Three years ago I found a research paper that proposed a combination of distributed computing and heating as a service: A cloud provider company like Google or Amazon would install computers in users’ homes – as black-boxes providing heat to the users and computing power to their cloud.
In the meantime I have encountered announcements of startups very similar to this idea. So finally after we have been reading about the Internet of Things every day, buzz words associated with IT infrastructure enter the real world of hand-on infrastructure.
I believe that heating will indeed be offered as a service and like cloud-based IT services: The service provider will install a box in your cellar – a black-box in terms of user access, more like a home router operated by the internet provider today. It will be owned and operated by a provider you have a service contract with. There will be defined and restricted interfaces for limited control and monitoring – such as setting non-critical parameters like room temperature or viewing hourly and daily statistics.
Heating boxes will get smaller, more compact, and more aesthetically pleasing. They might rather be put in the hall rather than being tucked away in a room dedicated to technical gadgets. This is in line with a trend of smaller and smaller boiler rooms for larger and larger houses. Just like computers and routers went from ugly, clunky boxes to sleek design and rounded corners, heating boxes will more look like artistic stand-alone pillars. I remember a German startup which offered home batteries this beautiful a few years back – but they switched to another business model as they seem to have been too early.
Vendors of heating systems will try to simplify their technical and organizational interfaces with contractors: As one vendor of heat pump systems told me they were working on a new way of exchanging parts all at once so that a technician certified in handling refrigerants will not be required. Anything that can go wrong on installation will go wrong no matter how detailed the checklist for the installer is – also inlet and outlet do get confused. A vendor’s vision is rather a self-contained box delivered to the client, including heating system(s), buffer storage tanks for heating water, and all required sensors, electrical wiring, and hydraulic connections between these systems – and there are solutions like that offered today.
The vendor will have secured access to this system over the internet. They will be able to monitor continuously, detect errors early and automatically, and either fix them remotely or notify the customer. In addition, vendors will be able to optimize their designs by analyzing consolidated data gathered from a large number of clients’ systems. This will work exactly in the way vendors of inverters for photovoltaic systems deal with clients’ data already today: User get access to a cloud-based portal and show off their systems and data, and maybe enter a playful competition with other system owners – what might work for smart metering might work for related energy systems, too. The vendor will learn about systems’ performance data for different geographical regions and different usage patterns.
District heating is already offered as a service today: The user is entitled to using hot water (or cold water in case a heat pump’s heat source is shared among different users). Users sometimes dislike the lack of control and the fact they cannot opt out – as district heating only works economically if a certain number of homes in a certain area is connected to the service. But in some pilot areas in Germany and Austria combined heat and power stations have already been offered as a service and a provider-operated black-box in the user’s home.
The idea of having a third external party operating essential infrastructure now owned by an end-user may sound uncommon but we might get used to it when gasoline-powered cars in a user’s possession will be replaced by electrical vehicles and related services: like having a service contractor for a battery instead of owning it. We used to have our own computer with all our data on it, and we used to download our e-mail onto it, delete it from the server, and deal with local backups. Now all of that is stored on a server owned by somebody else and which we share with other users. The incentive is the ease of access to our data from various devices and the included backup service.
I believe that all kinds of things and products as a service will be further incentivized by bundling traditionally separate products: I used to joke about the bank account bundled with electrical power, home insurance, and an internet plus phone flat rate – until the combined bank account and green power offering was shown on my online banking’s home screen. Bundling all these services will be attractive, and users might be willing to trade in their data for a much cheaper access to services – just as a non-sniffing smart phone is more expensive than its alternatives.
I withhold judgement as I think there is a large grey and blurry area between allegedly evil platforms that own our lives and justified outsourcing to robust and transparent services that are easy to use also by the non tech-savvy.
Update 2016-06-02 : Seems I could not withhold judgement in the comments :-) I better admit it here as the pingback from the book Service Innovation’s blog here might seem odd otherwise ;-)
The gist of my argument made in the comments was:
I believe that artisans and craftsmen will belong in one of two categories in the future:
1) Either working as subcontractor, partner, or franchisee of large vendors, selling and installing standardized products – covering the last mile not accessible to robots and software (yet),
2) Or a lucky few will carve out a small niche and produce or customize bespoke units for clients who value luxurious goods for the sake of uniqueness or who value human imperfection as a fancy extra.
