Below is my contribution to the July issue of tED Magazine on the topic of change in the lighting industry. Reprinted with permission.
At this year’s Strategies in Light conference in Anaheim, California, two notable speakers talked about how LED technology is disrupting the traditional lighting industry. tED caught up with them to ask how this disruption is impacting electrical distributors and what distributors should do to remain competitive in the LED and intelligent lighting era.
Creative destruction
Robert F. Karlicek, Jr., PhD, Professor and Director, Center for Lighting Enabled Systems and Applications, Rensselaer Polytechnic Institute, sees the industry going through a process called creative destruction. This term, coined by economist Joseph Schumpeter in 1942, describes the process of innovation destroying old economic structures and creating new ones.
“In the lighting industry, the creative aspects involve high-efficiency LEDs that have long lifetimes and can offer new lighting-based services,” said Karlicek. “The disruption is to all forms of old non-LED lighting and disruption of legacy business structures, supply chains and distribution channels.”
In the existing building market, LED retrofits offer high efficiency, longevity and other benefits. However, this longevity is eroding the replacement market that traditionally provided steady lamp sales. Karlicek also pointed out the low wattage of LED makes energy-saving lighting controls more difficult to justify.
In the new construction market, prevailing energy codes require both high lighting efficiency and extensive automatic controls. Here, the economics are more favorable to extended capabilities such as intelligent connected lighting, dimming, tunable-white lighting, Internet of Things (IoT) integration and others. However, these capabilities are redefining lighting, necessitating education. Meanwhile, widespread innovation and less standardization have resulted in very short product cycles, wide variation in performance and limited serviceability.
Karlicek said two emerging metatrends are pointing to further creative destruction in lighting’s future. These include circadian lighting and the IoT.
“LED lighting is uniquely suited for circadian and human performance management,” he said. LED lighting enables control of both intensity and color output (spectral power distribution), tools that may influence the human circadian system. “However, I believe there is still a lot more research needed to properly define optimal LED lighting wavelength distributions for optimal human outcomes.”
Karlicek also pointed to the IoT’s emergence as another major trend that will impact lighting. “Traditional sales channels will need to become savvy about lighting standards, wired and wireless networking protocols, and computer and network systems,” he said. “For the time being, however, properly serving this emerging field will be difficult because of the wide variety of proprietary systems and lack of interoperability.”
All of this is developing, necessitating monitoring the market and agility to invest in capabilities at the right time. “Ultimately, distributors will need to become—either alone or through partnerships—both an electrical and networking systems supplier,” Karlicek said. “Start investing in re-educating your workforce so they can be skilled at AC and DC power distribution systems, networking and advanced controls.”
Bundling
Dan Ryan, VP Product, IoT Solutions, Acuity Brands Lighting, sees the lighting industry undergoing a process called bundling. Bundling is defined as aggregation of individual services to create new value for buyers and sellers in a market. Buyers can access more services at a lower cost, while sellers can more profitably access a larger market.
He points to the computing and consumer electronics industries for examples of bundling and unbundling in action, drawing parallels to the lighting industry. Microsoft bundled services into Windows, the Internet unbundled them again across the web, technology giants like Google and Amazon rebundled them into their platforms, and now some unbundling is occurring as some services are being peeled off.
While industry analysts tend to focus on product, bundling also occurs in distribution. Consider video content distribution. Cable TV providers bundled and sold video content. Then video streaming from the Internet became feasible, resulting in an unbundling event. Today, consumers can access a wide variety of online content providers such as Netflix.
Ryan believes strong parallels for lighting can be found in the Apple iPhone, which bundled numerous services—phone, camera, etc. Similarly, the lighting industry is going through a bundling phase in which lighting projects are being bundled with IoT services and building management systems. “The world is starting to recognize that lighting is uniquely positioned to be an aggregation point for the delivery of IoT services,” he said. “This is due to its ubiquity in the as-built environment and the proliferation of networked lighting control systems.”
As a result, lighting manufacturers are starting to bundle new digital services with lighting such as indoor positioning, asset tracking and occupancy analytics. The overriding goal is to leverage installed lighting hardware and networking to collect data and use it to improve processes. The result will be larger and higher-end lighting projects. This bundling will continue until standardization and interoperability enables a new services layer, which will result in some unbundling.
For electrical distributors, Ryan sees opportunity in a role that for the foreseeable future will remain the same as it is now. “The powerful economic principle behind bundling is that both buyers and sellers benefit,” he said. “So in that sense, when you apply this to the lighting channel, electrical distributors will benefit. The sale of higher-end systems will lead to larger project sizes and help fight the commoditization and price erosion that we’re currently seeing in the traditional lighting market. For those distributors who strive to move up the value chain, there will be opportunities to develop deeper end-user relationships.”
The wildcard is the IoT’s impact on how lighting projects are specified and sold. Ryan points out that channel and access to market remain the most important drivers in activity in the lighting market, not technology. As the IoT enters more specifications, how projects are specified and sold may evolve, but Ryan sees opportunity for distributors who can deliver value.
“I think the real question for distribution is where the intersection is between IoT service sales and the traditional lighting sale,” he said. “At one level, distribution will sell higher-end systems and will see benefits there. There are also some lighting-channel-specific IoT services—such as preventative maintenance and lighting asset management—that will unlock new opportunities for selling to the traditional buyer. But I think it’s still very much an open question of how value-added IoT services will actually be sold and what role the traditional channel will play there. The majority of new services being developed are really orthogonal to what distributors do today. Regardless of how it all plays out, I expect traditional distribution to play a huge role.”
