Correction to This Article
This article about the energy software firm Opower misquoted company founder Alex Laskey in a comment about the annual nationwide savings for utility customers using the company's usage-analysis program. Laskey said annual savings could total $5 billion, not $5 million.

Opower profits by tracking consumers' electricity use, helping trim costs

By Danielle Douglas
Capital Business Staff Writer
Monday, June 28, 2010

Three years ago, Dan Yates and Alex Laskey, the co-founders of Arlington-based Opower, came to a conclusion: People cared about their carbon footprint, for the most part, but needed a blueprint for reducing it. The longtime friends recognized an opportunity to create that path by providing people with an analysis of their electricity consumption.

Since then, Opower has blossomed into one of the rising stars of the energy industry, on track to post a $35 million profit this year, roughly eight times its revenue in 2008, according to the privately held company.

"We're starting to see stronger adoption of Opower's product by a lot of operators," said Teresa Mastrangelo, an analyst with researcher Smart Grid Trends. "It's a very simple way to start educating consumers on how they use energy."

Opower essentially takes raw data, obtained from a utility company that contracts its services, and creates detailed reports on how customers' consumption compares with their neighbors. The report also provides customized tips for each customer to address wasteful behavior. What's more, the Opower team, made up of 105 employees, redesigns utility Web sites, offering e-mails and text alerts to update customers on usage.

"We are very pleased thus far," said David Botkins, a spokesman for Richmond-based Dominion, which retained Opower earlier this year for a pilot program in Charlottesville. "We wanted to see how the product and the information would be received, and so far it's been very favorable."

Dominion is one of 35 utilities in 16 states that have signed up with the company, which now delivers reports to 2 million households. Yates and Laskey expect that the program will reach 4 million homes by the end of this year.

"When you give people the context to understand how they compare to their neighbors in similar-size homes, it's a very powerful engagement mechanism and they will pay attention," said Laskey, noting that the average customer receiving the reports is reducing consumption by roughly 2.5 percent.

"Now 2.5 percent for one house is a small number, but 2.5 percent across the entire country -- we're talking about $5 million a year in savings for customers."

The effectiveness of Opower's strategy has not only won them more clients, but also the attention of President Obama. In March, he paid the company a visit, praising it for "putting America on the path to a clean energy future."

To be sure, Opower is not the only player in the energy data-management space. Both Google and Microsoft launched software last year to track consumption. Mastrangelo said, however, that these products were a bit cumbersome. Google's PowerMeter, for instance, requires customers to purchase a monitoring device if they are not signed up with one of its four utility partners.

"The Opower product ties into the bill that you are already getting from your utility," Mastrangelo said. "Customers can understand their energy consumption without requiring a smart grid structure to be deployed or having to put in a lot of devices in their homes."

But David Leeds, an analyst at GTM Research, said the brand power behind Microsoft or Google could pose a threat to a smaller energy software company. "A big part of it is getting utilities, which are risk-averse, to take on a company like Opower," he said. "It's a hard industry to crack for small players." Still, Leeds is bullish on Opower's model, calling it a smart way to help modify consumer consumption.

With all the buzz surrounding Opower, Mastrangelo said the company is a prime target for acquisition. But Laskey and Yates have no desire to be folded into anyone's firm.

"We're not providing a part of the solution, which is typically when companies get bought," Yates said. "We are providing a full solution that stands on its own. And we're excited about the public company prospect."

Opower has raised two rounds of funding through venture capitalists. San Francisco-based MHS Capital Partners floated the firm $1.5 million in seed money in 2007, and Baltimore's New Enterprise Associates invested $14 million the following year. "We get calls from investors every day," Laskey said. "But we have the luxury of being self-sustaining."

© 2010 The Washington Post Company