Itron's Smart Cities Strategy: Q&A with CEO Philip Mezey

Thu, 2013-04-18 17:05 -- Jesse Berst


Philip Mezey combines a distinguished countenance with boyish curiosity and enthusiasm. In 2012, after an external search to find a replacement for the retiring LeRoy Nosbaum, the company realized it had the ideal candidate in house and named Mezey President and CEO.

His selection says a lot about Itron's future directions. The company started with an emphasis on hardware -- namely, meters for measuring electricity, gas and water. For the last while, however, it has realized that hardware is increasingly a commodity and value is migrating to software.

Who better for CEO, then, than someone with a deep software background. San Francisco native Mezey had been a founding member of Indus, a prominent provider of asset management and customer management software to utilities. In 2000, he became vice president of Silicon Energy, which also provided advanced software to utilities. When Itron acquired Silicon Energy in 2003, Mezey came along and began to climb the ranks.

Itron is headquartered in bucolic Spokane, WA, a mid-sized town in Eastern Washington, far from any population centers. Mezey, a runner, also goes horseback riding every weekend. When he retires, however, he and his wife intend to move to New York. "I'm a city person," he confessed to me. "I don't dream of a big house and owning lots of things and driving everywhere. I like the idea of living somewhere where I can call up and have any kind of food delivered to me in 10 minutes."

I was struck by several points as our conversation unfolded:

  • We already have the data to generate invaluable insights, especially if we combine data from different departments
  • The industry needs to do a better job of quantifying the business case – the costs and benefits
  • People problems may be our biggest blocker – breaking down the walls between different departments so they will share data and share infrastructure
  • Itron has completely remade itself over the past five years to position itself for the new realities
  • Itron is now much, much more than a meter company

Read on for further details.

-- Jesse Berst, April 2013

Why the increasing attention to smart cities? What are some of the factors driving this trend?

We are beginning to realize that we have enough data to generate valuable insights. And not just drilling down into independent data sets. We are realizing that we can intersect different data sets to get even more insights. It is almost "faith-based" – it strikes one as so intuitively correct.

And we don't have to tear up our streets or rebuild things from scratch. We are already collecting data that will help us be more efficient with our existing assets. If, for instance, we go to the trouble of putting in a smart grid, let's be smart about using it at its full advantage. Let's leverage the communications infrastructure to do other things. And let's combine the data with data from other sources for new insights.

What stands in the way of rapid adoption of smart cities technologies?

"Agency problems" – for instance, when we try to make buildings more efficient we discovered that the interests of tenants and landlords are not aligned. It is the tragedy of the commons, when different players don't realize that their interests are aligned. Happily, there are collaborative ways to pursue enlightened self interest. There are some models that help us go beyond our narrow interests.

Is technology one gating factor? Do we have a lot more to do to invent and prove out the technologies we will need? Or do we have the building blocks in place already?

It is not a technical problem, it is a conceptual problem. People see something interesting here, but they want to know when and where they will see the benefits. We need to do a better job of showing people the low hanging fruit and documenting the savings that could be realized.

Has the smart cities market hit the tipping point? Will it soon become a mainstream trend, or could the current interest be a false alarm?

It could be a false alarm unless we overcome some of the people problems. It can be very difficult to break down the walls between different departments. For instance, Itron has the ability to put in a single communications system that can serve multiple kinds of meters – water, gas, electric. Yet very rarely do different utilities agree to share infrastructure.

There's also the issue of finding incentives to change. When the cost of lost water is hidden in your bill – when the cost is spread to all the customers – it destroys the economic incentive to find and repair the leaks. Likewise, when the cost of electric power theft is built into the rates, it removes the motivation to find the cheats.

How fast will the market grow?

We are focusing on the early adopter market right now rather than trying to build a horizontal market. We are seeking out the early adopters, so we can accumulate positive results that others will then try to replicate.

Who are these early adopters?

There are cities that for "ego" reasons are making tech investments to be seen as leaders. Cities who want to attract young intellectuals and want to be seen as progressives.

There are also greenfields projects in Asia and the Middle East where they are building smart cities from scratch. And then there are the megacities that are choking on congestion and desperately need technology solutions to relieve their pain points.

How important is the smart cities market to Itron?

It is one piece of a larger initiative to give customers as much flexibility as possible. Given what we see on the horizon, how can we build a "no regrets" technology platform that will be compatible with these future needs and developments. And from Itron's point of view, how can we build a technology platform that allows us to engage with a larger pool of customers.

What is Itron's role in the smart city ecosystem?

Our core competencies are measurement, embedded communications and collection software. We are now expanding into large-scale data management and analysis.

When I say communications, we are not competing with folks that do WAN-based backhaul. But there is an element of the communications infrastructure that's appropriate for us. When it comes to field embedded communications, we have a strong play. We know how to do an embedded communications down to the end point to build cost-effective and reliable distributed communications networks.

We hide the complexity of multiple networks from the customer. It may be RF mesh plus cellular plus powerline – Itron and its partners make it look simple so the customer doesn't have to deal with it.

What does Itron do better than any other company?

I have mentioned our technical capabilities. But our most durable advantage is trust and customer intimacy. We take a contract and we stand with the customer until the results are achieved.

When Itron wins in a competitive situation, why does it win?

First we have to demonstrate good technical competence. Customers have to believe they will get more cost-effective results working with Itron than with anyone else.

In the utility sector, the buying pressure is intensified because of the regulatory regime, the great expense, and the long life. Utilities write very difficult contracts and you have to bet your balance sheet to guarantee results. You have to commit to achieving the results and have the financial strength the back it up. It requires real staying power.

In addition, these projects require you to aggregate hardware, software, services, financing, and ongoing operations. The customers don't want to be systems integrators. They don't know how to pull all the pieces together, so they are looking for companies of reasonable scale who can accomplish that. Of course, this is intensified even further in smart cities, where there are layers of solutions.

Are there any common misperceptions about Itron and its capabilities?

That we are just a meter company. That we are mired in the past and unable to react to technology innovation. In reality, over the past five years we have transformed completely from our proprietary-based company to an open standards company with deep partnerships.

That transformation took some time and we had the cannibalize some of her own business. But we have embraced a significant change in our business model and we are backing it up with acquisitions, with partnerships, and with research and development.

What is the single most important thing a city leader should do today to position his city for leadership and success?

Water may be the easiest and most important point of entry. 30% of water does not make it to its destination. For instance, San Diego is talking about spending billions of dollars for desalinization, which could eventually triple the current price of water. It is much cheaper to stop wasting water than to find new sources.

So water may have the quickest payback for a city, especially since it is often under direct city control. There is a lot of hidden waste. Especially when you consider the energy intensity of water. It takes a lot of energy to treat water and pump it around.

What's the right way for a city to get started?

Use the Pareto principle. Find the 20% that is causing 80% of the issue. Analyze the largest discrepancies and imbalances. Then deploy targeted technology to address those biggest problems.

Of course it is good for our business if the city puts in an entire system. But in reality the best model is to fix the biggest problems first, then use the savings to pay for the next round of improvements.

What do you want city leaders to know about Itron?

Our track record. For instance, we are the largest supplier of water automation in North America. We are saving water every day all around the world.