In other communication related to this post I called this platform effects Nassim Taleb’s Extremistan versus Mediocristan in action – the platform takes it all. Also ever growing regulation will help platforms rather than solo artisans as only large organizations can deal effectively with growing requirements re compliance – put forth both by government and by large clients or large suppliers.
elkemental Force 
Starting a few decades back all of our schools (including post secondary) shifted away from local heat control to centralized ones. Way back in the early 1980s, for example, the rural school I worked at had such a system even then. It had a combination of local and far control. I especially liked the fact that it responded to the outside temperature when undoing the night setback. At 4 the indoor temp dropped by 5C and around 7AM the system read the outdoor temp and optimized the best time for a return to normal for 8:30. I thought it was nifty and it worked VERY well. I learned how to use the system (it used a VERY raw machine language like interface) to override for when it was needed.
BUT…
Time moved on, that school is closed and torn down and I have very much moved on.
Just a decade or so at my university they engaged in an overhaul of the heat control systems and installed a whole new batch of stuff that was supposed to increase efficiency. What a mess! The logic is stupid and it has no idea of how to respond. When it gets cold out it gets cold inside, and when it gets warm out it gets warm inside. Seemingly the system has no awareness of the local environs. In fact, in my beloved teaching and learning commons, if I didn’t have direct access to a separate A/C unit (the TC is in a space that used to be a computer lab and I’ve been vert careful to maintain the AC) my space would never be comfortable.
Here’s the thing: if heating as a service is to be a thing then the owners need to be critically aware of the many variables that the sensors can monitor and ensure that the software is smart enough to optimize based on the best data. Otherwise all we’ll have is confused and angry customers!
Thanks for sharing this interesting story, Maurice! Yes, control is often the most difficult part – that’s why we focus on that part :-)
In Austria, many schools, hospitals and buildings owned by governmental agencies have also transitioned to a form of as-a-service-style heating. But such contracts are typically not just based on monthly fees for just a service, but vendors guarantee an increase in efficiency and lowering of heating costs. Setting up the legal part is more complex than the technical solution – because of users’ interaction with the system and yearly variations in temperature.
The upside for school is that they don’t need to have the money for the investment upfront and they pay for a result rather than for a service. Insulation is also financed in this way – they pay a monthly amount and are guaranteed a certain increase in efficiency in the long run. The supplier buys heating systems, insulation, and pays for contractors.
I have no first-hand experience with such contracts, but I think vendors of ‘services’ have a very strong incentive to get their control right – as they risk that their business model will not be profitable if the don’t meet the goals and the contract forces them to pay penalties.
Great article Elke!
Potentially all products are service…sorry: all products ARE service. We are well on our way to realizing this! If we just need to go somewhere we will click on Uber – if we want to drive (or have a driverless car) we will also click on Uber – or a competitor. Why should you or I worry about repairs or maintenance?
Why shouldn’t Google pay my bills and file my taxes. Amazon can do a better job of maintaining inventory in my cupboards and refrigerator. It is a benefit to give up grunt work and trivial decisions. (I am sure we have all seen a flurry of articles on ‘decision fatigue.”)
Sure there are some concerns about privacy – Google and Amazon would know a LOT about us. And big companies like Google and Amazon may further grow – the “network effect” and “scale” are powerful with Internet services.
I like the idea of knowing my car has been maintained, that I don’t have to call the furnace guy, and I don’t have to do intense research about a product I could really care less about once it is working.
Great insights! Maybe my Swedish co-authors and I should have consulting with an Austrian while we were writing Service Innovation!
– Gary
Thanks, Gary! I understand that the majority of people don’t want to deal with technical details and product features, and prefer a monthly subscription fee and less hassle.
I left out the privacy / security aspect to keep the post rather short – it seems consumers are willing to accept the trade-offs. Perhaps people do risk management intuitively and decide convenience is worth it (I do not mean that sarcastically.)
I am perhaps in the minority of consumers who want to know how their appliances and gadgets work and who want to have utmost control – but I do accept that I am in the minority.
