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UtILItY WeeK | 5th - 11th December 2014 | 13 Sponsored Report: Cloud Computing CRM Utility practice. "It's more a fear than a reality, but it's something that clients do ask us, especially in countries such as the Neth- erlands and France." That said, he adds, most of the major cloud service providers have taken to open- ing European data centres, in part to get around such concerns. Salesforce, for instance, opened its first European data cen- tre in the UK in October 2014, reported to be one of three such centres planned to go live by the end of 2015. A more substantive barrier to cloud adop- tion, it seems, is that posed by the regulatory environment and specifically, pricing con- trols that are linked in part to wholly-owned assets. Assets, furthermore, that for the util- ity sector are easier than most to acquire, thanks to its relatively strong cash flows and ability to secure long-term finance at attrac- tive rates. "When utilities have data centres within their regulated asset bases, they're allowed to make a regulated return on those assets," explains Ovum's Ravens. "On the other hand, pay a monthly fee to eliminate the data cen- tre, and rent the equivalent functionality, and they can't make the same return on it. So in contrast to other industries, where there's been a move to replace capital expenditure with operating expenditure, in the util- ity sector there are pressures moving in the opposite direction." A similar view comes from David Mills, European regional vice president at Sales- force, who characterises utility spend on computing as "capex heavy; opex light". "The view seems to be that utilities prefer to invest upfront in IT assets, through capi- tal expenditure, and then depreciate those assets over time," he notes. "Likewise, they prefer to minimise operating expense on IT, with the result that cloud providers encoun- ter headwinds when arguing the benefits of cloud-based enterprise IT models, even when those cloud-based enterprise IT mod- els would operate to reduce overall enter- prise IT costs." It is not without irony, then, that some observers of the utility industry wonder if the marketing approach adopted by cloud providers needs to be tweaked to explicitly address this pricing issue. "Should cloud providers be marketing to the utilities themselves, or to their regula- tors?" asks Ovum's Ravens. "It's a very legiti- mate question." That said, First Utility's Wilkins is at pains to point out that for First Utility at least, the advantages of cloud for enterprise IT outweigh any regulatory pressure to prefer capex-based assets over opex-based assets. "It's not really a conversation that we have," he explains. "We like to keep things simple, and low-cost, and that's a model that has worked very well for us." So what could see an easing of the bar- riers to cloud adoption? Observers point to two separate developments as likely can- didates for at least opening up the debate. Both developments, intriguingly, point to cloud-based CRM as the way in which cloud applications can begin to gain a foothold in the sector. The first is intensifying competition. Quite simply, says Accenture's Kaastra, there is a direct link between the intensity of com- petition in a given market and the likelihood that utilities will see CRM as a necessary tool for helping to deal with it. "Especially in highly deregulated markets such as the UK, the Netherlands and the Nor- dic countries, utilities are seeing CRM as a strategic capability to help them understand their customers, and improve their customer engagement," he points out. "It's most noticeable in deregulated markets, where customer churn rates are the highest, but it's spreading right across the sector, irrespective of geography." The second development is the rollout of smart metering, where again the result will be to focus utilities on the need to improve their customer engagement. "Perhaps more by chance than design, the UK smart metering rollout will put a lot of pressure on utilities to better understand their customers, as well as provide them with the granular consumption data with which to do this," says Ovum's Ravens, the author of a recent report entitled Customer Analytics: The Lessons Utilities can Learn from Retail. "Historically, utilities have not had suf- ficiently rich data to replicate the customer- focused analytics used in the retail sector. CRM can provide a lot of information about customers, helping to develop different tar- iffs for different niche customer profiles." More than that, he adds, the combination of smart metering and CRM can also lead to cross-selling and upselling opportunities of add-on services, separate from the core energy product being supplied. "New products can also be targeted at different groups – for example, a high use of gas could indicate an inefficient boiler, which the utility can offer to replace, or bring under a maintenance contract," he says. Some observers, however, worry that the utility sector lacks the skills and cultural bandwidth to effectively translate these opportunities into profitable revenues. "There's no doubt that smart meter- "By design, a significant amount of our IT infrastructure is in the cloud – in fact, it's our first choice." Bill Wilkins chief information officer, First Utility Brought to you in association with "Smart metering is going to be a massive revolution – the challenge for the sector is to make sure they can deliver these new products and services" Richard Wilding, professor of supply chain strategy, Cranfield University School of Management "Especially in highly deregulated markets, utilities are seeing CRM as a strategic capability" Wytse Kaastra, managing director, Accenture CRM Utility practice