As you already know, the residential solar market is in transition. The industry is shifting from a third-party ownership (TPO) model that favors companies such as SolarCity, Vivint and Sunrun, to a customer-owned model that favors local and regional suppliers. Meanwhile, government subsidies are in a state of flux and the price of solar equipment continues to drop.
Along with these shifts in financial structure is an inconspicuous change in customer characteristics. Extended sales cycles, difficulty finding new customers and expenses growing faster than income are all indications of a transition from a market made up of visionary early adopters, to a market dominated by pragmatic mainstream buyers.
This shift in business model and customer characteristics has already had a profound effect on the solar industry. Bankruptcies, consolidations and outright industry exits have become everyday news. And although this sounds like a dire situation, most folks overlook the fact that, in the last 15 years, 52% of Fortune-500 companies have disappeared. This means companies (even really big well-known brands) aren’t always providing what customers want to buy. In residential solar, many currently-successful companies will fail, and companies that are virtually unknown will become market leaders. It’s difficult to predict a winner under these conditions, but the companies that recognize the needs and requirements of mainstream buyers and tailor their offering to meet those requirements, will be the winners.
Everyone in residential solar wants to “crack the code.” The first to discover the right combination of products, services, and business/management processes will have the advantage in an enormous untapped market. And when a mainstream market forms it often happens very quickly, which allows its initial leaders to become very, very successful.
The overall penetration rate of rooftop solar is still relatively low, which means there is a massive new market of prospective buyers. The winner(s) will receive all of the benefits that accompany the position of “market leader.” And complimentary suppliers will be fighting over the right to become your business partner.
The spectacular growth of solar that has been interpreted as a ramp in sales leading smoothly up the curve is in fact an initial blip caused by innovators and early adopters, and not the first indications of an emerging mainstream market. What must be recognized is the fundamental difference between a sale to an early adopter and a sale to the early majority. Before a majority of homeowners agree to buy in, the solar product available today must be augmented with a variety of intangible attributes. Although price plays a role, cheaper solar is not the answer.
Once residential solar products become “complete” in the mind of a mainstream audience, a new reality will emerge. Instead of relying on lower costs to drive market adoption, and scrounging for sales leads that yield poor results, the solar supplier will use intangible product attributes to attract new customers, technology leadership will no longer be mandatory, and profit margins will be more than adequate. This process of adding intangibles to the solar product offering must continue (and increase) as vendors penetrate deeper into the residential solar market.
How intangibles transformed the personal computer industry
I have seen comparisons made between residential solar and the ubiquitous personal computer. The intent is to provide an analogy of how solar technology can become adopted by a mainstream audience.
I think this is a reasonable comparison, plus I did a lot of perception research during the time PCs were first being adopted by mainstream users, so let’s consider what happened in the personal computer industry. Not only did prices go down and performance went up (sound familiar?), but many other things helped make the PC a mainstream appliance. The biggest factor was the addition of IBM’s backing and reputation to the desktop computing industry.
There are both tangible and intangible attributes to every product. A consumer buys a perception as part of every tangible product. IBM didn’t make a single hardware or software component in the “IBM Compatible” PCs made by Dell, HP, Acer, Toshiba, etc. IBM only added perception….and it was the most important attribute of that product. The most common misunderstanding I see is the belief that price and business efficiency drive market adoption.
The IBM-compatible PC standard was a de facto set of specifications that included the form factor (ATX, AT), the BIOS and it’s extensibility through ISA (now dead) and later PCI, and above all: an implied compatibility with the IBM world of computing. IBM’s blessing along with other “standards” (i.e. product intangibles) combined to reduce the perceived risk of buying a PC. This is what must happen for solar to be accepted and adopted by mainstream homeowners. And fortunately there are a few small areas across the country where this approach is being implemented.