Services via Light: The Lighting Industry and Li-Fi
It’s no secret that LEDs have revolutionized the lighting industry. In recent years, the color quality has matched industry standards and the lifetime of the devices has forced a wave of revolutionary thinking in both lighting design and value propositions. The old replacement based business model has been a difficult legacy to bare for incumbent players. Recently, Lux Magazine has shed some light surrounding some of the biggest names in the industry as they are forced to adapt or cease.
So what have they done:
- Siemens was the first major company to spin off it’s lighting division. Osram became an independent company as of 05 July 2013 with a single focus on transitioning away from from its loss-making traditional lighting products. The company is expected to cut around 4,700 employees by the end of 2014 in an attempt to save over €1 billion by 2015. The majority of these cuts are expected from maintenance facilities and production plants for traditional lighting products which continue to see a drop in market share. In Q2 of 2014 the company saw profits rise driven primarily from its LED division. However, if these profits are to continue, to company must look at its continued evolution as lighting becomes a service.
- Phillips is now scheduled to follow Siemens in spinning off its lighting division. The company which was founded on lighting is looking to `give independence’ to a loss making business unit. Similar to Siemens and Osram, Phillips is not agile enough to respond to rapid changing business models in the industry and compete with LED newcomers. However, similar to Osram, it is likely that a newly independent Phillips Lighting will find a path to profit. Dr. Olivia Qiu, who is the Chief Strategy and Innovation Officer for Philips Lighting, held various senior positions in Alcatel-Lucent such as the President of Strategic Industries Group, CEO and Board Director of Alcatel-Lucent Shanghai Bell, President of Alcatel-Lucent East Asia. Her background is an indication that Philips, much like Osram, is looking at light as a service to offer continued growth.
- General Electric is also reshuffling its operations. However, GE will not be selling or sinning off its lighting division. Instead, they are looking at the role that innovation can play in redefining their value proposition. Beth Comstock is tasked with “reinventing the light bulb“. The greater opportunity, Comstock says, lies in partnering with startups that develop LED technology for commercial and government buildings. To offer growth in the new reality of the lighting industry, lighting must become a service.
- Samsung is the latest giant that is assessing the viability of its lighting division. The company is yet to comment on the future of its LED and lighting business unit. However, the company is set to report the third consecutive quarter of losses as its mobile phone business is squeezed between the emerging Chinese competitors of Huawei and Xiaomi on the one hand and Apple on the other hand. Samsung is desperately hoping that a revamped product line will lead to radical growth in the forth quarter. Similar to the mobile phone business, the Lighting business unit is facing stiff competition from startups that are working with new service-based value propositions and emerging Chinese LED manufacturers. In addition, one of the most profitable units at Samsung has been its device solutions services. Therefore, it seems logical that the company would merge its solutions and services with its lighting division in the future if it wants to keep its lighting business.
Light as a Service
After some shake-up of the major players, it seems all but inevitable that lighting will become a service. However, what does Light as a Service (LaaS) really mean? Startups are leveraging the long lifespan of LEDs to offer “pay per Lux” financing models where CAPEX is removed and investment is recovered through a OPEX. This model creates recurring revenue for the startups, improves energy efficiency and limits liability for the end customer. However, this model has also become a template for the industry.
So what else can “service” mean for the lighting industry?
Sensors are an obvious choice. Lights are perfectly positioned to house numerous sensors and act as hubs for the connected home. Indeed, this is also a common feature of many industry offerings. So what is the next step? Are all of these “features” sufficient for the large players to be profitable? They are to an extent. However, the lighting industry is starting to innovate at the same pace as the Wireless Communications. New products are looking to controls and digitization for innovation and differentiation, resembling more and more the evolution of the wireless communications industry in the early years of this century. The access to high speed internet revolutionized the mobile industry and opened massive growth opportunities. Similarly, the lighting industry and Li-Fi are set on a collision course.
Light as a Service is the future of the lighting industry, for now. The lighting industry and Li-Fi are set for a different model: Services via Light!
Services via Light
The lighting industry can leverage Li-Fi offer high speed connectivity. This can completely revolutionize the value propositions. It will not be light as a service but rather, services via light! In our last blog, we spoke of the rise of the Internet of Things that the role that Li-Fi will play. So what does this mean for the large players?
Osram, Philips, GE and most notably Samsung are perfectly positioned to play a pivotal role in this new business model. Services already play a large part in each company structure and each one has seen the potential for growth of a services based business. Li-Fi is a catalyst of the lighting industry to transition away from hardware and into services. In our next post we will talk more about how Li-Fi creates value for these businesses in the form of Datability.