[00:00:04.360] - Jon
Welcome to Talking New Energy, a podcast from LCP Delta. The new energy experts. In the podcast, we'll be exploring how the energy transition is unfolding across Europe through conversations with guests from the leading edge of the transition.
Hello and welcome to the episode. Today I'm talking with Christian Deilmann who is co-founder and managing director of Tado. Hello Christian.
[00:00:32.170] - Christian
Hi, Jon. Good to see you again.
[00:00:34.260] - Jon
Yeah. Welcome back to the podcast. So Christian, I'm guessing that most of our listeners, but probably not all of the listeners, all of our listeners will know tado, when you started back in 2011, I think I'd be fair in saying you started as a smart thermostat company. Would that be fair?
[00:00:56.440] - Christian
Yes, it's actually true. At the very beginning we're actually calling ourselves the heating app because we were really thinking about everything is moving into the cloud and our hardware device, we just positioned it as a connectivity kit. And then at some point we realised if we name this whole thing smart thermostat and also at that time kind of the category evolved in the US and so on, we realise it gets much more emotional and it's easier to sell. So then we transition fairly soon into a smart thermostat category and company.
[00:01:38.140] - Jon
Okay, so that was eleven years ago. I don't know whether that's flown by or feels like a lifetime, Christian, but how would you describe can you give our listeners who don't know tado a quick portrait of tado today, how you describe yourself, how big you are, where you're active, for example?
[00:01:58.590] - Christian
Yeah, absolutely. And maybe to start with the importance of the heating sector. So actually about 30% of the world's energy is used for heating and cooling of buildings. So it's really a large consumer of energy. And also when you look at a building or a household in these buildings, 79% of the energy is used for heating and cooling. So this is essentially why we said, hey, we need to enter this space and that we can have a really big impact towards making our energy system more sustainable. So we started producing these smart thermostats and related software applications and apps and intelligence algorithms to essentially improve efficiency and comfort at home. And yeah, at the beginning, eleven years ago, it was a very small company, just me and my co founder, and then very soon more and more people coming to it and yeah, by now we have sold over 3 million smart thermostats all across Europe and are actually one of the market leaders in this field. And it did not stop at selling smart thermostat solutions, but we are offering actually much more than that today.
[00:03:26.590] - Jon
Okay, well, we'll get onto what else you're doing beyond smart thermostats shortly. If you go back to 2011, were you aiming for something in particular? Like if you wound forward eleven years to where you are today, was that what you were aiming for or did you go into this not quite knowing where you'd end up. Was it a bit of a, well, we'll give it a go, we'll see where it goes, or did you have a clear vision?
[00:03:53.510] - Christian
We definitely had a very clear vision, and we're still following this vision. We thought actually everything would go much faster. When I look into our plans from 2011, we would reach the level where we are today, actually much earlier than 2022.
[00:04:16.980] - Jon
Right. Why has it taken longer? And I don't mean that in a bad way, because these things often take longer. But if you look back, maybe what's been harder than you thought, or what's caused it to take longer, and what other lessons have you really learned along the way if you had to pick two or three things?
[00:04:42.880] - Christian
Yes. So when we started in 2011, we were really the pioneer in Europe of bringing heating air conditioning systems online to be able to control them via apps. So the category of smart thermostat did not exist at that point in time. What we underestimated is how hard it is to establish a new product category.
[00:05:15.990] - Jon
So you were creating the market. You're not only developing your own business, you are creating the market.
[00:05:21.000] - Christian
Exactly. So the market back then was basically zero euro, so it was not existing. And we had to really establish this market in this category. And this was a lot of work and a lot of sweat and tears went into this exercise. So I think this was really the hardest piece. And what we also learned over the time that I think this holds true for many categories, that if an adoption, let's say for a mass market solution, and we have a mass market solution, if an adoption reaches between 10% - 15%, then actually the market really accelerates. Or if I could give, let's say, some tips and tricks to other people founding companies, if you enter a market which is maybe at 10% or 15% adoption rate, this is actually the sweet spot. Of course, then it's also tough from another perspective, because then there are probably already some companies there.
