Consolidation

Posted: December 21, 2008 in General SSL Commentary
Tags: , , , , , ,

With Lighting Science Group acquiring Lamina, Philips absorbing Color Kinetics then Genlyte, and Cree absorbing LLF, on top of Acuity acquiring Io, and other similar combination over the last year, it would see that solid0state market is already trying to gel up. Are we really already at the point where its time to focus on market share over innovation? Is this technology already at the point where we know where this is all going, and its time to build the big conglomerates to satisfy the mainstream demand with already known product? I don’t think so… not even close.

I can see the warfare playing out with IP and licensing, that’s just what the electronics industry brings to the table. Although one might wonder what value the millions spent on all the IP efforts brings to the market, when the restrictions, convolutions, emotional negative reaction, and stalls in product development they cause are certainly slowing adoption in the general illumination market. Less than 9 years from now, many of the most pervasive LED patents will begin to expire. There are more than a few potential product makers waiting that out, and rightly so. The general lighting market is filled with product manufacturers without a single patent, doing just fine. This is a dynamic that is unlikely to change. The real growth and deep penetration of this technology will come when the components are widely available and unincumbered by legal wranglings, or fear of inadvertant patent violations – just like it has been with other technologies entering this marketplace.

The consolidation within the LED product market is premature and a sign that the companies doing the buying have too much capital and not enough imagination. The idea that at this very early phase of this technology, creating of new product is seen as secondary to competitive market share manipulation (which is all acquisitions are in the end), seems a little sad. At this stage in the technology we should be seeing a rapid growth in the number of players, not fewer. New ideas should be birthing new companies, with new products and concepts.  Seems that the millions being spent absorbing a company, where the legal fees exceed the R&D budgets of most conventional product manufacturers, would be better spent on fulfilling the promise that LEDs will indeed be the source of choice, by introducing more irresistible products. As it is, these acquisitions are resulting in fewere unique products, from larger entities, that are more difficult to work with.

On the other hand, this is the perfect time for anyone with truly good ideas to jump in, develop great product using what is available now. The larger the organization, the less able they will be to recognize, and focus on the niche market designs and product innovations that will change the lighting market. Big mammoth organizations look at emerging novel ideas as too small to mess with, leaving plenty of room for market entrants to get into the higher profit-per-dollar sold niche markets, with products that eventually lead to market transformations.

Don’t buy this? Take a look at history. The downlight was a small company product first. The MR16 was ignored by the large manufacturers, until small company’s picked it up and adopted it. Eliptipar enjoyed almost 20 years of isolated market leadership. The linear indirect market was created by independent companies, not the big players. The Parabolic was another small manufacturer – later absorbed into conglomerates. Track lighting, cable/trolley lighting, dimming systems, outdoor area lighting, the die cast shoe box, landscape lighting, pool lighting, in-grade uplights, indirect HID,  fiber optics, and now solid-state lighting itself. None of these came from within the conglomerates, they came from hundreds of independent companies. Some were absorbed by conglomerates, some moved on to other products, some died from market consolidation and price erosion.

The one factor that remains exciting in the lighting market, is that it is still a good place for entrepenuers, artists, creative product people, and designers of all ilks, to come and play, experiment, and invent new ways to deliver light. While the conglomerates grind away at white goods, focusing on whittling their operations to optimize profits to reduce prices to fight away for market share, and chasing th big dollars to be found in huge quantity manufacturing, there is a place for thousands of small imaginative product people to play. In fact, per dollar sold, niche market players often earn severl times what the big dogs bring home, working less hours each week, and with less worry about what the price of a sheet of 23 ga. steel is going to be next week.

Acquisitions are a fact of modern business life. There are new investors coming to lighting for the first time, who believe they can understand the nuance and subtlies of lighting by reviewing histroical sales data, and forecasting transformation rates from statistical analysis accomplished by outsiders who are weeding through the market, looking for that killer app, the formula that will put them ahead in what is being promoted as the elading edge of lighting. Meanwhile, under the visible skin, what makes the lighting market really work, is imagination. Under that veneer of practicality, ROI analysis, and NPV calculations, lumens per watt, energy demand evaluation, and DOE data sets… lies a market that has, and will always be, centered on creating attractive and interesting space. Lighting ahs become a part of this effort. That means that innovation that delivers exciting new design opportunities will win the hearts and minds, where the real control over budgets and spending is founded. Deliver something too cool to pass up, and the money has a way of finding its way out of the tightest of wallets. Deliver mundane and boring – no matter how well you rationalize the payback details) or offer a generic product with no real interest, and you had better have a low price or the wallet will remain firmly clamped shut.

While there is a large volume of business in the generic lumps of troffers, shoeboxes, downlight cans, etc… at one time, these products were the creating of a few innovative companies with new ideas, who spent their time bringing new value, new solutions, and new ideas to lighting. The solid-state market is, and will be no different. Why not spend the money for an acquisition of someone elses idea, that has a risk of resulting in a net loss, on creating new solutions in stead? Seems if there was as much time and effort spent on challenging the status quo, offering up new exciting solutions, and innovating new possibilities, there would be a lot greater gains to be had.

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