Host: Reese Tisdale
Guest: Eric Bindler | Director | Bluefield Research
Category: 🚰 Utility
Podcast’s Essential Bites:
[13:26] “This shift towards cloud computing [and] Software as a Service […] has been really beneficial for water utilities, which […] generally are not historically the most tech savvy organizations in the world. […] Most water, wastewater utilities […] don't necessarily have a lot of extra room in their CAPEX budgets to afford these expensive software license purchases. And they certainly don't have the technical resources, IT or server infrastructure, but also the […] technical know-how […] maintain this really complex IT infrastructure internally.”
[13:59] “That's […] the case for most utilities around the world, but it's especially the case […] [in] the US. […] How fragmented the US market is, that's actually more common than not if you look at kind of major global water sectors. […] There's major exceptions if you think about the UK, it's highly consolidated. […] But […] [I] looked at a handful of other markets around the world for this research and […] [in] the US and Canada, […] Scandinavia, […] Germany or Brazil, as much as 85% [to] 95% of the utilities […] serve fewer than 50,000 people.”
[14:48] “So from the perspective of the vendor landscape, […] the technology companies that are serving the water industry globally, these […] newer cloud and SaaS based solutions, they really opened the door to that lower end of the market,[…] kind of the long tail of this very fragmented global utility market. They make small utilities […] actionable or addressable for the first time in a really meaningful way. […] Digital solutions […] really help them manage their assets more efficiently, help them manage their networks more efficiently, help them provide the services that they're mandated to provide more cheaply, more efficiently and just […] do business better.”
[17:43] “In the same way that cloud computing opens doors to smaller utilities, it also […] opens doors to smaller vendors, to smaller technology providers, to startups, because they also don't have as much of a responsibility of a burden to make these upfront investments […] in the IT infrastructure if they can just host their solutions, host their customers data in the cloud. So we've seen this kind of explosion of digital water startups that have been founded over the past couple of years. […] We have […] a running database of digital water solutions providers and almost 40% of all of the vendors that we've identified around the world were founded in the past decade, […] [which is] significant.”
[18:41] “[Also] you can look at the larger players, the incumbent players, […] those firms that [go] back to the 1800s that have been in the market evolving over time. They're getting in on this action as well and M&A is a really significant tool for that. So for my research in this area, I […] went back and looked through Bluefield’s M&A database [and] took a look at all of the major […] software related digital water deals that we've tracked over the past couple years. And in particular, for the past […] three to four years, just about all of the major software related acquisitions that I've seen in water and related sectors have had some sort of a significant cloud or SaaS component, either the company that was being acquired already had a strong SaaS solution, or the vendor […] acquired them with the explicit goal in mind of building them out as a potential cloud based […] offering or SaaS offering.”
[19:38] “Schneider Electric acquiring Aveva for nearly $4 billion, Koch Industries acquiring Infor for $13 billion. And then most recently, the deal that everybody's talking about these days is […] Autodesk acquiring Innovyze for $1 billion, which values that company at what we think is about 10 to 15 times annual revenues. Pretty big valuation for this water software pure play. […] Just at the same time, like a day before [the acquisition], Innovyze announced this major SaaS platform that they were launching for the water industry.”
[20:20] “The last piece that we can look at is the engagement of the cloud services providers themselves. […] It's been interesting to look at […] the major players, which would basically be Amazon Web Services, or AWS, it would be Microsoft Azure, [and] in a distant third […] Google Cloud [and] at what they're doing in the water industry, and how they're […] positioning in the water industry. And so AWS, I think, is really interesting. They launched a […] dedicated water unit last year, which […] I think it is pretty indicative of just the size of the opportunity that they see in providing these backend cloud services to water utilities, but also to water technology providers. They're partnered with an advisor, they’re partnering with Xylem [and] we haven't seen as much of a strategic commitment to water from Microsoft Azure, or from Google Cloud, but they do work with a lot of water companies. […] And so I wouldn't be surprised if we see more […] of an explicit strategic focus from those companies in the future as well, especially Microsoft. Microsoft has made a really big deal about their own kind of internal water footprint lately, from a corporate sustainability perspective. They're talking about water usage data centers. So I wouldn't be surprised to see […] them kind of target the water industry as more of a business opportunity a little bit more explicitly moving forward.”
[24:52] “Cybersecurity has been a really hot topic of conversation in the digital water space so far this year. […] I think the Oldsmar incident, in particular back in February, really kind of shook the industry just because it was targeting the treatment infrastructure more so than […] a ransomware attack on the billing infrastructure. […] There's some decent data out there on […] hacks or cyber attacks in the utility or the infrastructure sector more broadly and there has been a massive spike and attacks since the onset of COVID, just because everybody's working from home, everybody's more remote, it's harder to kind of secure an organization's data when their employees kind of floating all over all over the world, in many cases.”
[26:06] “I've seen some industry research that's been done that suggests that cybersecurity concerns really are the single biggest barrier that utilities have, or the single biggest kind of inhibitor for moving to the cloud. […] I think there's this kind of fear about losing control over your critical systems losing control over your data, if they're hosted remotely rather than sitting there securely in your own server room or your own data center. […] But if you really think about it, cloud providers like AWS, or Microsoft Azure, they've got far more financial resources, far more technical resources, far more staff to deal with cybersecurity to manage that threat. They're much more prepared for cyber attacks. […] And so, […] I think part of it is just […] a matter of some education […] about really what this technology is and how it works and what those […] cybersecurity benefits are of having trained professionals actually managing and monitoring where that data is […] hosted to protect from those cyber threats.”
Rating: 💧💧💧
🎙️ Full Episode: Apple | Spotify
🕰️ 47 min | 🗓️ 05/18/2021
✅ Time saved: 45 min
Additional Links:
AWS: Aquator Water Resources System Model