[00:06:37.330] - Jon
Yeah, then it’s a market share battle.
[00:06:39.720] - Christian
As well as then you have very different challenges, but it's certainly also a challenge too, when you're the first mover and you have to develop a market.
[00:06:50.770] - Jon
Now, the tado brand, I would say, is quite well known. You've invested in the brand. Customers will know the brand. It's a B2C brand. But you've also got other channels. You've worked B2B2C. You worked with Energy Retail Partners. You're on Amazon. You work with Apple. So tell me a bit about the channels for those 3 million smart thermostats and how important developing your own brand was or is.
[00:07:26.140] - Christian
At the very beginning, in 2012, when we first started selling our products, we thought, hey, let's directly work with multiplicators, with energy companies, with installers and so on. And we quickly found out that it's even harder compared to building a category is to really make B2B companies move in a new category, in a new very sceptical and they are very slow moving. So we quickly figured out that we have to sell to customers, to consumers directly. So that was basically our first sales channel at tado, which we used and which was actually then surprisingly successful from the very start because there are people out there who want to reduce their energy expenses and who are interested in digital solutions to manage their home heating. But the B2B channel back then was not yet right.
[00:08:44.810] - Jon
So you had to take that market creation work into your own hands. And did you and your co-founder have that marketing and brand and contributor skill set yourselves? Did you learn it? Did you bring it in?
[00:09:05.740] - Christian
Actually a few months after founding the company, we brought in our third co founder, Leopold and he worked for multiple rocket internet companies before, also Groupon, so a lot of BTC companies and always acting as the marketing person. So we brought him in as our chief marketing officer. Yeah, and together with him we actually did this whole exercise of really building the category to doing direct marketing, direct sales and also following up on your earlier point, by now it actually works with a multiplicator. So working with large retail companies, working with large utility companies, where by now working with more than or twelve of the top 20 largest utility companies across Europe. And now the category is ripe and it's actually growing very significantly. Especially right now as energy prices are high. We're seeing over 150% growth year over year for us as a company.
[00:10:23.310] - Jon
Well, let's get on to the current energy crisis in a minute, but I want to just pull out, tease out one other lesson, Christian, in terms of looking back over the last eleven years, maybe a lesson advice to someone who's starting off their journey, something you look back on really proud that you overcame. What would you pull out?
[00:10:46.760] - Christian
Oh my God. Yeah. The point I mentioned, creating a category is extremely hard. So if you start as an early mover, you really need a big proportion of endurance. So you need to make you need to get ready for a marathon rather than a sprint. So I think when you enter, let's say a market where market adoption is maybe at 15%, I think then it's rather a sprint. And I think you need a lot of money from the start really sprint ahead of the competitors which are in the market. So I think this is something which I realised by now maybe other people already knew before and probably also like how fast a category develops is probably also different category by category and market by market. So it's probably not like the one size fits all answers solution here.
[00:11:57.760] - Jon
Well, in terms of that category of smart thermostat, you have added more strings to your bow, to use an English expression, over the last year. So you've now got electronic TRVs, you've got air conditioning product. You bought an energy retailer. So do you still describe yourselves or your category smart thermostats or how would you describe your category today?
[00:12:31.460] - Christian
Yeah. So I think right now, we're rather in the heating cooling management area. So together also with our energy tariffs, where we're making use of volatility of energy markets and shifting loads into times of low energy prices and so on. So we're doing this now, beside our proposition of reducing energy demand. This is rather than the energy or heating cooling management side, and then going forward, we're transitioning our customer base, but also our product proposition, into the home and building energy management space. So it's a clear journey which we're taking and which we're also still having in front of us to a large extent. And let's say we're somewhere in the middle right now.
[00:13:32.510] - Jon
Yeah, okay. So that home and building energy management. That might include optimising when an electric vehicle charges. And that's the difference. That's an add on to the heating and cooling part.
[00:13:43.110] - Christian
Yeah, exactly. And also, even today, half of our energy customers have electric vehicles at home.
[00:13:52.460] - Jon
Wow. So you've not got a representative slice of the market then you've got a significant slice.