The one thing I’d like criticize though from a climate protection viewpoint is that subscription-like ‘hardware upgrades’ tend to make usage periods shorter and shorter. When you are freed of the burden to dispose and replace an item yourself, you tend to have it replaced more often. Now Austrian mobile providers offer to ‘upgrade’ your cell phones once a year, a while back we were contented with getting a new phone ‘only’ every two years. Cloud services ease the transition by storing data during replacement. The life-cycle management of heating systems becomes similar to those of cell phones (‘upgrade your hardware’ every X years, this article about heating as a services in the UK proposes – only – 7 years for boilers: http://utilityweek.co.uk/news/enabling-heat-as-a-service/1168162#.V00rUeQx8me). I guess some heating cloud will also store your preferences and settings in the future.
This is ‘fueling the economy’ in politicians’ lingo, but it means more pollution and usage of scarce resources. However, this is not tangible to consumers as the ‘As the Service’ models caters to instant gratification.
Elke:
Great point about accelerating obsolescence! My mobile phone is 3 yrs old (going to the phone store is a hassle); my Subaru has 150,000 miles and is going strong. When they convert to service my phone won’t get to 2 and my car won’t get to 100,000 miles.
I am puzzled about privacy. Hofstede says that the USA is the most individualistic country, yet we do little to protect our privacy. And the millennials don’t seem to have any concerns about online privacy. I think it will take a major scandal to awaken us!
– Gary
I think we already can see components of your predictions coming available, including the aesthetic design of heating units (think of old cast iron water boiler radiators to the sleek wall mounted heating units, especially those used more commonly in Germany now). I can also think of times when mechanical components were rented from and serviced by a provider, such as water heaters in the city where I live now (this is currently less common since municipal water treatment practices changed and the units had a longer working life).
What is interesting is the consequence of such services and the data that can be gathered, as you said, “The vendor will learn about systems’ performance data for different geographical regions and different usage patterns.” I wonder what can be learned!
One thing I forgot is – and your comment on cast iron water boilers reminded me of it – that I think there will always be a market for tailor-made, expensive, artistic units that will be owned – and possession instead of renting will one of their unique features.
For example, tiled stoves are popular in some regions in Austria, and they are exactly like that: Way more expensive than a heating system that any other off-the-shelf heater just provides the required kW, custom-build by an artisan, comparable to the tailor-made desk built by the cabinet-maker and that costs 4x the desk from IKEA. Or like phonographs in an iTunes world.
I see this as part of a general trend: Artisans and craftsmen will belong in one of two categories in the future:
1) Either working as sort of subcontractor or partner of large vendors (already today I feel many plumbers are basically partners of a few big vendors, and they have to or want to consult the vendor in planning or troubleshooting every time), selling and installing standardized products – most of them to be cloud-powered and remotely managed in the future … In a distant (?) future they might be replaced by robots doing the hands-on onsite tasks plus software interfacing with the vendors’ systems.
2) Or (a lucky few) having carved out a small niche of producing or customizing bespoke units for clients who value luxurious goods for the sake of uniqueness.
I predict, that anything in between the extreme version of these two is bound to fail commercially in the long run.
I also have some anecdotal evidence: Craftsmen in a business turning more and more into 1) and regretting they did not follow up on ideas for a business in the 2) sector they once had.
I can see this, and have spent a lot of time thinking about it; I think you’re right. I suspect every industry or sector has components which are either standardized forms of service, or the other extreme, with unique and expensive custom-crafted objects/services. I think it applies to everything, not just furniture, but to information-based products where data is constrained by the software that is used to gather and store data files, as well as to education of people. What is interesting to me is how, as a group, most people are deeply conflicted by the desire to be unique (with subsequent status attached to this) but to also fit in and be like everyone else. This reflection leaves me wondering if this is why education has become such a tumultuous arena, why people have fits and hysterics over standardization while simultaneously demanding unique and individuated attention for their children in the classrooms.
Being a construction-enthusiast, I’ve noticed that buildings were much more interesting in the days when craftsmen devised their own structures and solutions to issues of heating/plumbing, etc., without the standardized and government regulated equipment that is used now. Yet, also much more dangerous. This thought sort of reminds me of Mathew Arnold’s essay, Culture and Anarchy, in which he argues that standard forms of education are safe, but real progress in our cultural learning risks real dangers of social upheaval, political turmoil and economic disruptions.
I suppose we can imagine here how singular artisans who disrupt everything one day become the fore-thinkers of what eventually becomes ‘normal.’ And so I’ve rambled my way back to the connections you’ve already made to entrepreneurship and small businesses contributing to this movement by either becoming the failed attempts that precede someone else’s success, or that example of success that creates change. And again, the necessity of small business within the larger economy.
