating traditional film and broadcasting. She’ll try it again at GE as the lighting industry goes Net.
LUX Magazine reports: When you’re an aging corporate conglomerate and you’re trying to decide how your lighting division can survive in the digital era, do you a) get rid of it, or b) try to infuse it with an innovative spirit?
For Philips and Siemens the answer has veered toward ‘a,’ most recently with Philips’ announcement this week that it will seek ‘alternative ownership’ for its lighting group, a move that echoes Siemens’ 2013 spin-off of its Osram lighting company.
At GE however they’re taking a new crack at ‘b’ with a quiet corporate restructuring in which CEO Jeff Immelt has fused GE Lighting with a division charged with ‘growth and innovation’ and whose boss, Beth Comstock, also runs the Silicon Valley-based GE Ventures, a firm that invests in startups in software, energy, healthcare and manufacturing.
‘On Monday, Sept. 16 GE announced internally that they will align the Lighting business with GE’s growth and innovation team, led by Beth Comstock,’ GE told Lux in an email. ‘The transition is not effective immediately. It will happen over the next few months.’ The company has yet to publicly announce the change. The move had surfaced in an article in Fortune Magazine, which said Comstock takes the lighting reins on Oct. 1.
It was Comstock who two weeks ago told Lux that GE Lighting is not for sale, denying rumours that if true would put U.S.-based GE in the same category as Holland’s Philips and Germany’s Siemens as traditional large industrial companies moving away from direct involvement in the lighting industry.
As part of the shift, Maryrose Sylvester continues as president and CEO of GE Lighting, but she will report to Comstock. Sylvester had been reporting to Chip Blankenship, who has been president and CEO of GE’s appliance and lighting business unit. Earlier this month GE sold its appliance division – dishwashers, toasters, washing machines and the like – to Sweden’s AB Electrolux for $3.3 billion.
Appliances and lighting had accounted for $8.3 billion in sales at the $146 billion company last year. Lighting was about $3 billion of that GE told Lux this week – until now, GE has not separated out lighting numbers from appliances. Appliances was the latest division to go at GE as the company focuses on high margin industrial goods and services.
Comstock, a rising star at GE who also serves as corporate marketing officer and senior vice president, reports directly to Immelt.
She has solid experience at the type of digital industry convergence that challenges today’s lighting business, which is shifting from conventional incandescent and fluorescent bulbs, to lights based on LEDs – light emitting diodes, or semiconductors – a transition that is opening up the field to new digital only manufacturers and to Internet and consumer technology companies like Google and Apple.
Her background includes several years overseeing digital strategy for media giant NBC Universal as president of integrated media, when broadcasting giants like NBC, CBS and ABC were beginning to cope with the incursion of technology powerhouses like Google and YouTube into their industry (NBC was part of the GE empire at the time; GE sold its remaining 49 percent share to cable TV company Comcast for $16.7 billion in early 2013).
That familiarity could help Comstock navigate GE Lighting around a global market where lighting could underpin everything from smart cities to the connected home, and which will rely on innovations and partnerships with technology and networking firms among others.
All the while, she will have to figure out a way to make money. LED bulbs cost much more to make than conventional bulbs, but startup companies are pushing down end user prices faster than some of the cost-burdened giants can afford. LEDs in principle also last much longer, eradicating any replacement bulb business model.
Thus, GE will have to hone a profitable business out of selling lighting services, controls and connectivity.
Not only will it have to foster relationships with Internet and networking companies, but it will have to fend off challenges from relatively new lighting companies like Opple, Cree, TCP and Acuity, born in the modern lighting era and not encumbered by a legacy lighting business (GE and Philips have both been a making bulbs for over 120 years).
No wonder, with challenges like this, Philips decided on an ‘alternative ownership’ escape route. Even after an impressive run of innovations that has included the Hue line of bulbs that can change brightness and colours via wireless remote control, Philips is setting into slow motion a plan to find buyers for its lighting division, which it says could take a year or two. (Some industry observers are even whispering about a hookup between Philips and GE. Neither company would comment on that speculation).
Comstock told Fortune that there’s tremendous opportunity to partner with startups that develop LED technology for commercial and government buildings.
She certainly talks the talk.
‘Beth Comstock is passionate about change and innovation,’ reads her bio on GE’s corporate website, not yet updated to relfect her new lighting role. ‘She leads GE’s growth efforts via marketing, sales, licensing and communications and oversees GE Ventures. Her current priorities include partnering with and investing in start-ups, developing new markets in analytics, energy and affordable health through GE’s industrial internet, ecomagination and healthymagination initiatives, and making connections that spur a culture of inventiveness and grow brand value.’
It also notes that she serves on the boards of Nike and of Quirky, ‘an online hub that makes invention accessible.’ Quirky helped GE develop its Link connected bulb.
Looks good on paper. Let the innovations begin. There aren’t many other choices.
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