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Commoditization might not be a dirty word after all

Commoditization might not be a dirty word after all
By Dan Peifer

Lumens as a service: what a concept. Ownership is a hassle. If commercial lighting could only be leased like office printers, it would solve so many problems. The company that leases the equipment gets a predictable revenue stream with ballooning gross margins over time. The tenant gets state-of-the-art equipment without the CapEx hit or risk of a new technology. And, we as society save some energy—strand a few less polar bears. What’s not to love?

According to a recent report from the Rocky Mountain Institute, lighting service agreements (LSA) like this are not only the best path to long-term energy savings, but they will be the catalyst for a flurry of “innovation” specifically around changing the purchase paradigm in lighting. One IES Member asked this about the concept: “Is all of this—innovation or commoditization—just another step in the dumbing down of lighting?”

Good question. Couple of facts:

  • The concept of a lighting service agreement is nothing new. Any pro who understands the trajectory of LEDs and has been on the wrong side of a rate of return equation has asked: what if?
  • This LSA study originated outside of the lighting industry, written by people who couldn’t tell you what a lumen is, but who have no problem brokering them.

So, my first impressions: a) not innovation and b) almost certainly commoditization. Then, I thought about it some more.

Commoditization might not be a dirty word after allWhether we like it or not, commoditization is here to stay. Far and away the most important question anyone has about lighting is: How much does it cost? Very little opportunity cost is tolerated for quality of light, system longevity or additional features. To the average consumer, lighting is still something you simply screw in, needs to work and gets pitched in the bin after it stops. LSAs are going to perpetuate this disposable good model because swapping out lighting systems with more efficient systems is the way the leasers make their money. We keep waiting for the consumer to recognize how important lighting can be and to pay the soft costs for additional features and quality. Very few have the time or energy to care. So, LSAs, VARs, ESCOs—models that leverage the advances in LED technology from outside the industry—are now selling lighting and creating a vacuum for value add, and that is where we professionals step in. This is where, I believe, the innovation is going to happen.

It will happen on the product side. An example of a lighting product sold today by a non-lighting entity is an LED replacement tube or a utilitarian $50 troffer. The selective pressures of the competitive market are going to replace this type of a product with a better product next year. That will be replaced by an even better product the following year. Prices aren’t going to change; if anything, they will go down. The product will get better, however.

QUALITY BUNDLED IN
By leveraging advances in technology and lighting science, products and services that enhance the lighting experience will get bundled in for very little or no delta in cost. This is how the lighting industry adds value. The thing that the LSA model doesn’t recognize is that this isn’t just about saving energy. There is huge potential to cut energy, but lighting is quickly becoming more than that.

Baby Boomers are coming to retirement age. The incidence of cognitive impairment is on the rise with one-on-one caregiving a requirement. Questions about how we staff and pay for this inevitable healthcare crisis loom large. Lighting (think color tuning) can have real impact here, and the execution is all predicated on a more sophisticated, holistic understanding of lighting.

Three things are going to happen in lighting in the next several years:

  • We begin to pivot around lighting as a super component in the IoT matrix
  • We start creating lighting as a prescriptive element in personal wellness plans
  • Products that are the rare combination of performance, value, aesthetics and user-friendliness will bubble up to the top

Lighting is ubiquitous. It is distributed throughout the built environment: regular and repeatable. It is hooked into mains power. Sensor networks can easily be deployed inside each individual lighting unit. Lighting is the only component in the built environment that consistently and reliably can follow you from your home, to your work, to public spaces. Shrinking computers, distributing, locating and talking to one another is the key to the IoT. It is already set up through lighting. Smart features will be provided free of charge since we have already reconciled the cost of the units through energy savings. Networking will leverage and exist through the existing lighting network. The future of IoT and light and health require stewardship. The “dumbing up” of our commoditized product—to encompass more features and better quality—requires leadership from inside the field.

ONUS ON US
Poor lighting is hard to stomach for we professionals. This publication and this society of illuminating engineers meditate on good lighting, on well-designed spaces, on holistic implementation and thoughtful curation of a visual moment. It’s what we do. At the same time, we come face-to-face with poor lighting every day and it bothers us. Is it realistic, however, to expect the outside world to care? Sure, the concept of lumens as a service is dangerous. Whenever you start thinking about light in the abstract, you open the door to that. People have their requirements though, based almost entirely around cost.

It is up to us to figure out how to connect the dots—to bridge the gap between the sublime and the realistic, to add features for free, to assist people in their homes as their needs change—without ever asking them to care. The onus to lead lighting to this place is on us. The innovation that makes that happen sets the stage for an exciting future in our industry where commoditization and innovation live hand in hand.

Contributor(s)

Don Peifer

Don Peifer

Don Peifer is vice president of innovation at Acuity Brands... More info »