|For Ethical Electric, harnessing power generated by wind farms like this one is the easy part. The hard part is convincing customers to buy it. Photo: Gareth Fuller/PA|
Matzzie’s company isn’t the first to sell renewable energy, but it might be the smartest. For the most part, convincing people to switch away from dirty energy is an unprofitable and work-intensive process, requiring electrical company representatives to approach thousands of randomly chosen customers. Ethical Electric, on the other hand, uses a highly-targeted, strategic method to identify its potential customers.
From finding votes to finding customers
Matzzie, who is now CEO of Ethical Electric, explained that the secret lies in his company’s use of big data, a resource that he and his partners mastered on the political front lines. In the last few presidential elections, big data fundamentally changed the way candidates – and their teams – approached voters. “We couldn’t rely on voter registration lists to make assumptions about who would be willing to vote in the next election,” Matzzie said. “What happened in politics is a real revolution in data.”
During the 2012 election, for example, President Barack Obama had 100 staff members on his data analytics team. One of them, data finance director Daniel Murray, went on to become Ethical Electric’s vice president for data services.
To get a more incisive perspective on voters, Obama’s campaign moved far beyond traditional data collection techniques. Its databases mined publicly-available personal data like vehicle registrations and home values, combining the information with consumer data like magazine subscriptions and the more traditional voting records.
Merging consumer and voter behavior data, Obama’s team then modeled and clustered the information, creating synthetic data that enabled them to make incredibly granular calculations about available voters.
A tough sell
It isn’t hard to see how this sort of data manipulation could come in handy for an electric startup. The power industry is dominated by old monopolies, making it a very tough environment for new players.
“Prior to restructuring of the US electric industry in the late 1990s, investor-owned utilities were regulated monopoly providers,” says Chuck A Goldman, head of the Energy Analysis and Environmental Impacts Department at Lawrence Berkeley National. These companies, he explains, “provided customers with a bundled package of generation, transmission, distribution and electric commodity services”.
Unfortunately, Goldman notes, selling power to residential customers is a high volume, low margin business that typically hasn’t been very profitable. In many energy markets, residential customers – like the ones that Ethical Electric is targeting in the mid-Atlantic and Northeast regions – have to opt-in to purchase renewable energy, an often-difficult process. To profit, retailers need to sign up a lot of customers, lower the cost of each transaction and excel at marketing to reach critical mass.
This isn’t easy. Inertia or a fear of change often prevents customers them from choosing green energy, said Doug Semmes, director of Green Mountain Energy’s New York market.
“We need to be sure that we’re offering clear, reassuring information about what that change means, because people don’t know they have a choice,” Semmes said. “We need to have full transparency.”
In Canada, Bullfrog Power uses an intensive, one-on-one approach to getting customers, noted vice president of marketing Josephine Coombe. At community events, consumer tradeshows and even farmer’s markets, their employees directly engage consumers. They also have teams that go door-to-door.
“We’re giving people the ability to vote with their wallets and with their values on the energy front,” she said.
A strategic advantage
Ethical Electric’s data manipulation maximizes the impact of its resources. “We’ve become great at signing people up,” Matzzie said. “Big data is a strategic advantage in our marketing.”
Following in the footsteps of the Obama campaign’s highly successful data mining, Ethical Electric sifts through a wide variety of consumer databases “to find people who are interested in our services,” Matzzie said.
Ethical Electric can zero in on renewable energy customers, and can even target a single household. Thus, rather than approaching 1,000 potential customers, they can narrow the field to 60 – and, in the process, use their resources more efficiently. “If we talked to all 1,000 and only got 1, that wouldn’t work, but talking to 60 and getting 1 out of 60 is a business,” Matzzie said.
The numbers already seem to be bearing out the effectiveness of Ethical Electric’s strategy. After just two years in business, the company has 45,000 customers who are willing to pay a “slight premium” of $8 to 12 dollars per month on their typical bill, Matzzie said. Ethical Electric is currently operational in seven states plus Washington D.C. and continues to expand its reach to new states.
But energy reselling is only possible in 14 markets, which creates an upper limit problem. Unless regulatory changes occur and old monopolies lessen their grip, big data only may be able to take Ethical Electric so far.