[00:13:58.890] - Christian
And also a third have a PV system at home because we're also offering a PV feed in tariff which is right now six times more attractive than what you're being paid by the government as subsidies right now. So currently we are paying 36 cents per kilowatt hour with our PV than tariffs and the normal subsidy here in Germany is 6 cent per kilowatt hour. So it's significantly above what you're getting from the subsidies. And so, I mean, with these propositions we're really moving into more verticals in the building or in the homes in terms of energy assets. So right now, as I said earlier, we have sold over 3 million smart thermostats. So we have millions of heating systems and air conditioning systems connected to a cloud, which we are managing in real time. And now we're moving into these new verticals, these new energy assets, which we also plan to manage in terms of the shift efficiency, but also in terms of load shifting and shifting the loads into times of better prices during the day.
[00:15:25.090] - Jon
So what I think is fascinating about the energy sector at the moment is the way the lines between the different sectors are blurring so it used to be quite clear you were Smart Thermostat company. We have energy retailers who sold kilowatt hours and commodity. Now you're both you're an energy management company and an energy retailer. You're partnering with energy retailers as a B2B to C channel energy retailers. Some of them are developing their own solutions for energy management or working with other companies. So I think in many ways, everyone is focusing on a similar end point, but coming from very different starting points. So what I’d like to ask you is about your skill sets. You said in the beginning, you said there were three things that you gave, three examples of things you did apps, hardware and algorithms. Are they the critical skill sets, do you think that you're working on now and want to develop and will lead to your continued success? Are there other key skill sets or is it difficult to say because those lines are becoming so blurred between the different verticals?
[00:16:52.390] - Christian
Yes. On one hand, to be a leader in the home energy management space, I think you need a few credentials. On one hand, you need to have access to the energy assets. So you need to be able to manage the energy assets. This is one part. The second part, you need to have a very strong customer relationship. So really an interaction, like really of the billing relationship, a customer relationship, this is important. And then the third part is about having a model which really can scale. You need to get scale extremely fast. And if you have these three ingredients, extremely fast scale, strong customer interaction and access to the energy assets, then you are becoming one of the few successful home energy management companies across Europe. I think it's actually pretty much also to a certain extent, a winner takes it all game. There won't be too many of those platforms winning the total race. And so who manages those ingredients, which I just mentioned the best and the fastest will be able to achieve this position? And besides being the home energy management platform ourselves, we're also working with a bunch of other partners in different models.
[00:18:49.240] - Christian
So it's not that we are always at the front of the customer, but we're also delivering parts of our solutions to others. So we have a very modular approach and also offering. So therefore, I think we're open a little bit also to how the whole space is evolving and in the end, to achieve the energy transition in Europe, I think really partnerships and collaboration is key in multiple directions. And then I think the companies will evolve and some will come out maybe stronger and bigger and larger than others. But I think there's a space for all of them. I think the whole landscape of the competitive landscape really will evolve.
[00:19:52.690] - Jon
Yeah, it's hard to predict is on it. It's hard to predict because I think you could pick a few examples. You could pick Volkswagen with a brand, Elli, who is coming at it from the automotive OEM side with a particular skill set. You could pick an incumbent energy retailer. You could pick a company like Octopus. You could pick the loads of starting points. And the particular skill set, those credentials, those three credentials you described, people will be stronger in different areas. Of those credentials reach out the energy assets, the customer relationship and being able to scale really, really fast. Which one do you think will be your biggest challenge or which one of them keeps you awake at night most?
[00:20:43.840] - Christian
Yeah, I mentioned the three ingredients, data access, scale, customer relationship, and we have all three of them right now really mastered in the heating air conditioning space. So I think across Europe, there's no one really who mastered it better in this space, but now branching out into the new verticals like EV, charging solar PV and then also integration into the energy markets using really the volatility and so on. Those are new fields and also quite a number of new areas and challenges which we are having in front of us and getting this right at the right point in time with the right speed, et cetera, also using the capital we have as wise as possible. And this is to me also connected to the right speed, because when you're too early in the market, maybe you have spent too much energy. Which brings me back to our original story of starting tado. So I think really getting this right here in terms of the next phase, branching out into the new areas at the right point in time, at the right speed to really come out as a winner and don't get stuck somewhere in the middle, for example, because we have spent too much money too fast.
