Turning an asset business into a service business
Published October 27th, 2016
When we chose “Catalyzing Collaboration” as the theme for this year’s American Water Summit, it didn’t seem that urgent. Six months later, I am very glad we went with it: something is changing in the US water market, and it means that different kinds of companies are going to find themselves working together in ways they never did before.
When I say that something is changing, I don’t mean that things will be different overnight. What I mean is that businesses are finding growth in different directions to where they found it in the past, and over time, 2016 will be seen as the year in which that trend really began. So what is this big change?
I think it can be summed up in terms of a switch from big capital projects to pay-as-you go solutions. There are three trends which are driving this: the first is the digital revolution. The Internet of Things, big data and machine learning are drawing a whole new pantheon of corporate titans into the water sector, including the likes of IBM and Verizon. They have a vision for the future of water which is very different from the traditional suppliers to the industry, and they have the money and the clout to make it come true. In doing so, however, they are likely to ride roughshod over the existing procurement model. These companies don’t sell their technologies as capital assets specified by engineers, procured and constructed by local firms, and supplied through local rep networks. They sell it straight to the top as a service, and in doing so, they will have an impact on the way everything else is sold.
The second big trend is the changing nature of the utility. They are becoming less oriented toward infrastructure investment and more oriented toward customer services. As funding from Washington has dried up, so ratepayers have become more important as investors in utilities. It is creating a much stronger service culture in the public utility sector, which in turn is making utility leaders think more creatively about how they deliver those services. For the first time, the American Water Summit is being supported by the two main utility associations: the Association of Metropolitan Water Agencies and the National Association of Clean Water Agencies. Their members remain strongly opposed to full privatisation, but they are interested in seeing what else the private sector can offer.
The final aspect of this “pay-as-you-go” culture is happening on the finance side. Instead of paying up front for big infrastructure assets, utilities and industrial water users have a much greater interest in spreading the cost, not least because it reduces the risk of getting complex new technologies wrong. Companies like Liberation Capital are gaining traction among industrial water users who can see how important water is to their future, but prefer to outsource doing it well to specialists. On the municipal side, we are seeing new alliances being forged between financial institutions and water businesses to facilitate the pay-as-you-go business model. The most recent example of this is Xylem’s deal with Key Equipment finance to enable utilities to pay for Xylem’s transport and treatment solutions over the life of the assets. Both companies are sponsors of the American Water Summit.
These new business models require different methods of collaboration among cities, technologies, finance, services and industry, and this year’s American Water Summit is set up to catalyse these partnerships. As an event, its USP is that it is the only conference which brings together all five of these sectors at a senior level.
We’re kicking off with a pre-conference workshop on empowering the digital utility. The objective is to set the roadmap for how all the new players in the market can interact to accelerate the performance of the sector. I think it will be the beginning of some great new relationships.