All sectors go through consolidation phases, and smart grid is going through one right now. There have been a number of acquisitions/exits over the course of 2010, but things have been particularly active the past few weeks. I’m writing about this, not just from a smart grid perspective, but from a broader vantage point. I closely follow similar developments in the telecom and communications spaces, and am also in regular contact with the financial community.

To provide some substance to this trend, here is a summary of recent acquisitions that caught my eye:

·Xanboo being acquired by AT&T (News - Alert). Their focus is home automation monitoring and M2M.

·4Home being acquired by Motorola. They spoke at our last summit, and also bring home automation technology to smart grid.

·Asais being acquired by Itron. This brings enhanced data monitoring capabilities for a major AMI vendor – much like what we saw with eMeter at our last summit.

·Opal Software being acquired by GE. They are a T&M vendor – testing and measurement, and provide similar value in terms of helping monetize smart grid data.

·Arch Rock being acquired by Cisco (News - Alert). This is wireless move, strengthening Cisco’s smart grid portfolio, especially for data backhaul, where mesh networks play a key role.

This is a fairly selective sample, but shows the classic profile of major companies making strategic acquisitions of much smaller players. The valuations of these deals have not been made public, but I suspect the cost was not that great. These are primarily software companies, and if you’re just addressing one aspect of the value chain, it’s hard to get a big payday.

Smart grid, by nature, is a capital intensive business, making it very difficult for small, software-based companies to get too far along without some major help. What I find more interesting here is the need to have these value-added capabilities. To me, this is a positive sign that the market is maturing, and that the major infrastructure vendors recognize the need to get beyond basic plumbing.

If end users were not part of the smart grid equation, these vendors would see no need to add things like test and measurement, monitoring, quality control, automation etc. Otherwise, smart grid investments would only serve the needs of utilities, with little regard for subscribers.

This is exactly what happened in telecom, and as IP made subscribers an active player in the value chain, it has become increasingly important to serve their needs. That isn’t news, but it’s important to keep in mind how the communications market has been evolving. Incumbent telcos did not innovate until they had to, and this lethargy took away their agility, which has cost them a lot of business to competition.

Utilities don’t face the same intense competition, but vendors recognize that they need to be planning ahead for where the market is going. From the above list, Cisco and AT&T certainly know what happened in telecom, and to a lesser extent, so does Motorola (News - Alert). As end users have more input around the consumption – and management - of energy, their needs will drive new revenue opportunities, regardless of how much competition is out there.

I expect smart home applications will be a big story in 2011 – both wireline and wireless – and to support this, I think we’ll see a lot more acquisitions along these lines. We’ll be featuring some of these companies at our upcoming Smart Grid Summit, and if you agree with my thinking, you’ll want to join us in Miami.