Attacking Markets: Agent Based Systems, Energy Markets, and Adica

When new ventures begin, they take one of two courses. Along one path, the venture identifies a promising market opportunity then builds a business to attack it. Along the second path, the venture tinkers with an idea then discovers a business opportunity to exploit it.

Identifying a known market opportunity then building a business to capture can produce a one-plus product or service: Our service or product does what a competitor’s does but has these value-added differentiating factors. The problem with this is that the offering is lackluster in its innovativeness. This leaves the new venture lingering, with a message falling on death ears that theirs is the best solution in its category. The market will have difficulty seeing sufficient differentiating value to warrant the switching from accepted standards to the new proposal. Examples of this would be a new venture claiming a superior CRM or Accounting software tool for small businesses in 2002 while plenty of other vendors have sizable install bases. Even though the markets for these products are growing at 20% plus CAGR, it would be difficult to enter at this stage of industry development. The positive aspect of this method is that there is plenty of IDC research to support the proposed business and prospects readily understand the basic value proposition, yet misusing stats won’t bring in cash.

Alternatively, developing a new technology and then finding a market for it often produces confused revolutions: Our service or product does what no-one else’s does but can provide the market with these values. On the positive side, the proposed revolutionary technology is usually truly unique. Few people understand the basic principals and fewer still are prepared to produce a competing product. On the negative side, businesses with revolutionary products and services have to struggle with clarifying their value proposition, their target market, and their overall strategy. The market doesn’t know how to conveniently categorize revolutionary ideas making messaging difficult.

Bruce Hamilton of Adica Consulting has taken the second approach. Adica has partnered with Argonne National Laboratories to offer the energy industry with a novel method for demand forecasting, energy system management, and environment management. Their most recent products and services are based upon Agent Based Models, an advanced computing technique in which an agent is a software representation of a decision making unit. A key feature of agent based systems is emergent behavior where the system outcome is more complicated that a simple sum of the behaviors of its components.

On the positive side of Adica’s market potential are the industry trends of energy deregulation and evolving acceptance of advanced computing techniques.

Energy is being deregulated, and not just in California or the US, but globally. And unlike California, Argentina and the United Kingdom have both successfully completed a round of deregulation that hasn’t yet left their citizens and industries with rolling blackouts. Furthermore, the new set of rules and regulations in a deregulated energy industry vary by nation, state, and region. In this re-regulatory stage of the energy industry, policy makers and utilities alike are taking strategies to support their long term political and economic welfare. This is a complex arena where multi-billion dollar decisions are being made. Governments and energy companies are willing to spend considerable sums to ensure wise decisions.

The advanced computing techniques of Agent Based Models are increasing in awareness, but still lie in the early adopter stage. Unlike many technologies, the term Agent Based Models is unlikely to become common household phrase. Rather, like Black-Scholes or multi-threading, Agent Based Models will be an enabling concept and technology imbedded within a larger value offering. This bodes well for innovative firms like Adica in that they are attacking markets with some familiarity to complex value offerings, yet causes a struggle as buyers attempt to conveniently categorize it.

Adica is working to communicate credibly its value offering, but what should its message be? For example, Adica’s products and services can be used by governments to model the effects of a new regulatory regime for energy markets or the addition of a new transmission line in a grid topology. An example study demonstrated anticipated savings of 900 Million to 1.4 Billion over 20 years by expanding the regional transmission grid between Macedonia, Bulgaria, Albania, and Greece. Yet how much should Adica charge for this type of study? What are the alternatives to determining the anticipated savings? Why is an agent based model approach the best? These are the questions governments would ask prior to purchasing Adica’s products and services. While Adica has good answers to these questions, the difficulty of using truly innovative technology is communicating these values without loosing the audience in eighteen dimensional maps or a barrage of three-letter acronyms.

Also, who should Adica foresee as its true target market? There are 189 member nations in the UN making national governments a small market to serve with a highly developed and unique tool. Energy companies, commonly referred to as utilities, offer a much larger market. Yet many utilities have yet to adopt Real Options Analysis, an advanced financial method introduced over a decade ago, based in stochastic mathematics, and with direct application to demand forecasting and capacity planning. Agent Based Models for capacity planning offer a different method to approach similar questions addressed by Real Options Analysis, yet communicating the value-add and differentiation credibly will remain a struggle for Adica over the next few years. Other proposed targets include individuals and institutions such as universities, yet each presents their own unique barriers to market development.

Given these negatives, does Adica’s approach of developing a strong tool and delivery arm prior to known market acceptance fall short of the first approach of identifying a known market then fulfilling it with service and product? Hardly. Adica hits the new venture scene with a truly innovate product and service while building a sales and marketing engine to exploit the opportunity. And regardless of which approach is taken, new ventures must cover the marketing and operational basics of strategy, then execute it with full fever of a mother bear, a ferret, and a wolf-pack all at once.

The May Report, TECH BUSINESS BRIEFS, May 31, 2002