One of my favorite podcasts is Exponent and I recently listened to episode #64. This episode is largely about the commoditization of products by the FANG companies, Facebook, Amazon, Netflix and Google.
Each of the FANG companies has built its service with a focus on owning the customer relationship, growing it's customer base, and levering it's customer base as they grow to disrupt incumbent businesses. Facebook has disrupted the news industry, with newspapers and reporting now suffering from commoditization as news is shared on Facebook, Netflix has done the same with movies and TV shows.
Thinking about disruption during the podcast, I was initially of the view of 'that's fine for the FANG companies' who largely disrupt product markets that already have a high consumer demand, and potentially high consumer engagement, but what about other more traditional industries like utilities that have hugh long term capital investments?
On reflection there are already examples of this.
In the western world in particular, the postal services, already under threat from digital communications, have been further commoditised by companies like Amazon. Postal services 'owned' the customer interaction before the Internet. They were perfectly positioned to leverage this, but they didn't see it, they still don't.
Similarly telecoms to households continue to be disrupted with more people opting to no longer have a landline. As wireless internet services continue to improve in availability and speed, which they surely will, the days of having a hardware telecommunications link to a household are limited. Household telecommunications companies have no choice but to adapt or be disrupted.
So will utilities like power, natural gas, water etc also be disrupted?
It seems likely that, as the cost of PV cells and energy storage systems continue to decline, more households will make the decision to 'disconnect' from the grid, and new homes may soon never be connected in the first place.
As a consequence, natural gas could be become largely obsolete as all household appliances become electricrified, even cars. Natural gas infrastructure is expensive to maintain and to implement in the first place, and as energy star ratings of households continue to increase, maintaining ventilation requirements necessary for natural gas heating continues to become more difficult. Not to mention the higher efficiency and lower cost possible for heating via reverse cycle air conditioners.
In all but the coldest climates, where natural gas or oil heating are required, and where it's too cold for reverse cycle air conditioners to work as heat pumps, electricitation of households will likely continue to increase.
So how do you own the customer relationship for utilities and commoditise energy? That's the $64,000 question.