Late last night, word broke that Sunrun had acquired Vivint in an all-stock deal.
Interestingly, Sunrun was mostly championing the reduction in costs instead of the growth potential of the combined entity in a market with only 3% of penetration.
The SG&A of each business is particularly interesting. It appears both businesses have started to stagnate when it comes to turning sales & marketing dollars into revenues.
Why might this be happening so soon?
- Solar is a commodity at its core. For most people, electricity is electricity. Other than Tesla, there’s no “brand” in solar and by a brand, I mean instant recognition / organic customer acquisition. This leaves little room for differentiation.
- Until recently, consumers weren’t as informed on emissions and climate, though this is beginning to change rapidly, and the consequence is an emphasis on price over other value props. The result is a need to run a business that is as efficient as possible without subsidization from private equity dollars or tax credits.
- Friction in the solar and residential energy market is extremely high. Between the sales process, the financing process, and finally installation the solar purchasing cycle can be confusing for uninformed buyers.
All three of these factors are changing in favor of the solar market which is why I think the public markets have reacted well to the news of the merger.
So, what can we learn about new sectors of consumer electricity from this merger?
The gap between innovators (first 2.5% of the market) and early adopters (the next 13.5% of the market) isn’t equal across sectors or products.
Said more specifically, the passion and motivation between the two groups is likely to be significantly different by market and all market maturations aren’t created equally. Lastly, while all markets might cross the chasm, the timeframes in which they do so vary wildly.
Unlike B2C software or CPG, this means the traditional “land grab” strategy potentially exhausts itself much more quickly in complicated markets.
As a result, the importance of refining your business model and value prop is brought forward in your company’s lifecycle.
It’s too early to say if this is a trend worth watching, especially since it is so early in the solar industry’s lifecycle and these are just two companies in a very fragmented space.
The good news is, the residential solar industry supported at least 2 (3 if you count Solar City), billion-dollar companies with only minimal market penetration. That’s the type of potential that should excite everyone.