There are over 75M boilers installed in Western Europe today, and the annual boiler installation market accounts for around €8B. Out of all the boilers installed, around a quarter have a maintenance and/or repair contract, giving a market value of around €2B, excluding all the replacement parts and uncontracted repairs or maintenance.
Connectivity and digitalisation of boilers will transform this market and reshuffle the cards between all the players. It will take time, but signs of this transformation are already visible, with giant heating servicing companies like British Gas and Engie Home Services betting on connectivity to enable remote monitoring and diagnostics of their boilers.
In my view, these early movers will improve their commercial performance and gain valuable insights meaning that, when the cards are reshuffled, they might hold the aces. But only if they develop the right strategy for their business.
The commercial benefits are clear for these companies; they can for example:
- Increase profit by increasing operational efficiencies, for example by avoiding extra plumber trips to the homes, as some issues will be identified remotely. We estimate 15% operational savings just on this point.
- Increase their revenue per customers as over half of European home owners say they are willing to pay an additional €2/month for a remote diagnostics add-on to their service contract
- Increase their number of customers signing up to service contracts
- Increase customer satisfaction by for example providing some peace of mind, or a better convenience by avoiding a visit to the customer’s home.
- Be seen as the most innovative company in their market, which they say is always important for market leaders.
Boiler manufacturers have understood the opportunity to tap into this market, as they ultimately hold the data and diagnostic insights from their boilers. Today, the largest heating manufacturers have some sort of offering in the market. Bosch with British Gas in the UK or on its own in other countries, Ariston with its own platform offered to any servicing companies, Vaillant and Viessmann offering this service to their installers, Intergas has almost fully integrated connectivity in Feenstra’s boiler rental parc… The list goes on.
Despite these early moves, the real questions haven’t been clearly decided, and if I was in the board room of a boiler manufacturer, I would put the remote diagnostics topic on top of my agenda. My question would be “What should our boiler data strategy be going forward?”. Options include:
- Provide my data and insights to feed someone else’s diagnostics platform, as it could help my heating service clients. Ultimately these clients will be more likely to install my boilers over time. However, that means I have to share a lot of my boiler data and insights to third parties, in the days where everyone talking about the value of data.
- Keep my data and insights to myself and promote my own remote diagnostics platform to my clients. If a success, this could be an additional recurring revenue for us as I would sell it on a SaaS model. That would however mean I’m able to develop and maintain a robust digital platform, which isn’t something that was in our DNA in the past. Also, if I get it wrong, this could mean some of our historical partners – like large heating servicing companies – might decide to not sell our boilers anymore…
- A hybrid approach between the two, by opening the data to some companies but keeping it to ourselves in other situations?
The large heating servicing companies are very likely to influence the strategies chosen by boiler manufacturers, for the reasons mentioned above and, as these companies are often brand agnostic, therefore service sometimes 5 or more different boiler types. But to develop a remote diagnostics platform, all have told us it is easier to start with one boiler brand, to learn how to handle the data, how to use the insights to feed the field force operations, how to adapt the customer interactions etc. In the future, they plan to incorporate as many brands as possible, as long as boiler manufacturers agree to share their data and / or boiler insights in a standardised way accommodating the service company.
Likewise, a secondary target group for remote diagnostics will be the housing developers, the social landlords or the facilities management companies. Each would benefit from remote diagnostics over time, but none can develop their own boiler monitoring platform. They will therefore either use a brand agnostic platform, or one developed by a boiler manufacturer and which works exclusively with its boilers.
Choosing the right strategy will require some careful thinking on which client group to target and what they will be willing to buy from boiler companies. But it isn’t as simple as that of course, and there are other factors to consider:
- Growing digital capabilities is not a quick and easy investment. For example, some boilers companies have chosen to develop offices in big cities to attract talented software engineers, Viessmann in Berlin, Ariston in Milan just to name two.
- Each country also has its own distinct market conditions, with more or less fragmentation in terms of routes to market for boiler installation and services.
- And what about Honeywell (sorry: Resideo)? They were at the heart of the OpenTherm development 2 decades ago, they have a strategy and some experience of offering one single agnostic platform to the market, so they could potentially play a key role in this market. What about the newly Amazon-backed Tado who always had ambitions in boiler monitoring via its smart thermostat and some reversed engineering magic? Google-backed Nest is said to investigate the question as well. And could there be alternative innovations, such as Bcheck from Luminus, or local developments such as the one from SAV Chaudière in France, which could potentially change the game entirely?
We estimate that over 1.3M homes will be equipped with remote boiler diagnostics by 2021 and the growth is likely to continue exponentially going forward. But who is going to dominate this space in the next years as boiler manufacturers, controls companies and large heating services organisations position themselves in the battle for the remote diagnostics platform? We believe large heating service companies currently hold a position of strength, thanks to their boiler installation business, but innovation in technologies, business models and maybe even alliances (why not?) could completely change this market…