Brilliant analysis – I fully agree!
Yes, I have also seen the trends in the software / IT sector first, and I was baffled how similar building technology seems to be or to become.
And yes, standards and (over-)regulation … : Even if you want to create unique products and services you have to meet them (and clients expect ‘standard’ functionality on top of uniquements, like a nostalgic phone from wood with clunky keys that has all the apps nonetheless.
What I observe is that the bar for small companies is raised as only larger ones have enough man power to do all the paperwork – e.g. (an example from a different sector to show ubiquity): Many very small farms are ‘organic’ and ‘regional’ and ‘green’ by all reasonable standards, yet their products are not _certified_ as they cannot afford the overhead coming with certification… so their products don’t show the logo.
Larger farms (shown in that heart-breaking documentaries about small and large farms, the former forced out of business) resemble more a science-fiction factory than a farm, are fully automated with optimized processes (the ‘farmer’s’ desk look like a trader’s, with several monitors), and can afford required software or man power to deal with bureaucracy. In Austria a special secure type of cash register is needed since this year to prevent fraud, so good intentions. Yet it raises the bar for somebody who wants to run a small shop as a side business.
Yes, I also agree to the weird aspiration of being both unique and ‘standardized’ at the same time in the most general sense. I feel the trick is to add uniqueness on top of standards, such as: going for some additional education ‘just to show off the paper’ or to ‘prove you meet the standardized criteria in case somebody asks’. I cannot exempt myself from this trend, I’ve also played it safe. I see this as part of the trend that in every sector there are simply more qualified people and more competition. E.g. I feel many STEM graduates turn science writers today (as there as so many graduates) and there is a large number of people who know about science and can write – so also the combinations formerly considered ‘unusual’ are crowded today.
So in order to stick out you need to have a special feature, but in order to deal with all the competition you still have to meet all the other criteria, too. E.g. what I observe is the sophisticated level of marketing that, say, small wine-makers have to do today. Decades ago it was sufficient to offer reasonable good wine, today you have to tweet about and offer special events to clients, present at trade-fairs to clients in different countries etc. And our local ‘commercial chamber’ (representing all businesses, actually a more conservative organization) offers courses for small businesses on ‘how to be unique’, ‘how to tell your story’ etc.
I have noticed that many of the small businesses here in Canada also suffer as government increases regulation. Businesses disappear, or farms sell out, because they can’t afford all the specialized contracted services like lawyers, accountants, IT, marketing, and so on, on a regular, on-going basis, almost like regular full or part-time staff.
Also, I have to wonder when regulations can’t be regulated, such as in the building industry here, where there is a lack of funding to hire qualified personnel to inspect and monitor some sectors of construction. As a result, consumers believe they are protected by government rules, but find in the end that there was no one doing the inspecting, and those providing services realized that they could cut corners without being caught, and in some cases, do. Yet, if we have more oversight, we get more government, and eventually a population base can’t sustain the cost. (And then, I wonder, what happens to the rule of law… does it simply collapse?)
As for personal marketing of one’s professional skills, I’ve found that being off social media has helped ease some of my stresses over branding, having a presence, and all those pressures. Being back in the classroom has allowed some opportunities for ‘organic’ networking to simply unfold, and I’m really grateful to have a break from LinkedIn and all the how-to articles that drift by in Twitter feeds. The problem with marketing is that pretty soon you start to lose interest in ideas by feeling over-saturated and anxious about “getting it out there”; it becomes more difficult to connect to people because your curiosity sort of numbs (at least, for me this is the case). I had it in the back of my mind that returning to studies would be a mindful attempt to connect with all the deeper motivations for being involved in work, community, or discussion, and I think the result is that I’m much more engaged while being more clear about boundaries, and I’m happier for it. I’m sure one day someone is going to figure out that we all need to unplug and have down time, and that one day, this too will be regulated by a government agency issuing permits and certificates, while also licensing our time on the internet. :)
Wait … I thought you were joking … until the very end … now I’m not sure. You’ve got to be kidding … please say you’re joking? If this is serious, what’s next? No .. scratch that, I don’t want to know.
No, this was intended to be a serious analysis. All the examples I mentioned are true, and I tried to extrapolate to the future from my insights into recent developments in both the energy and the IT sector!