[00:22:33.870] - Christian
Yeah, I think this is really the key challenge which we have in front of us, in my point of view.
[00:22:41.400] - Jon
And at that point you mentioned integration into energy markets. I guess that's where you've grown organically. Pretty much. But is it Avatar, the energy retailer?
[00:22:51.570] - Christian
[00:22:52.300] - Jon
That's your only acquisition, I think. So. Is was very selective to bring you that energy market integration expertise?
[00:23:00.670] - Christian
Exactly, yeah. So they have been the pioneer here in the German speaking countries for time of use tariffs and they're still in Germany, basically one out of two available companies propositions. So they're really good in what they're doing. They managed to build this at a profitable level. So I think it's an amazing achievement of Simon, Peter and the team here, what they have built and now bringing those two worlds together to access to the energy markets together with the management and the automation of tado of the energy systems in the background, our combined proposition is just much stronger than our proposition or their proposition stand alone. So these synergies basically make perfect sense for the merging of the two companies or the acquisition of the company.
[00:24:10.910] - Jon
Now, I said we'll come to the energy crisis keeping an eye on the clock, we're running out of time, but very, very briefly impact of the energy crisis on your business. Now, some ways it's challenging all of us, but in other ways, I'd imagine the focus on energy management has just shot through the roof. Are you seeing a big upturn in sales and interest?
[00:24:33.330] - Christian
Yeah, exactly. So, I mean, this year, the heating season, we're up 153% compared to last heating season, so a significant uplift in sales. The market demand is even at a similar level, so it's really strong market demand and driven mainly by the high energy prices. So people are really concerned about their bill. And I mean, in most European countries, utilities are increasing the price per kilowatt hour on a fairly frequent basis, maybe at least half year basis. So people really have fears about their energy bill, so they're trying to take action as much as they can. And tado is a great solution here. I mean, we're reducing energy consumption for our customers, on average by 22%.
[00:25:38.510] - Jon
I think it's a great opportunity to help customers manage their bills and to empower them for them to be passive passengers on a journey of rising bills. Okay, let's bring out the talking new energy crystal ball. Now, I'm going to set the door to 2030. You've talked a bit, Christian, about the direction you're going in. We've talked a bit about the challenges, but let's wind forward eight years now. Give me an elevator pitch for tado in 2030.
[00:26:08.590] - Christian
Yeah, in short, I mean, we touched on it briefly already, but we want to be this digital layer, this digital glue between the different energy assets in the homes and eventually also buildings, which will be a key part of achieving the energy transition. So really bringing the demand side and the distributed solar energy production into the energy system, making them an integral part of the overall energy system and therefore really helping the energy transition to work out.
[00:26:55.540] - Jon
Coming back to what you were saying earlier, that could be through tado as a brand and having that customer relationship. It could be through partnerships with others that have the customer relationships.
[00:27:05.220] - Christian
Exactly. And probably both. Yeah.
[00:27:10.610] - Jon
Okay, Christian, it's been fascinating insight into your journey, where you're at and where you're going. I really appreciate your openness in talking about some of the challenges and lessons you've learned. So thanks very much for that.
[00:27:25.240] - Christian
Thanks for having me, Jon, today. I very much enjoyed it. It was a great conversation. Looking forward to seeing you next time.
[00:27:32.250] - Jon
Likewise, and good luck meeting the demand in the current heating season. Let's get as many, whether they are tado’s or other ways to manage energy in homes, we need as much of it as we can get. Thanks to everyone for listening. We hope you enjoyed the podcast and the conversation with Christian and look forward to welcoming you back to the next episode next week. Thanks and goodbye.
If you enjoy the podcast, then please rate it and share it with your friends and colleagues. If you're as passionate about the energy transition as we are, then you can keep in touch with us and look at our research, insights, podcast, transcripts and download reports all at www.LCPdelta.com.